• travel;  • research and development; and  • other operating expenses.  Labor expenses are the most significant portion of our general and administrative expenses. Promotion and advertising  expenses include costs of distributor conventions held in various markets worldwide, which we expense in the period in  which they are incurred. Because our various distributor conventions are not always held during each fiscal year, their  impact on our general and administrative expenses may vary from year to year. For example, we typically hold our global  distributor convention and our Japan distributor convention, our two most expensive conventions, every  18  months. There- fore, we will not incur expenses for these conventions during every fiscal year or in comparable interim periods, and year- over-year comparisons will be impacted accordingly. We held global distributor conventions in October  2002  and February  2004 , and Japan distributor conventions in February  2003  and November  2004 . We are scheduled to hold a global dis- tributor convention in October  2005 . Provision for income taxes depends on the statutory tax rates in each of the jurisdictions in which we operate. For  example, statutory tax rates in  2004  were approximately  17 . 5 % in Hong Kong,  25 % in Taiwan,  30 % in South Korea,  46 %  in Japan and  31 % in China. We are currently benefiting from a tax holiday in China, which will run through the end of  2005 . We will then be subject to a reduced tax rate of  50 % of the statutory rate for the years  2006 ,  2007  and  2008 , after  which time we will be subject to the full statutory rate. We are subject to taxation in the United States at the statutory  corporate federal tax rate of  35 %, and we pay taxes in multiple states within the United States at various tax rates.  The following critical accounting policies and estimates should be read in conjunction with our audited consolidated fi- nancial statements and related notes thereto. Management considers the most critical accounting policies to be the recogni- tion of revenue, accounting for income taxes and accounting for intangible assets. In each of these areas, management makes  estimates based on historical results, current trends and future projections.  Revenue.  We recognize revenue when products are shipped, which is when title and risk of loss pass to our independent  distributors. With some exceptions in various countries, we offer a return policy whereby distributors can return unopened  and unused product for up to  12  months subject to a  10 % restocking fee. Reported revenue is net of returns, which have  historically been less than  5 % of gross sales. A reserve for product returns is accrued based on historical experience. We clas- sify selling discounts as a reduction of revenue. Our global compensation plan for our distributors is focused on remunerating  distributors based upon the selling efforts of the distributors and their downline, and not their personal purchases.  Income Taxes.  We account for income taxes in accordance with Statements of Financial Accounting Standards (“SFAS”)  No.  109 , “Accounting for Income Taxes.” This statement establishes financial accounting and reporting standards for the  effects of income taxes that result from an enterprise’s activities during the current and preceding years. It requires an asset  and liability approach for financial accounting and reporting of income taxes. We pay income taxes in many foreign jurisdic- tions based on the profits realized in those jurisdictions, which can be significantly impacted by terms of intercompany  transactions among our affiliates around the world. Deferred tax assets and liabilities are created in this process. As of  December  31 ,  2004 , we had net deferred tax assets of $ 49 . 2  million. These net deferred tax assets assume sufficient future  earnings will exist for their realization, as well as the continued application of current tax rates. We have considered pro- jected future taxable income and ongoing tax planning strategies in determining that no valuation allowance is required.  In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future,  an adjustment to the deferred tax assets would be charged to earnings in the period such determination was made.  Our foreign taxes paid are high relative to foreign operating income and our U.S. taxes paid are low relative to U.S.  operating income due largely to the flow of funds among our subsidiaries around the world. As payments for services,  management fees, license arrangements and royalties are made from our foreign affiliates to our U.S. corporate headquarters,  these payments often incur withholding and other forms of tax that are generally creditable for U.S. tax purposes. Therefore,  these payments lead to increased foreign effective tax rates and lower U.S. effective tax rates. Variations (or shifts) occur  in our foreign and U.S. effective tax rates from year to year depending on several factors including the impact of global  transfer prices and the timing and level of remittances from foreign affiliates. We are subject to regular audits by federal, state and foreign tax authorities. These audits may result in additional tax  liabilities. We account for such contingent liabilities in accordance with SFAS No.  5 , “Accounting for Contingencies” and  believe that we have appropriately provided for income taxes for all years. Several factors drive the calculation of our tax  reserves. Some of these factors include: (i) the expiration of various statutes of limitations; (ii) changes in tax law and  regulations; (iii) issuance of tax rulings; and (iv) settlements with tax authorities. Changes in any of these factors may result  in adjustments to our reserves, which would impact our reported financial results.  Intangible Assets.  Under the provisions of SFAS No.  142,  “Goodwill and Other Intangible Assets” (“SFAS  142 ”), our  goodwill and intangible assets with indefinite useful lives are no longer amortized. Our intangible assets with definite lives  36 CRITICAL ACCOUNTING POLICIES