either assets or liabilities measured at fair value. Changes in derivative fair values will either be recognized in earnings as offsets to the changes in fair value of related hedged assets, liabilities and firm commitments or, for forecasted transactions, deferred and recorded as a component of other stockholders’ equity until the hedged transactions occur and are recognized in earnings. The ineffective portion of a hedging derivative’s change in fair value will be immediately recognized in earnings. Adoption of this statement is not expected to materially impact the Company’s financial statements. 

In December 1999, the Securities and Exchange Commission “SEC”, issued Staff Accounting Bulletin No. 101 “SAB 101”, “Revenue Recognition in Financial Statements”. SAB 101 summarizes certain of the SEC’s views in applying accounting principles generally accepted in the United States to revenue recognition in financial statements. The Company adopted the guidance of this bulletin during fiscal 2001, which had no material impact on the Company’s revenue recognition policy. 

## Market Risks 

The Company’s primary market risk exposure relates to foreign currency exchange risk (see Note 6 to the Consolidated Financial Statements). The majority of the Company’s purchases are denominated in Swiss francs. The Company reduces its exposure to the Swiss franc exchange rate risk through a hedging program. Under the hedging program, the Company purchases various financial instruments, predominantly forward and option contracts. Gains and losses on financial instruments resulting from this hedging activity are offset by the effects of the currency movements on respective underlying hedged transactions. If the Company did not engage in a hedging program, any change in the Swiss franc to local currency would have an equal effect on the entities’ cost of sales. As of January 31, 2001, the Company’s hedging portfolio consisted of various dates ranging through April 30, 2003 with an average forward rate of 1.6368 Swiss francs per dollar. The Company has $20.0 million of option contracts with a maturity date of February 1, 2001 and $25 million of option contracts with a maturity date of December 11, 2001. The option contracts have an average strike price of 1.6543 Swiss francs per dollar. As of January 31, 2001, the carrying value of the options amounted to approximately $0.6 million, which represents the unamortized premium of the option and a fair market value of approximately $1.3 million. 

In addition, the Company has certain debt obligations with variable interest rates, which are based on LIBOR plus a fixed additional interest rate. The Company does not hedge these interest rate risks. The Company also has certain debt obligations with fixed interest rates. The difference between the market based interest rates at January 31, 2001 and the fixed rates was minimal. 

