Black & Decker 2014 Annual Report Download - page 75

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COST OF SALES AND SELLING, GENERAL & ADMINISTRATIVE — Cost of sales includes the cost of products and
services provided reflecting costs of manufacturing and preparing the product for sale. These costs include expenses to acquire
and manufacture products to the point that they are allocable to be sold to customers and costs to perform services pertaining to
service revenues (e.g. installation of security systems, automatic doors, and security monitoring costs). Cost of sales is
primarily comprised of inbound freight, direct materials, direct labor as well as overhead which includes indirect labor and
facility and equipment costs. Cost of sales also includes quality control, procurement and material receiving costs as well as
internal transfer costs. SG&A costs include the cost of selling products as well as administrative function costs. These expenses
generally represent the cost of selling and distributing the products once they are available for sale and primarily include
salaries and commissions of the Company’s sales force, distribution costs, notably salaries and facility costs, as well as
administrative expenses for certain support functions and related overhead.
ADVERTISING COSTS — Television advertising is expensed the first time the advertisement airs, whereas other advertising
is expensed as incurred. Advertising costs are classified in SG&A and amounted to $121.5 million in 2014, $121.1 million in
2013, and $121.4 million in 2012. Expense pertaining to cooperative advertising with customers reported as a reduction of Net
sales was $206.5 million in 2014, $172.4 million in 2013, and $159.8 million in 2012. Cooperative advertising with customers
classified as SG&A expense amounted to $6.2 million in 2014, $6.0 million in 2013, and $4.4 million in 2012.
SALES TAXES — Sales and value added taxes collected from customers and remitted to governmental authorities are
excluded from Net sales reported in the Consolidated Statements of Operations.
SHIPPING AND HANDLING COSTS — The Company generally does not bill customers for freight. Shipping and handling
costs associated with inbound freight are reported in Cost of sales. Shipping costs associated with outbound freight are reported
as a reduction of Net sales and amounted to $226.2 million, $201.6 million, and $181.2 million in 2014, 2013, and 2012,
respectively. Distribution costs are classified as SG&A and amounted to $243.2 million, $229.5 million and $202.5 million in
2014, 2013 and 2012, respectively.
STOCK-BASED COMPENSATION — Compensation cost relating to stock-based compensation grants is recognized on a
straight-line basis over the vesting period, which is generally four years. The expense for stock options and restricted stock
units awarded to retirement eligible employees (those aged 55 and over, and with 10 or more years of service) is recognized on
the grant date, or (if later) by the date they become retirement-eligible.
POSTRETIREMENT DEFINED BENEFIT PLAN — The Company uses the corridor approach to determine expense
recognition for each defined benefit pension and other postretirement plan. The corridor approach defers actuarial gains and
losses resulting from variances between actual and expected results (based on economic estimates or actuarial assumptions) and
amortizes them over future periods. For pension plans, these unrecognized gains and losses are amortized when the net gains
and losses exceed 10% of the greater of the market-related value of plan assets or the projected benefit obligation at the
beginning of the year. For other postretirement benefits, amortization occurs when the net gains and losses exceed 10% of the
accumulated postretirement benefit obligation at the beginning of the year. For ongoing, active plans, the amount in excess of
the corridor is amortized on a straight-line basis over the average remaining service period for active plan participants. For
plans with primarily inactive participants, the amount in excess of the corridor is amortized on a straight-line basis over the
average remaining life expectancy of inactive plan participants.
INCOME TAXES — The Company accounts for income taxes under the asset and liability method in accordance with ASC
740, "Income Taxes" ("ASC 740"), which requires the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements. Deferred tax assets and liabilities are
determined based on the differences between the financial statements and tax basis of assets and liabilities using the enacted tax
rates in effect for the year in which the differences are expected to reverse. Any changes in tax rates on deferred tax assets and
liabilities are recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets to the extent that it is more likely than not that these assets will be realized. In
making this determination, Management considers all available positive and negative evidence, including future reversals of
existing temporary differences, estimates of future taxable income, tax-planning strategies, and the realizability of net operating
loss carry forwards. In the event that it is determined that an asset is not more likely that not to be realized, a valuation allowance
is recorded against the asset. Valuation allowances related to deferred tax assets can be impacted by changes to tax laws, changes
to statutory tax rates and future taxable income levels. In the event the Company were to determine that it would not be able to
realize all or a portion of its deferred tax assets in the future, the unrealizable amount would be charged to earnings in the period
in which that determination is made. Conversely, if the Company were to determine that it would be able to realize deferred tax
assets in the future in excess of the net carrying amounts, it would decrease the recorded valuation allowance through a favorable
adjustment to earnings in the period that the determination was made.