Invacare 2015 Annual Report Download - page 81

INVACARE CORPORATION AND SUBSIDIAIRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
FS-9
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 $18,677,000, $23,149,000 and
$24,075,000 for 2015, 2014 and 2013, respectively.
Advertising: Advertising costs are expensed as incurred and included in selling, general and administrative expenses.
Advertising expenses amounted to $9,203,000, $13,463,000 and $15,026,000 for 2015, 2014 and 2013, respectively, the majority
of which is incurred for advertising in the United States and Europe.
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 deferred tax liability has been provided for future repatriation of
$24,100,000 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.
Value Added Taxes: The company operates internationally and is required to comply with value added tax (VAT) or goods
and service tax (GST) regulations, particularly in Europe and Asia/Pacific. VAT and GST are taxes on consumption in which the
company pays tax on its purchases of goods and services and charges customers on the sale of product. The difference between
billings to customers and payments on purchases is then remitted or received from the government as filings are due. The company
records tax assets and liabilities related to these taxes and the balances in these accounts can vary significantly from period to
period based on the timing of the underlying transactions.
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
number of Common Shares and Class B Common Shares outstanding plus the effects of dilutive stock options and awards
outstanding during the year. Diluted earnings per share can potentially be impacted by the convertible notes issued in 2007 should
the conditions be met to make the notes convertible or if average market price of company stock for the period exceeds the
conversion price of $24.79. For periods in which there was a net loss, loss per share assuming dilution utilized weighted average
shares-basic.
Defined Benefit Plans: The company’s benefit plans are accounted for in accordance with Compensation-Retirement Benefits,
ASC 715 which requires plan sponsors to recognize the funded status of their defined benefit postretirement benefit plans in the
consolidated balance sheet, measure the fair value of plan assets and benefit obligations as of the balance sheet date and to recognize
changes in that funded status in the year in which the changes occur through comprehensive income.