Financial Review 2004 Notes to  Consolidated Financial Statements reduction of income taxes. Deferred tax assets and liabilities are rec- ognized for the future tax consequences attributable to differences  between the financial statement carrying amounts of existing assets  and liabilities and their respective tax bases. Deferred tax assets and  liabilities are measured using enacted tax rates expected to apply to  taxable income in the years in which those temporary differences  are expected to be recovered or settled. The effect on deferred tax  assets and liabilities of a change in tax rates is recognized in earn- ings in the period that includes the enactment date. is measured by the amount by which the carrying amount of the  assets exceeds their fair value. Fair value is generally determined  based on appraisals or sales prices of comparable assets. Restaurant  sites and certain other assets to be disposed of are reported at the  lower of their carrying amount or fair value, less estimated costs to  sell. Restaurant sites and certain other assets to be disposed of are  included in assets held for disposal when certain criteria are met.  These criteria include the requirement that the likelihood of dispos- ing of these assets within one year is probable. Those assets whose  disposal is not probable within one year remain in land, buildings,  and equipment until their disposal is probable within one year. Income tax benefits credited to equity relate to tax benefits  associated with amounts that are deductible for income tax purposes  but do not affect earnings. These benefits are principally generated  from employee exercises of non-qualified stock options and vesting  of employee restricted stock awards. We self-insure a significant portion of expected losses under our workers’ compensation, employee medical, and general liability programs. Accrued liabilities have been recorded based on our estimates of the ultimate costs to settle incurred claims, both reported  and unreported. Revenue from restaurant sales is recognized when food and beverage  products are sold. Unearned revenues represent our liability for  gift cards and certificates that have been sold but not yet redeemed  and are recorded at their expected redemption value. When the  gift cards and certificates are redeemed, we recognize restaurant  sales and reduce unearned revenues. We account for derivative financial instruments and hedging  activities in accordance with the Financial Accounting Standards  Board’s (FASB) Statement of Financial Accounting Standards  (SFAS) No. 133, “Accounting for Derivative Instruments and  Hedging Activities” and SFAS No. 138, “Accounting for Certain  Derivative Instruments and Certain Hedging Activities – an  Amendment of FASB Statement No. 133.” SFAS No. 133 and SFAS No. 138 require that all derivative instruments be recorded  on the balance sheet at fair value. We use financial and commodi- ties derivatives to manage interest rate and commodities pricing  risks inherent in our business operations. Our use of derivative  instruments is currently limited to interest rate hedges and com- modities futures contracts. These instruments are structured as  hedges of forecasted transactions or the variability of cash flows to  be paid related to a recognized asset or liability (cash flow hedges).  No derivative instruments are entered into for trading or speculative  purposes. All derivatives are recognized on the balance sheet at fair  value. On the date the derivative contract is entered into, we document  all relationships between hedging instruments and hedged items, as  well as our risk-management objective and strategy for undertak- ing the various hedge transactions. This process includes linking  all derivatives designated as cash flow hedges to specific assets and  liabilities on the consolidated balance sheet or to specific forecasted  transactions. We also formally assess, both at the hedge’s inception  and on an ongoing basis, whether the derivatives used in hedging  transactions are highly effective in offsetting changes in cash flows  of hedged items. We provide for federal and state income taxes currently payable as  well as for those deferred because of temporary differences between  reporting income and expenses for financial statement purposes  versus tax purposes. Federal income tax credits are recorded as a  Food and beverage costs include inventory, warehousing, and related  purchasing and distribution costs. Vendor allowances received in  connection with the purchase of a vendor’s products are recognized  as a reduction of the related food and beverage costs as earned.  These allowances are recognized as earned in accordance with  the underlying agreement with the vendor and completion of the  earning process. Vendor agreements are generally for a period of  one year or less and payments received are recorded as a current  liability until earned. Darden Restaurants  39 Income Taxes Food and Beverage Costs Revenue Recognition Derivative Instruments and Hedging Activities Self-Insurance Accruals