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margins. The Company, therefore, hedges its Swiss franc purchases using a combination of forward contracts, purchased currency options and spot purchases. The Company’s hedging program has, in the recent past, been reasonably successful in stabilizing product costs and therefore gross margins despite exchange rate fluctuations. 

Operating Expenses . The Company’s operating expenses consist primarily of advertising, selling, distribution and general and administrative expenses. Annual advertising expenditures are based principally on overall strategic considerations relative to maintaining or increasing market share in markets that management considers to be crucial to the Company’s continued success as well as on general economic conditions in the various markets around the world in which the Company sells its products. 

Selling expenses consist primarily of sales commissions, sales force costs and operating costs incurred in connection with the Company’s retail business. Sales commissions vary proportionally with overall sales levels. Retail operating expenses consist primarily of salaries and store rents. 

Distribution expenses consist primarily of salaries of distribution staff, the cost of part-time help to meet seasonal needs, and shipping costs and supplies. 

General and administrative expenses consist primarily of salaries, employee benefit plan costs, office rent, management information systems costs and various other general corporate expenses. 

Operating expenses over the last three fiscal years reflect the effect of the implementation of the Company’s growth strategy. The more significant expenses associated with this strategy include advertising and marketing expenses designed to increase market share for all of the Company’s watch brands, both domestically and internationally; additions to the Company’s sales force; salaries and rents associated with additional outlet stores and the Movado Boutiques; the addition of staff to support distribution, inventory management and customer service requirements coincident with growth of the Company’s business; and general and administrative expenses, such as employee benefits and the development of the Company’s information systems infrastructure. 

## Results of Operations for the Fiscal Years Ended January 31, 2001, 2000 and 1999 

Net Sales . Comparative net sales by product class were as follows: 

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