Foreign currency translation Fair value of financial instruments Stock-based compensation Most of the Company’s business operations occur outside the United States. The local currency of each of the Company’s  subsidiary’s primary markets is considered its functional currency. All assets and liabilities are translated into U.S. dollars  at exchange rates existing at the balance sheet dates, revenue and expenses are translated at weighted-average exchange  rates, and stockholders’ equity is recorded at historical exchange rates. The resulting foreign currency translation adjust- ments are recorded as a separate component of stockholders’ equity in the consolidated balance sheets, and transaction gains  and losses are included in other income and expense in the consolidated financial statements. The carrying value of financial instruments including cash and cash equivalents, accounts receivable, accounts payable and  notes payable approximate fair values. The carrying amount of long-term debt approximates fair value because the appli- cable interest rates approximate current market rates. Fair value estimates are made at a specific point in time, based on  relevant market information. The Company measures compensation expense for its stock-based employee compensation plans, which are described in  Note  11 . SFAS No.  123 , “Accounting for Stock-Based Compensation” (“SFAS  123 ”), encourages, but does not require, com- panies to record compensation cost for stock-based employee compensation plans based on the fair market value of options  granted. The Company has chosen to account for stock- based compensation granted to employees using the intrinsic value  method prescribed in Accounting Principles Board (“APB”) Opinion No.  25 , “Accounting for Stock Issued to Employees,”  and related interpretations. Accordingly, because the grant price equals the market price on the date of grant for options  issued by the Company, no compensation expense is recognized for stock options issued to employees. However, stock-based  compensation granted to non-employees, such as the Company’s independent distributors and consultants, is accounted for  in accordance with SFAS  123 . On December  31 ,  2002 , the Financial Accounting Standards Board (“FASB”) issued SFAS  No.  148 , “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS  148 ”), which amended SFAS  123 .  SFAS  148  requires more prominent and frequent disclosures about the effects of stock-based compensation.  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  and is currently evaluating the effect of  this accounting standard on its financial statements. Until that time, the Company will continue to account for its stock- based compensation granted to employees according to the provisions of APB Opinion No.  25 . Had compensation cost for  the Company’s stock options granted to employees been recognized based upon the estimated fair value on the grant date  under the fair value methodology prescribed by SFAS  123 , as amended by SFAS  148 , the Company’s net earnings and earn- ings per share would have been as follows (U.S. dollars in thousands, except per share amounts):  December  31 , 2002 2003 2004 Net income, as reported $  64 , 843 $  67 , 876 $  77 , 674 Deduct: Total stock-based employee compensation expense determined  under fair value based method for all awards, net of related tax effects ( 5 , 450 ) ( 5 , 274 ) ( 6 , 224 ) Pro forma net income $  59 , 393 $  62 , 602 $  71 , 450 Earnings per share: Basic—as reported $  0 . 79 $  0 . 86 $  1 . 10 Basic—pro forma 0 . 73 0 . 80 1 . 01 Diluted—as reported 0 . 78 0 . 85 1 . 07 Diluted—pro forma 0 . 71 0 . 79 0 . 98 59