Invacare 2013 Annual Report Download - page 83

INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
FS-9
monitored and if a customer defaults on payments, interest income is no longer recognized. All installment accounts are accounted
for using the same methodology, regardless of duration of the installment agreements. The Company has entered into an agreement
with De Lage Landen, Inc. (“DLL”), a third party financing company, to provide the majority of future lease financing to Invacare
customers.
Research and Development: Research and development costs are expensed as incurred and included in cost of products sold.
The Company’s annual expenditures for product development and engineering were approximately $24,544,000, $24,459,000
and $27,556,000 for 2013, 2012 and 2011, respectively.
Advertising: Advertising costs are expensed as incurred and included in selling, general and administrative expenses.
Advertising expenses amounted to $17,530,000, $20,017,000 and $19,523,000 for 2013, 2012 and 2011, respectively, the majority
of which is incurred for advertising in the United States.
Stock-Based Compensation Plans: The Company accounts for share based compensation under the provisions of the
Compensation—Stock Compensation, ASC 718. The amounts of stock-based compensation expense recognized were as follows
(in thousands):
2013 2012 2011
Stock-based compensation expense recognized as part of selling, general and
administrative expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,957 $ 6,545 $ 6,640
The amounts above reflect compensation expense related to restricted stock awards and nonqualified stock options awarded
under the Invacare Corporation 2013 Equity Compensation Plan and 2003 Performance Plan. Stock-based compensation is not
allocated to the business segments, but is reported as part of All Other as shown in the Company’s Business Segment Note to the
Consolidated Financial Statements.
Income Taxes: The Company uses the liability method in measuring the provision for income taxes and recognizing deferred
tax assets and liabilities on the balance sheet. The liability method requires that deferred income taxes reflect the tax consequences
of currently enacted rates for differences between the tax and financial reporting bases of assets and liabilities. With the exception
of two subsidiaries, foreign subsidiaries with undistributed earnings are considered to have such earnings indefinitely reinvested
and, accordingly with the exception of the two subsidiaries, no provision for income taxes has been provided for $48,000,000 of
unremitted earnings of these foreign subsidiaries. The amount of the unrecognized deferred tax liability for temporary differences
related to investments in foreign subsidiaries that are permanently reinvested is not practically determinable. The Company has
recorded the deferred tax impact of the unremitted earnings of the two subsidiaries for which the earnings are not permanently
reinvested.
Derivative Instruments: Derivatives and Hedging, ASC 815, requires companies to recognize all derivative instruments in
the consolidated balance sheet as either assets or liabilities at fair value. The accounting for changes in fair value of a derivative
is dependent upon whether or not the derivative has been designated and qualifies for hedge accounting treatment and the type of
hedging relationship. For derivatives designated and qualifying as hedging instruments, the Company must designate the hedging
instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a
foreign operation.
The Company recognizes its derivative instruments as assets or liabilities in the consolidated balance sheet measured at fair
value. A majority of the Company’s derivative instruments are designated and qualify as cash flow hedges. Accordingly, the
effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and
reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain
or loss on the derivative instrument in excess of the cumulative change in the fair value of the hedged item, if any, is recognized
in current earnings during the period of change.
Foreign Currency Translation: The functional currency of the Company’s subsidiaries outside the United States is the
applicable local currency. The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at year-
end exchange rates. Revenues and expenses are translated at monthly average exchange rates. Gains and losses resulting from
translation of balance sheet items are included in accumulated other comprehensive earnings.
Net Earnings Per Share: Basic earnings per share are computed based on the weighted-average number of Common Shares
and Class B Common Shares outstanding during the year. Diluted earnings per share are computed based on the weighted-average