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## Foreign currency translation 

Most of the Company’s business operations occur outside the United States. The local currency of each of the Company’s subsidiary’s primary markets is considered its functional currency. All assets and liabilities are translated into U.S. dollars at exchange rates existing at the balance sheet dates, revenue and expenses are translated at weighted-average exchange rates, and stockholders’ equity is recorded at historical exchange rates. The resulting foreign currency translation adjust- ments are recorded as a separate component of stockholders’ equity in the consolidated balance sheets, and transaction gains and losses are included in other income and expense in the consolidated financial statements. 

## Fair value of financial instruments 

The carrying value of financial instruments including cash and cash equivalents, accounts receivable, accounts payable and notes payable approximate fair values. The carrying amount of long-term debt approximates fair value because the appli- cable interest rates approximate current market rates. Fair value estimates are made at a specific point in time, based on relevant market information. 

## Stock-based compensation 

The Company measures compensation expense for its stock-based employee compensation plans, which are described in Note 11 . SFAS No. 123 , “Accounting for Stock-Based Compensation” (“SFAS 123 ”), encourages, but does not require, com- panies to record compensation cost for stock-based employee compensation plans based on the fair market value of options granted. The Company has chosen to account for stock- based compensation granted to employees using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25 , “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, because the grant price equals the market price on the date of grant for options issued by the Company, no compensation expense is recognized for stock options issued to employees. However, stock-based compensation granted to non-employees, such as the Company’s independent distributors and consultants, is accounted for in accordance with SFAS 123 . On December 31 , 2002 , the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148 , “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS 148 ”), which amended SFAS 123 . SFAS 148  requires more prominent and frequent disclosures about the effects of stock-based compensation. 

In December 2004 , the FASB issued SFAS No. 123 R, “Share-Based Payment,” which requires the expensing of em- ployee options as of the beginning of the first interim reporting period that begins after June 15 , 2005 . Consequently, the Company will begin expensing employee options during its third quarter of 2005  and is currently evaluating the effect of this accounting standard on its financial statements. Until that time, the Company will continue to account for its stock- based compensation granted to employees according to the provisions of APB Opinion No. 25 . Had compensation cost for the Company’s stock options granted to employees been recognized based upon the estimated fair value on the grant date under the fair value methodology prescribed by SFAS 123 , as amended by SFAS 148 , the Company’s net earnings and earn- ings per share would have been as follows (U.S. dollars in thousands, except per share amounts): 

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