Back to GetFilings.com

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________

FORM 10-Q

For the transition period from _________________ to _________________


Commission File No. 1-4850

Registrant's Telephone Number, Including Area Code: (310) 615-0311

          Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes [X]  No [  ]  

         172,167,828 shares of Common Stock, $1.00 par value, were outstanding on January 24, 2003.

See accompanying notes.

 COMPUTER SCIENCES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS

 See accompanying notes.

 COMPUTER SCIENCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited)

See accompanying notes.

 COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)

	Global Commercial Sector		U.S. Federal Sector		Corporate		Total
Third Quarter Ended December 27, 2002
Revenues	$2,001.5		$794.0		$(1.9)		$2,793.6
Earnings (loss) before       interest and taxes	134.6		59.9		(12.3)		182.2
Third Quarter Ended December 28, 2001
Revenues	2,165.0		728.2		.3		2,893.5
Earnings (loss) before       interest and taxes	115.4		52.0		(6.9)		160.5
	Global Commercial Sector		U.S. Federal Sector		Corporate		Total
Nine Months Ended December 27, 2002
Revenues	$5,919.1		$2,350.2		(1.9)		$8,267.4
Earnings (loss) before       interest and taxes	340.0		169.3		(20.2)		489.1
Nine Months Ended December 28, 2001
Revenues	6,303.2		2,040.6		.3		8,344.1
Earnings (loss) before       interest and taxes	289.9		133.5		(21.9)		401.5

(L)

As previously disclosed in the Company's fiscal 2002 and 2001 Annual Reports on Form 10-K, the Company recorded a special charge of $137.5 million ($91.3 million after tax) or 54 cents per share (diluted) in fiscal 2001. Due to declining global demand for commercial consulting and systems integration, healthcare software license sales, and out-of-scope outsourcing assignments, management performed a broad review of operations and developed and authorized a global restructuring plan. The plan required reductions in head count, facility consolidation, and realignment of consulting and integration practices. Included in the $137.5 special charge were employee severance costs of $67.9 million, write-offs in connection with consolidation of facilities of $29.6 million, write-off of capitalized software and computer-related assets of $22.1 million and $17.9 million related to phased-out operations and other assets.

Revenues

During the third quarter ended December 27, 2002, the Company's total revenues decreased $99.9 million, or 3.5%, over the same period last year. On a constant currency basis, total revenues decreased by 6.4%.

U.S. federal sector revenue increased 9.0% to $794.0 million during the third quarter compared to the third quarter of fiscal 2002. The civil agencies business generated substantial revenue growth from new and increased task orders and accounted for approximately 80% of the U.S. federal sector growth. Revenue gains were generated by work related to additional tasking from the Immigration and Naturalization Service, General Services Administration and the Internal Revenue Service Prime contracts. The Missile Defense Agency contract and work related to intelligence community activities continued to contribute to revenue growth. During the third quarter, the U.S. federal sector's revenue growth was adversely impacted by 3.3 percentage points from a schedule delay and a change in estimate of resources and costs necessary to complete performance on a Department of Defense contract with a consequent impact to income before taxes of $24 million. In order to minimize the effect of schedule delays on completion of certain system implementation tests, additional resources were added, resulting in the change in estimate of resources necessary.

Global commercial sector revenue declined 7.6%, or $163.5 million, from the same quarter last year. The decrease was principally driven by declines in U.S. commercial operations and other international revenue. Global commercial revenue benefited by approximately 3 percentage points due to currency fluctuations in Europe, Australia, and Asia.

U.S. commercial revenue declined 11.8%, or $130.1 million to $970.7 million during the third quarter of fiscal 2003 from the same period last year. The revenue decline principally relates to a reduction in outsourcing activities. Outsourcing revenues declined as a result of the expiration of an outsourcing contract as well as client reduction in billable volumes and discretionary projects partially offset by approximately $48 million in new outsourcing activities.

European revenue remained virtually unchanged with revenues of $760.1 million for the third quarter compared to the corresponding period last year. Approximately 15% growth in outsourcing activities were offset by revenue declines in professional services and consulting and systems integration, including the financial services vertical market. Currency fluctuations favorably impacted European revenue by approximately 9 percentage points.

Other international revenue for the third quarter was down 10.7% to $270.7 million. The decline was primarily attributable to reduced product sales and related services reflecting the continued economic downturn in the Asian market. Currency fluctuations in Australia and Asia favorably impacted other international revenue growth by approximately 4 percentage points.

For the first nine months of fiscal 2003, the Company's total revenues decreased by $76.7 million, or approximately 1%. On a constant currency basis, revenues decreased by approximately 3%. Global commercial revenue declined by $384.1 million, or 6.1%, to $5.9 billion for the first nine months of fiscal 2003. U.S. commercial revenue declined by $276.6 million, or 8.6%, and European revenue declined by $21.4 million, or 1%, for the first nine months of fiscal 2003. The U.S. commercial decline can be attributed approximately equally to revenue declines in outsourcing activities and consulting and systems integration services. European revenues declined as a result of reductions in consulting and systems integration activities partially offset by approximately $127 million in outsourcing growth. Other international operations represented the remaining decline in revenues of $86.1 million in Global commercial, and reflected a 9% decrease from the prior year's first nine months. The decrease in other international revenues is a result of reduced product sales and related services resulting from the Asian economic downturn. U.S. federal sector revenue increased by 15.2% to $2.4 billion for the first nine months of fiscal 2003. Revenue gains were generated from new and increased work related to intelligence community contracts and civil agencies as noted above.

CSC provides information technology services to J.P. Morgan Chase & Co. as a prime contractor pursuant to a 1996 agreement expiring in July 2003. During the fourth quarter of fiscal 2003, CSC and J.P. Morgan will restructure the service delivery model so that in the future, CSC will provide services to J.P. Morgan primarily as a subcontractor, and such services will be less capital intensive. Following this restructuring, total annual revenues from services provided directly or indirectly to J.P. Morgan are expected to be approximately 40% of the annual revenue CSC currently realizes under the 1996 agreement, excluding variable project work.

The Company announced new business awards of $3.9 billion for the first nine months, including $1.5 billion related to new U.S. federal contract awards and $2.4 billion related to Global commercial activities. The comparable new awards for the first nine months of fiscal 2002 were $10.2 billion. The Company has created a broad, long-term global revenue base across numerous customers, industries, geographic regions and service offerings.

During the third quarter of fiscal 2003, the Securities and Exchange Commission Staff indicated the guidance in Emerging Issues Task Force (EITF) Issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)" should be applied broadly to all forms of consideration provided by a vendor to its customer, and all arrangements in which an entity pays cash or other forms of consideration to its customers. Accordingly, such consideration is now accounted for as a reduction of revenue. The Company acquires information technology assets from outsourcing clients at negotiated prices and subsequently records the assets at their fair values. Any excess paid over the fair value amounts (the premium) is included in outsourcing contract costs and amortized over the contract life. In accordance with EITF Issue No. 01-09, amortization of premiums has been reclassified from costs and expenses to a reduction of revenue beginning in the third qu arter of fiscal 2003. Prior period amounts have been classified to conform to current year presentation. The amounts were $11.8 million and $7.4 million for the third quarter of fiscal 2003 and 2002, respectively. The amounts for the nine months ended December 27, 2002 and December 28, 2001 were $35.2 million and $35.7 million, respectively. These amounts reduced revenues and total costs and expenses by less than 1%, with no impact on income.

Costs and Expenses

The Company's costs and expenses as a percentage of revenue are as follows (dollars in millions):

Total costs and expenses decreased as a percentage of revenue compared to fiscal 2002 for both the third quarter and the first nine months of fiscal 2003. Approximately .7 percentage points of the decrease from last year's comparable quarter and first nine months relates to the change in accounting for goodwill amortization as described below.

Comparing the third quarter of fiscal 2003 to fiscal 2002, costs of services decreased as a percentage of revenue. U.S outsourcing and consulting and systems integration services contributed approximately 2 percentage points of costs of services improvement through cost containment. Approximately 1 percentage point or $30 million of improvement relates to a reduction in costs of service estimates and related current liabilities for a U.S. federal sector contract. This decrease, and its consequent favorable impact on income before taxes, is the result of a decline in selected service and units required by the contract as a result of the completion of a computer systems inventory. This improvement is not expected to benefit future performance. The favorable performance improvements were offset by approximately 1.5 percentage points related to European and other operations, and by approximately 1 percent or $24 million related to the revenue reduction of the Department of Defense contract not ed above.

During the third quarter of fiscal 2003, Enron Energy Services Inc. (EES), a subsidiary of Enron Corporation, notified the Company of EES' intention to terminate consulting and outsourcing services. As a result of the indicated intention to terminate, the Company incurred net expenses of $13.1 million related to outsourcing contract costs and other items associated with the EES contract, with such expenses included in the U.S. outsourcing discussion above. The Company is reviewing redeployment of the remaining EES contract computing and billing assets, with an aggregate net book value of $13.4 million, upon actual termination of the contract.

During the third quarter of fiscal 2003, the Company reclassified the provision for doubtful accounts from costs of services to selling, general and administrative. Prior period amounts have been adjusted to conform to current year presentation. For the first nine months of fiscal 2003 and 2002, the amounts were $7.4 million and $16.2 million, respectively. The change in presentation had no impact on revenues or income. For the third quarter of fiscal 2003, selling, general and administrative expense as a percentage of revenue decreased by .4 percentage points. The improvement can be principally attributed to the enhanced performance in the provision for doubtful accounts. The third quarter of fiscal 2002 included increased provision related to certain companies where the company provided consulting and systems integration and professional services. Excluding the effect of the provision, selling, general and administrative expense declined approximately $3.3 million.

Depreciation and amortization expense as a percentage of revenue was virtually unchanged from last year's third quarter. Last year's depreciation and amortization expense included $19.5 million related to goodwill and employee workforce amortization which is no longer amortized as a result of the Company's adoption of Statement of Financial Accounting Standards ("SFAS") No. 142 on March 30, 2002. Excluding goodwill and employee workforce acquired amortization, the depreciation and amortization expense as a percentage of revenue for the third quarter of fiscal 2002 was 6.4% compared with the 7.0% for the third quarter of fiscal 2003. The increase in depreciation expense as a percentage of revenues principally relates to a decline in revenue base combined with an increase in depreciation expense associated with occupying new facilities. The new facilities were exchanged for property utilized under operating leases.

Total costs and expenses for the first nine months of fiscal 2003 decreased as a percentage of revenue compared to the same period last year. Performance improvement in costs of services of approximately $65 million in the U.S. commercial operations and U.S. federal sector was partially offset by higher cost as a percentage of revenue in European operations which had a negative $16 million performance impact. Within

U.S. commercial, improvement was provided by greater utilization in consulting operations and improved performance in outsourcing operations. The unfavorable impact of European operations was primarily due to lower utilization as a result of reduced demand for project-oriented work in the European market. Other cost categories remained virtually unchanged from last year.

Interest Expense

The net interest expense decrease of $.3 million in the third quarter of fiscal 2003 compared to the same period last year resulted from a reduction in average outstanding debt, which decreased interest expense by $2.3 million. The reduction in interest expense was partially offset by a $2.0 million decrease in interest income. Net interest expense decreased $7.7 million for the first nine months of fiscal 2003 compared to the same period in fiscal 2002. The decrease resulted from a reduction in average outstanding debt, which was partially offset by $4.0 million decrease in interest income.

Income Before Taxes

Income before taxes increased to $147.6 million compared with $125.6 million reported for last year's third quarter. The resulting pre-tax margin was 5.3% compared with 4.3% for last year's third quarter and was 4.7% versus 3.5% for the first nine months of fiscal 2003 and fiscal 2002, respectively.

Net Income

Net income was $105.7 million for the third quarter of fiscal 2003, up from $87.1 million for the corresponding period last year. Excluding the amortization of goodwill and employee workforce acquired, net income for last year's third quarter was $105.8 million. As a result of the elimination of goodwill amortization, the tax provision for the first nine months of fiscal 2003 resulted in a 2.2% reduction in the Company's effective tax rate. However, excluding the impact of the amortization of goodwill and employee workforce acquired on the tax rate, the effective tax rate for the first nine months of fiscal 2003 is approximately 3 percentage points higher than the comparable rate for the same period last year due to the reduced relative impact of favorable permanent tax differences.

Cash Flows

Cash provided by operating activities was $472.2 million for the nine months ended December 27, 2002, compared with $543.2 million during the same period last year. The decrease of $71.0 million primarily resulted from unfavorable changes in working capital partially offset by an increase in net income.

The Company's cash expenditures for investing activities totaled $491.0 million for the most recent nine months versus $761.9 million during the same period last year. The decrease of $270.9 million results from the $73.6 million disposition of assets associated with the expiration of an outsourcing contract, as well as reductions in the expenditures for property and equipment, acquisitions, and outsourcing contract costs.

Cash provided by financing activities was $20.2 million for the most recent nine months versus $159.6 million for the same period a year ago. The change is principally driven by higher borrowing last year and lower capital expenditure requirements during the first nine months of fiscal 2003 compared to the corresponding period in fiscal 2002.

Financial Condition

During the first nine months of fiscal 2003, the Company's capital outlays included $580.7 million of business investments in the form of fixed asset purchases, acquisitions, software and outsourcing awards. These investments were funded from operating cashflows, and to a lesser extent, dispositions and additional borrowings. The Company's debt-to-total capitalization ratio decreased from 37.8% at fiscal 2002 year-end to 35.5% at December 27, 2002. The Company's debt-to-total capitalization ratio has improved significantly compared with the December 28, 2001 ratio of 41.5%. During fiscal 2002, the Company filed a shelf registration statement covering up to $1.5 billion of debt and/or equity securities.

The Company has an option to require a subsidiary of Equifax Inc. to purchase the Company's credit reporting business as further described in Note 12 of the Company's Annual Report on Form 10-K for fiscal 2002. The exercise price of this put option is equal to the appraised value of the business.

During June 2002, Telesens KSCL AG ("Telesens") filed an application for preliminary insolvency proceedings. CSC formed a marketing relationship with Telesens, invested in equity securities, and as a result of the sale of certain assets and operations obtained rights to software licenses and receivables with future scheduled payments. During the first quarter ended June 28, 2002, the Company expensed its remaining investment in Telesens equity securities. During the first nine months of fiscal 2003, the Company provided an allowance for the outstanding receivables. The remaining balances reflect management's current judgement of net realizable value.

During fiscal 1999, the Company entered into a five-year global technology contract with Budget Group, Inc. ("Budget") to provide outsourcing and business transformation services. On July 29, 2002, Budget filed a voluntary petition for Chapter 11 reorganization with the U.S. Bankruptcy Court. The Company continues to provide services under this contract and is being paid for them currently. In connection with the contract, the Company has an investment in equipment and software and has incurred outsourcing contract costs.

It is management's opinion that the Company will be able to meet its liquidity and cash needs for the foreseeable future through a combination of cash flows from operating activities, cash balances, unused borrowing capacity and other financing activities, including the issuance of debt and/or equity securities, and/or the exercise of the put option described above.

The Company's sources of liquidity include the issuance of commercial paper and short-term borrowings. If the Company was unable to sell commercial paper or if the Company determined it was too costly to do so, the Company has the ability to borrow under two syndicated backstop credit facilities.

At December 27, 2002, the Company's syndicated credit facilities were comprised of a $321.0 million facility which expires on August 18, 2005 and a $350.0 million facility which expires on August 15, 2003. As of December 27, 2002, the Company had no borrowings under these facilities and is in compliance with all terms of the agreements.

At December 27, 2002, the Company had $208.9 million of short-term debt and current maturities of long-term debt and $2.0 billion of long-term debt, including $321.0 million of commercial paper borrowings. As further described in Note 6 of the Company's Annual Report on Form 10-K for fiscal 2002, the classification of the Company's outstanding commercial paper is determined by the expiration dates of its backstop credit facilities.

On December 13, 2002, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with DynCorp, a provider of systems, services, outsourcing and e-business solutions primarily to the U.S. Government. The Merger Agreement provides for the merger of a wholly owned subsidiary of the Company with and into DynCorp (the "Merger"). Upon consummation of the Merger (i) DynCorp will become a wholly-owned subsidiary of CSC and (ii) each outstanding share of common stock of DynCorp will be converted into, subject to adjustment as provided in the Merger Agreement, $15 cash and shares of CSC common stock having a market value of $43. Consummation of the Merger is subjected to customary conditions, including antitrust regulatory clearances and approval by the shareholders of DynCorp.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that goodwill no longer be amortized when the new standard is adopted. The new standard also requires an initial goodwill impairment assessment in the year of adoption and annual impairment tests thereafter. The Company adopted SFAS No. 142 on March 30, 2002.

The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired, and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test shall be performed to measure the amount of the impairment loss, if any. During the second quarter ended September 27, 2002, the Company completed the initial goodwill assessment and the annual goodwill impairment test. No impairment losses were identified as a result of these tests.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses existing accounting impairment rules and broadens the presentation of discontinued operations to include more disposal transactions. The Company adopted this statement on March 30, 2002. Adoption of this statement did not have a significant effect on the Company's consolidated financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 clarifies guidance related to the classification of gains and losses from extinguishment of debt and resolves inconsistencies related to the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications. The provision of SFAS No. 145 related to the extinguishment of debt will be effective for the Company on March 29, 2003. The provision of SFAS No. 145 related to the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications was effective for all transactions occurring after May 15, 2002. Adoption of this statement is not expected to have a significant effect on the Company's consolidated financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities." SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 replaces previous accounting guidance provided by the Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" and will be effective for the Company for exit or disposal activities initiated after December 31, 2002. The adoption of this statement could impact the accounting for future exit or disposal activities.

In November 2002, the EITF reached a consensus on Issue 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue 00-21 provides guidance and criteria for determining when a multiple deliverable arrangement contains more than one unit of accounting. The guidance also addresses methods of measuring and allocating arrangement consideration to separate units of accounting. The guidance will be effective for revenue arrangements entered into in interim periods beginning after June 15, 2003 and cumulative-effect adjustment may be elected. The Company is currently evaluating EITF Issue No. 00-21 and has not determined the impact this statement will have on its consolidated financial position or results of operations.

In November 2002, the FASB issued Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others." The interpretation requires disclosure about the nature and terms of obligations under certain guarantees that the Company has issued. The interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing a guarantee. The initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements in this interpretation are effective immediately. The Company is currently evaluating FIN 45 and has not determined the impact this statement will have on its consolidated financial position or results of operations.

In November 2002, the FASB issued Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities." The interpretation clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements", to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. This interpretation applies immediately to variable interest entities created after January 31, 2003 and variable interest entities in which the Company obtains an interest after January 31, 2003. For variable interest entities in which a company obtained an interest before February 1, 2003, the interpretation applies to the interim period beginning after June 15, 2003. The Company has not determined the impact of FIN 46 on its consolidated financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -Transition and Disclosure - an amendment of FASB Statement No. 123." SFAS No. 148 amends FASB Statement No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The statement will be effective for the Company's fiscal year 2004.

Forward-Looking Statements

All statements and assumptions in this Form 10-Q and in the documents attached or incorporated by reference that do not directly and exclusively relate to historical facts constitute "forward-looking statements" within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements represent current expectations and beliefs of CSC, and no assurance can be given that the results described in such statements will be achieved.

Forward-looking information contained in these statements include, among other things, statements as to the impact of the proposed merger with DynCorp and other statements with respect to CSC's financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities, plans and objectives of management, and other matters. Such statements are subject to numerous assumptions, risks, uncertainties and other factors, many of which are outside of CSC's control, that could cause actual results to differ materially from the results described in such statements.

These factors include, without limitation, the following: (i) changes in the global commercial demand for information technology outsourcing, business process outsourcing and consulting and systems integration services; (ii) changes in U.S. federal government spending levels for information technology services; (iii) competitive pressures; (iv) the credit worthiness of the Company's commercial customers; (v) the Company's ability to recover its accounts receivable; (vi) the Company's ability to recover its capital investment in outsourcing contracts; (vii) the Company's ability to continue to develop and expand its service offerings to address emerging business demands and technological trends; (viii) the future profitability of the Company's long-term contracts with customers; (ix) the future profitability of the Company's fixed-price contracts; (x) the Company's ability to consummate and integrate acquisitions and form alliances; (xi) the Company's ability to attract and retain qualified personnel; and (xii) general economic conditions and fluctuations in currency exchange rates in countries in which the Company does business.

These factors also include the following risks specifically related to the proposed merger with DynCorp: (i) the failure of the DynCorp stockholders to approve the proposed merger; (ii) the risk that CSC and DynCorp will be unable to meet conditions imposed for, or governmental clearances required for, the proposed merger; (iii) the risk that the CSC and DynCorp businesses will not be integrated successfully; (iv) the risk that the expected benefits of the proposed merger may not be realized; (v) the risk that resales of CSC stock following the merger may cause the market price to fall; and (vi) CSC's increased indebtedness after the merger.

Forward-looking statements in this Form 10-Q speak only as of the date of this Form 10-Q, and forward-looking statements in documents attached or incorporated by reference speak only as to the date of those documents. CSC does not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, except as required by law.

For a discussion of the Company's market-risk associated with interest rates and foreign currencies as of March 29, 2002, see "Quantitative and Qualitative Disclosures about Market Risk" in Part II, Item 7A, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of the Company's Annual Report on Form 10-K for the fiscal year then ended. For the nine months ended December 27, 2002, there has been no significant change in related market risk factors.

"Disclosure controls and procedures" are the controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. "Disclosure controls and procedures" include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in its Exchange Act reports is accumulated and communicated to the issuer's management, including its principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

The Company's Chief Executive Officer and Chief Financial Officer have evaluated the Company's disclosure controls and procedures within 90 days of the filing date of this Quarterly Report and, based upon this evaluation, have concluded that they are effective in all material respects. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

"Internal controls" are the internal accounting controls designed to provide reasonable assurances that:

1. transactions are executed in accordance with management's general or specific authorization;
2. transactions are recorded as necessary (a) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (b) to maintain accountability for assets;
3. access to assets is permitted only in accordance with management's general or specific authorization; and
4. the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, and no corrective actions with regard to significant deficiencies or material weaknesses.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.