A rollforward of the warranty reserve is as follows: (I) OTHER COMPREHENSIVE INCOME The following table summa- rizes the components of accumulated other comprehensive loss as reported in the consolidated balance sheets: (N) RESEARCH AND DEVELOPMENT COSTS Research and  development costs, included in cost of sales in the consolidated statements of earnings, are charged to expense when incurred. These costs were $2,537,000, $2,390,000 and $2,624,000 in fiscal 2004, 2003 and 2002, respectively. (J) FAIR VALUE OF FINANCIAL INSTRUMENTS  Due to their short- term nature, the carrying value of the company’s cash and cash equivalents and receivables approximate fair value. The value of long-term debt, which is disclosed in Note 5, approximates fair value. The company’s derivative instruments are based on market prices when available or are derived from financial valuation methodologies. (O) STOCK BASED COMPENSATION The company maintains  various stock based employee compensation plans, which are more fully described in Note 6. The company has issued restricted stock grants and stock options under these plans to certain key employees and members of its Board of Directors. As permitted under SFAS No 123: “ Accounting for Stock Based Compensation”, the company has elected to follow APB Opinion No. 25: “Accounting for Stock Issued to Employees” in accounting for stock-based awards to employees and directors. (K) FOREIGN CURRENCY  Foreign currency transactions are accounted for in accordance with SFAS No. 52 “Foreign Currency Translation.” Assets and liabilities of the company’s foreign opera- tions are translated at exchange rates at the balance sheet date. These translation adjustments are not included in determining net income for the period but are disclosed and accumulated in a separate component of stockholders’ equity. Exchange gains and losses on foreign currency transactions are included in determining net income for the period in which they occur. These exchanges losses amounted to $0.6 million in fiscal 2004 and 2003. In accordance with APB No. 25, the company establishes the value of restricted stock grants based upon the market value of the stock at the time of issuance. The value of the restricted stock grant is reflected as a separate component reducing shareholders’ equity with an offsetting increase to Paid-in Capital. The value  of the stock grant is amortized and recorded as compensation expense over the applicable vesting period. In December 2004, the company issued restricted stock grants amounting to $4.8 million, of which $0.1 million had been recorded as compensation expense. The company had no issuances of restricted stock  grants in prior years. (L) REVENUE RECOGNITION  The company recognizes revenue  on the sale of its products when risk of loss has passed to the customer, which occurs at the time of shipment, and collectibility is reasonably assured. The sale prices of the products sold are fixed and determinable at the time of shipment. Sales are reported net of sales returns, sales incentives and cash discounts based  on prior experience and other quantitative and qualitative factors. In accordance with APB No. 25, the company has not recorded compensation expense related to issued stock options in the  financial statements for all periods presented because the exercise price of the stock options is equal to or greater than the market price of the underlying stock on the date of grant. Pro forma information regarding net earnings and earnings per share is required by SFAS No. 123. This information is required to be determined as if the company had accounted for its employee  and director stock options granted subsequent to December 31, 1994 under the fair value method of that statement. The weighted average estimated fair value of stock options granted in fiscal 2003 was $8.35 per share and in fiscal 2002 was $4.30 per share. There were no options issued in 2004. The fair value of options has been estimated at the date of grant using a Black-Scholes option pricing model with the following general assumptions: (M) WARRANTY COSTS  In the normal course of business the company issues product warranties for specific product lines  and provides for the estimated future warranty cost in the period in which the sale is recorded. The estimate of warranty cost is  based on contract terms and historical warranty loss experience that is periodically adjusted for recent actual experience. Because warranty estimates are forecasts that are based on the best available information, claims costs may differ from amounts provided. Adjustments to initial obligations for warranties are made as changes in the obligations become reasonably estimable. 24 MIDDLEBY CORPORATION AND SUBSIDIARIES (dollars in thousands) 2004 2003 Beginning balance $ 11,563 $ 10,447 Warranty expense 8,417 9,743 Warranty claims (9,417) (8,627) Ending balance $ 10,563 $ 11,563 (dollars in thousands) 2004 2003 Minimum pension liability $ (1,004) $ (2,081) Unrealized gain (loss) on interest rate swap 38 (163) Currency translation adjustments 609 (65) $ (357) $ (2,309)