of those stock options, in the Company’s opinion, exist- ing valuations models, including Black-Scholes, are not  reliable single measures and may misstate the fair value  of the Company’s stock options. Because Company stock  options do not trade on a secondary exchange, recipients can receive no value nor derive any benefit from holding stock options under these plans without an increase,  above the grant price, in the market price of the  Company’s stock. Such an increase in stock price would  benefit all stockholders commensurately. Derivative financial instrument – The Company used an  interest rate swap agreement to hedge its exposure to  variability in expected future cash flows resulting from  interest rate risk related to a portion of its long-term debt. The interest rate swap agreement applied to 25% of the Company’s long-term debt and expired November 30, 2004. Market value of the swap as of December 31, 2003 and 2004 is included in  “Accumulated Other Comprehensive Loss” . The swap contract is inversely correlated to the  related hedged long-term debt and is therefore considered an effective cash flow hedge of the underlying long-term  debt. The level of effectiveness of the hedge is measured by the changes in the market value of the hedged long- term debt resulting from fluctuation in interest rates. As  a matter of policy, the Company does not enter into derivative transactions for trading or speculative purposes. Functional currencies and foreign currency translation – Through its subsidiaries, the Company maintains opera- tions in Taiwan, Hong Kong and China. The Company  believes the New Taiwan (“NT”) dollar as the functional  currency at Diodes-Taiwan most appropriately reflects  the current economic facts and circumstances of the  operations. The Company continues to use the U.S. dol- lar as the functional currency in Diodes-China, Diodes- Shanghai and Diodes-Hong Kong, as substantially all  monetary transactions are made in that currency, and  other significant economic facts and circumstances cur- rently support that position. As these factors may change  in the future, the Company will periodically assess its  position with respect to the functional currency of its  foreign subsidiaries. Included in net income are foreign  currency exchange losses of approximately $82,000,  $115,000, and $424,000 for the years ended December 31, 2002, 2003 and 2004, respectively. Comprehensive income – Accounting principles gener- ally require that recognized revenue, expenses, gains  and losses be included in net income. Although certain  changes in assets and liabilities are reported as a separate  component of the equity section of the balance sheet,  such items, along with net income, are components  of comprehensive income. The components of other  comprehensive income include foreign currency transla- tion adjustments and changes in the unrealized loss on  derivative instruments from swap liability. Recently issued accounting pronouncements and proposed accounting changes – In November 2004, the  Emerging Issues Task Force (EITF) reached a consen- sus on EITF Issue No. 03-13,  Applying the Conditions  in Paragraph 42 of FASB Statement No. 144, “Accounting  for the Impairment or Disposal of Long-Lived Assets,” in  Determining Whether to Report Discontinued Operations .  The consensus provides guidance in determining: (a)  which cash flows should be taken into consideration  when assessing whether the cash flows of the disposal  component have been or will be eliminated from the  ongoing operations of the entity, (b) the types of involve- ment ongoing between the disposal component and  the entity disposing of the component that constitute  continuing involvement in the operations of the dis- posal component, and (c) the appropriate (re)assessment  period for purposes of assessing whether the criteria in  paragraph 42 have been met. The consensus was rati- fied by the FASB at their November 30, 2004 meeting  and should be applied to a component of an enterprise  that is either disposed of or classified as held for sale in  fiscal periods beginning after December 15, 2004. The  Company does not anticipate a material impact on the  financial statements from the adoption of this consensus.  35