## Reporting comprehensive income 

Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, and it includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. 

## Accounting for derivative instruments and hedging activities 

The Company recognizes all derivatives as either assets or liabilities, with the instruments measured at fair value as required by SFAS No. 133 , “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133 ”). 

The Company’s Subsidiaries enter into significant transactions with each other and third parties that may not be de- nominated in the respective Subsidiaries’ functional currencies. The Company regularly monitors its foreign currency risks and seeks to reduce its exposure to fluctuations in foreign exchange rates through the use of foreign currency exchange contracts and through certain intercompany loans of foreign currency. 

The Company hedges its exposure to future cash flows from forecasted transactions over a maximum period of 12 months. Hedge effectiveness is assessed at inception and throughout the life of the hedge to ensure the hedge qualifies for hedge accounting treatment. Changes in fair value associated with hedge ineffectiveness, if any, are recorded in the results of operations currently. In the event that an anticipated transaction is no longer likely to occur, the Company recognizes the change in fair value of the derivative in its results of operations currently. 

Changes in the fair value of derivatives are recorded in current earnings or accumulated other comprehensive loss, depending on the intended use of the derivative and its resulting designation. The gains and losses in accumulated other comprehensive loss stemming from these derivatives will be reclassified into earnings in the period during which the hedged forecasted transaction affects earnings. The fair value of the receivable and payable amounts related to these unrealized gains and losses is classified as other current assets and liabilities. The Company does not use such derivative financial instruments for trading or speculative purposes. Gains and losses on certain intercompany loans of foreign currency are recorded as other income and expense in the consolidated statements of income. 

## New pronouncements 

During the first quarter of 2004 , the Company adopted FASB Interpretation No. 46 R, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 .” This accounting standard became effective during the first quarter of 2004 . The adoption of this accounting standard did not have a material effect on the Company’s financial statements. 

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 . Until that time, the Company will con- tinue to account for its stock-based compensation granted to employees according to the provisions of APB Opinion No. 25 . The Company is currently evaluating the effect of this accounting standard on its financial statements. 

In November 2004 , the FASB issued SFAS No. 151 , “Inventory Costs,” which requires certain inventory-related costs to be expensed as incurred. This accounting standard is effective January 1 , 2006 . The Company is currently assessing the effect of this accounting standard on its financial statements. 

## 3 . RELATED PARTY TRANSACTIONS 

The Company leases corporate office and warehouse space from two entities that are owned by certain officers and directors of the Company. Total lease payments to these two affiliated entities were $ 3 . 3  million, $ 3 . 3  million and $ 3 . 6  million for each of the years ended December 31 , 2002 , 2003  and 2004  with remaining long-term minimum lease payment obligations under these operating leases of $ 27 . 3  million and $ 23 . 5  million at December 31 , 2003  and 2004 , respectively. 

