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to a Customer or a Reseller of the Vendor’s Products.” Under this consensus, generally, cash consideration is classified as a reduction of revenue, unless specific criteria are met regarding goods or services that the vendor may receive in return for this considera- tion. Non-cash consideration is classified as a cost of sales. 

As a result of applying this consensus, the Company has reclassi- fied promotional payments to its customers and the cost of con- sumer coupons and other cash redemption offers from selling, general, and administrative expense (SGA) to net sales. The Company has reclassified the cost of promotional package inserts and other non-cash consideration from SGA to cost of goods sold. Prior-period financial statements have been reclassified to comply with this guidance. 

## Advertising 

The costs of advertising are generally expensed as incurred and are classified within SGA. 

## Stock compensation 

The Company currently uses the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees,” to account for its employee stock op- tions and other stock-based compensation. Under this method, because the exercise price of the Company’s employee stock op- tions equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized. The table below presents pro forma results for the current and prior years, as if the Company had used the alternate fair value method of ac- counting for stock-based compensation, prescribed by SFAS No. 123 “Accounting for Stock-Based Compensation” (as amended by SFAS No. 148). Under this pro forma method, the fair value of each option grant was estimated at the date of grant using the Black-Scholes option-pricing model and was recognized over the vesting period, generally two years. Pricing model assumptions are presented below. Refer to Note 8 for further information on the Company’s stock compensation programs. 

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Earning Our Stripes 

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## Derivatives and hedging transactions 

The Company adopted SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” on January 1, 2001. This statement requires all derivative instruments to be recorded on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. Upon adoption, the Company reported a charge to earnings of $1.0 million (net of tax benefit of $.6 million) and a charge to other comprehensive in- come of $14.9 million (net of tax benefit of $8.6 million) in order to recognize the fair value of derivative instruments as either as- sets or liabilities on the balance sheet. The charge to earnings re- lates to the component of the derivative instruments’ net loss that has been excluded from the assessment of hedge effectiveness. Refer to Note 12 for further information. 

During April 2003, the FASB issued SFAS No. 149 “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies financial accounting and re- porting guidance for derivative instruments and hedging activities, resulting primarily from decisions reached by the FASB Derivatives Implementation Group subsequent to the original issuance of SFAS No. 133. This Statement is generally effective prospectively for contracts and hedging relationships entered into after June 30, 2003. The adoption of SFAS No. 149 has had minimal impact on the Company, except that cash flows associated with certain deriv- atives are now being classified in the financing rather than the op- erating section of the cash flow statement. Such derivatives are generally limited to net investment hedges and those used by the Company to reduce volatility in the translation of foreign currency earnings to U.S. Dollars. The impact of this classification change during 2003 was insignificant. 

## Recently adopted pronouncements 

## Exit activities 

The Company has adopted SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities,” with respect to exit or disposal activities initiated after December 31, 2002. This state- ment is intended to achieve consistency in timing of recognition between exit costs, such as one-time employee separation benefits and contract termination payments, and all other costs. Under pre- existing literature, certain costs associated with exit activities were recognized when management committed to a plan. Under SFAS 

