Reporting comprehensive income Accounting for derivative instruments and hedging activities New pronouncements 3 . RELATED PARTY TRANSACTIONS 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.  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.  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. 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.  60