Portions of the definitive proxy statement for the 2003 annual meeting of shareholders are incorporated by reference into Part III of this report.

The Company emphasizes styling, innovation, craftsmanship and quality control in the design and production of all of its products. All of the registrant's Cross branded writing instruments carry a full warranty of unlimited duration against mechanical failure. The Company's timepieces are sold with a limited ten-year warranty, and business accessories are sold with a limited one-year warranty.

The registrant's products are sold throughout the United States by manufacturer's agents or representatives to approximately 8,100 active retail and wholesale accounts. Retail accounts include: gift stores, department stores, jewelers, stationery and office supply stores, mass merchandisers, catalogue showrooms and United States military post exchanges, service centers and central buying operations. The wholesale accounts distribute the registrant's products to retail outlets that purchase in smaller quantities. The registrant's products are also sold to consumers in the United States on the Company's web site: www.cross.com. Advertising specialty representatives market the registrant's writing instruments, accessories and timepieces in the United States to business and industry. Typically, such products are engraved or carry the purchaser's name or emblem and are used for gifts, sales promotions, incentive purposes or advertising.

Sales of the registrant's products outside the United States during 2002 were made to foreign distributors and retailers worldwide by the registrant and its wholly-owned subsidiaries.

Effective 2002, the Company has one reportable business segment: Quality Writing Instruments ("QWI"). This is the result of the downsizing of the Company's Pen Computing Group ("PCG") segment in 2001. For certain financial information with respect to segments, see Note L to the registrant's consolidated financial statements in Item 8 of this Form 10-K Annual Report.

Most raw materials for the production of writing instruments are obtained domestically. Some desk set base materials, fountain pen nibs, front sections, refill parts, certain finished caps and barrels, and some lacquer coating of metal shells are imported from Germany, Switzerland and France. Complete pencil mechanisms, certain refill components, leads, resin caps and barrels, some fountain pen nibs, front sections, cap components and certain coated shells are imported from Japan.

To maintain the highest level of product quality, the Company relies on a limited number of domestic and foreign suppliers for certain raw materials and manufacturing technologies. The Company may be adversely affected in the event that these suppliers cease operations or if pricing terms become less favorable. The Company believes, but cannot be assured, that the raw materials currently supplied by these vendors could be obtained from other sources and that the manufacturing technologies could either be developed internally or that suitably similar technologies could be located.

The registrant, directly and through its subsidiaries, has certain writing instrument, timepiece, accessory and PCG trademark registrations and/or pending trademark applications in the United States and many foreign countries, including but not limited to its principal trademark "CROSS" and the frustoconical top of its writing instruments. The principal trademark "CROSS" is of fundamental importance to the business. The registrant holds certain United States and foreign writing instrument patents and/or

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has filed United States and foreign patent applications including, but not limited to, its desk set units, Cross Townsend series writing instruments, Solo and Radiance series writing instruments, Morph series writing instruments, Ion series writing instruments, Cross Matrix series writing instruments, fountain pens, mechanical pencil mechanisms and ball-point pen mechanisms. The registrant also holds certain United States patents and/or has filed United States and foreign patent applications covering certain of its timepieces and pen computing products. While the registrant pursues a practice of seeking patent protection for novel inventions or designs, the Company's business is not significantly dependent upon obtaining and maintaining patents.

Retail demand for the registrant's writing instrument products is highest prior to Christmas and other gift-giving occasions. The Company historically has generated approximately one third of its annual sales in its fiscal fourth quarter. However, seasonal fluctuations have not materially affected continuous production of writing instrument products.

Writing instrument inventory balances tend to be highest in anticipation of new product launches and before peak selling seasons. The registrant offers, and may offer in the future, extended payment terms to domestic writing instrument customers at certain points during the year, usually September through November. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Form 10-K Annual Report.

The registrant is not dependent upon any single customer for more than 10% of its consolidated revenues. The Company is dependent, however, on three large office supply accounts, Staples, Inc., OfficeMax, Inc. and Office Depot, Inc., for a significant portion of its revenue. In 2002, sales to this group were approximately 16.5% of consolidated revenues. The loss of one or more of these customers could have a material adverse effect on the Company. In response to mutual concerns regarding sales velocity in the quality writing instrument category, the Company, in conjunction with some of these trading partners, is reviewing alternative methods of going to market. The issues being addressed include more dedicated merchandising of the Company's quality writing instruments and gift products, more effective inventory management, matching inventory to peak selling seasons and more concentrated Company sponsored merchandising, particularly during peak gift-giving periods. The implementation of any or al l of these alternatives could have an effect on revenue. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Form 10-K Annual Report.

The backlog of orders is not a significant factor in the registrant's business.

Sales of the registrant's writing instrument products are made to military post exchanges and service centers, but the Company does not enter into any contracts that are subject to renegotiation or termination by the United States Government.

The writing instrument field is highly competitive, in particular with respect to product quality and brand recognition. There are numerous manufacturers of ball-point, rolling ball and fountain pens, and mechanical pencils in the United States and abroad. Many of such manufacturers produce lower priced writing instruments than those produced by the registrant. Although the registrant is a major producer of ball-point, rolling ball and fountain pens, and mechanical pencils in the $10 to $50 price range, other writing instrument companies have significantly higher sales volumes from a broader product line across a wider range of prices or have greater resources as divisions of larger corporations. The Company emphasizes styling, innovation, craftsmanship and quality control in the design and production of all of its products. All of the registrant's Cross branded writing instruments carry a full warranty of unlimited duration against mechanical failure.

The Company's potential competitors in the digital pen market have greater financial and technological resources and could offer lower priced products.

See also the "Risks and Uncertainties; Forward-Looking Statements" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Form 10-K Annual Report.

The registrant had expenditures for research and development of new products and improvement of existing products of approximately $2.2 million in 2002, $2 million in 2001 and $1.9 million in 2000. For additional discussion, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Form 10-K Annual Report.

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The registrant believes it is in substantial compliance with all Federal, state and local environmental laws and regulations. The registrant believes that future capital expenditures for environmental control facilities will not be material. See Item 3 "Legal Proceedings" and Note N to the registrant's consolidated financial statements in Item 8 of this Form 10-K Annual Report.

The registrant had approximately 860 employees at December 28, 2002, of which approximately 160 were employed by international subsidiaries or branches.

Approximately 51% of the registrant's sales in 2002 were in international markets. The registrant's primary international markets are in Europe and Asia. Sales of writing instrument products to international distributors are subject to import duties in many countries. The operations of the registrant's international subsidiaries and branches are subject to the effects of currency fluctuations, the availability of dollar exchange, exchange control and other restrictive regulations. Undistributed earnings of the foreign manufacturing and marketing subsidiaries generally are not subject to current United States Federal and state income taxes. However, repatriation to the registrant of the accumulated earnings of foreign subsidiaries would subject such earnings to United States Federal and state income taxes. See Note I and Note L to the registrant's consolidated financial statements in Item 8 of this Form 10-K Annual Report. For the effect of foreign sales on the Company's results of operat ions, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Form 10-K Annual Report.

The registrant's web site address is www.cross.com. The registrant makes available free of charge, through the Investor Relations section of this web site, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission ("SEC"). The registrant includes its web site address in this Annual Report on Form 10-K only as an inactive textual reference and does not intend it to be an active link to its web site.

The following are the executive officers of the registrant (each of whom serves until his or her successor is elected and has qualified), their respective ages as of December 28, 2002 and their principle positions:

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The registrant currently owns and occupies approximately 269,000 square feet of manufacturing, warehouse and office space in Lincoln, Rhode Island. This facility, which is well maintained and in good repair, is currently being utilized in a manufacturing, distribution and administrative capacity. The productive capacity of this facility is sufficient to meet the registrant's needs for the foreseeable future. The registrant's wholly-owned subsidiary, A. T. Cross Limited, owns an approximate 64,000 square foot facility in Ballinasloe, County Galway, Ireland. This facility, which has been well maintained and is in good repair, was closed and placed for sale as part of the Company's restructuring plan.

The registrant's operations in France, the United Kingdom, The Netherlands, Spain, Germany, Japan, Taiwan, Hong Kong, Canada, Lincoln and Miami lease administrative facilities and/or warehouse space.

On or about April 21, 2000, the Company, certain officers and directors of the Company and others were named as defendants in an action filed in the United States District Court for the District of Rhode Island. The suit, which is brought by a purchaser of the Company's Class A common stock, alleges that the defendants violated Federal securities laws by making material misstatements and omissions in the Company's public filings and statements relating to the Company's PCG business. The suit seeks class action status including all purchasers of the Company's Class A common stock between September 17, 1997 and April 22, 1999. The damages sought are unspecified.

On June 30, 2000, the Company filed a Motion to Dismiss the action in the United States District Court in Rhode Island. The United States District Court for the District of Rhode Island granted the Company's Motion to Dismiss in June 2001. In July 2001, the Plaintiff filed an appeal with the First Circuit Court of Appeals. The appeal was before the First Circuit Court of Appeals. Oral argument was held February 8, 2002.

On March 20, 2002, the Court of Appeals for the First Circuit issued a judgment affirming the dismissal of all claims asserted against the W. Russell Boss Jr. Trust A, W. Russell Boss Jr. Trust B and W. Russell Boss Jr. Trust C and reversing the District Court's dismissal of the Section 10(b) and 20(a) claims asserted against the Company and the named individual defendants. The Court of

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Appeals' ruling was limited to a finding that the plaintiff's complaint had satisfied the pleading requirements of the Private Securities Litigation Reform Act of 1995; the Court did not opine on the merits of plaintiff's claims. The Company maintains that the claims are without merit and will continue to vigorously contest the litigation.

In 2000, the Company was advised by its environmental consultant that elevated levels of certain contaminants were found in soil and groundwater at the Company's Irish facility. These conditions have been reported to the regulatory authorities in Ireland and additional investigation is ongoing. A proposed remediation program was developed and submitted to the Irish Environmental Protection Agency ("EPA") in 2001. This program was approved by the Irish EPA in the second quarter of 2002 and implementation is ongoing. Results will be subject to Irish EPA approval.

In June 2002 the United States EPA served the Company with a Notice of Potential Liability and Request for Information regarding the J.M. Mills Landfill, which is part of the Peterson/Puritan Superfund site in Cumberland, Rhode Island. The Notice also requests that the Company pay past and future costs associated with the site. To date, approximately sixty entities have received Notice Letters from the EPA relative to the site. The Company filed its response in October 2002.

The Company is also named as one of approximately sixty defendants in a contribution suit brought by CCL/Unilever relating to the J.M. Mills Landfill site. These complaints allege that the Company is liable under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") for contribution for past and future costs incurred at the site. Past and future costs, excluding the required remedy, are estimated at $3 million to $5 million. No discovery has been taken to date.

No other legal proceedings are pending by or against the Company or any of its subsidiaries, which, in management's opinion, would have a material impact on the Company's consolidated financial position or results of operations.

Not applicable.

The Company's Class A common stock is traded on the American Stock Exchange (symbol: ATX). There is no established trading market for the Company's Class B common stock. At December 28, 2002, there were approximately 1,400 shareholders of record of the Company's Class A common stock and 2 shareholders of record of the Company's Class B common stock. The weighted average numbers of shares outstanding were 15,895,312 and 16,664,375 during 2002 and 2001, respectively. High and low stock prices for the last two years were:

The Company has not paid dividends to its stockholders since 1998 and does not plan to pay cash dividends in the foreseeable future. The Company currently intends to retain earnings, if any, to finance the growth of the Company.

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Consolidated net sales were $117.3 million in fiscal 2002, a decrease of $6.2 million, or 5%, as compared to fiscal 2001. Writing instrument net sales of $117.3 million were less than the prior year by approximately $3.7 million, or 3.1%. Domestic writing instrument net sales of $57.8 million decreased $200,000, or 0.4%, and international writing instrument net sales of $59.5 million decreased $3.5 million, or 5.5%, as compared to fiscal 2001. PCG segment sales were approximately $2.5 million in fiscal 2001.

Domestic writing instrument volume was adversely affected by a slowdown in consumer holiday spending and lower sales to the office supply superstores in the fourth quarter. Unlike past years, the superstores did not aggressively promote either Cross or the fine writing category with off-shelf holiday gift displays. As a result, sales through the Company's retail division decreased 2.7% as compared to fiscal 2001. Sales of business gift products by the Company's special markets division decreased approximately 9.3%, as continued economic uncertainty had an unfavorable impact on the corporate gift market. Writing instrument OEM revenue increased $1.9 million from the prior year, as the Company added two new customers during fiscal 2002 and sharply increased sales to an existing account. OEM revenue from the sale of digital pens was $442,000 in 2002.

International writing instrument sales continue to be adversely affected by the weaker Asian economy, as sales in Asia of $16.4 million were lower by 11.6%, as compared to fiscal 2001. Sales in Japan, our largest Asian subsidiary, were down approximately 19% from the prior year, as unfavorable economic conditions resulted in significantly lower corporate gift division sales. In addition, unfavorable exchange rates, particularly the weaker weighted average yen exchange rate, adversely affected sales in Asia by approximately two percentage points. Sales in the Europe, Middle East and Africa markets ("EMEA") of $33.5 million were 3% less than 2001. An approximate 11% decline in the EMEA corporate gift business was offset by higher retail sales reflecting: the favorable effects of new product launches, new in-store merchandising and a stronger euro exchange rate, which had an approximate five percentage point favorable effect on EMEA sales. Sales in Canada were flat as compared to fiscal 2001, whereas sa les in Latin America were down 5.6% as compared to the prior year.

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Consolidated gross profit margins of 52.8% in fiscal 2002 were unchanged from fiscal 2001. Writing instrument margins in fiscal 2002 were 52.8%, or 2.3 percentage points, less than fiscal 2001. Writing instrument margins declined, in part, due to the effect of product mix. Margins in 2002 were also unfavorably affected by higher manufacturing related depreciation, health insurance and pension expense. In addition, gross margins were unfavorably affected by relatively fixed manufacturing overhead and manufacturing variances combined with the lower sales volume in 2002 as compared to 2001. PCG segment margins were negative in fiscal 2001.

Consolidated selling, general and administrative ("SG&A") expenses of approximately $52.4 million were 3.6% higher than the prior year and were 44.7% of net sales in fiscal 2002 as compared to $50.6 million, or 41%, in fiscal 2001. SG&A expenses for QWI of approximately $52.4 million were 5.8% higher than the prior year. Marketing and selling expenses increased approximately $2.4 million, or 8.1%, as compared to 2001, as the Company supported new product launches and targeted advertising and promotions. QWI general and administrative expenses increased 2.2%, due largely to increases in depreciation and pension expense during the year. In addition, the Company incurred approximately $340,000 of due diligence expenses in 2002 related to a review of a strategic acquisition target, which, at this time, the Company has decided not to pursue. Somewhat offsetting these increases, the Company reduced the allowance for doubtful accounts related to its domestic operations by approximately $435,000, as detailed analysis of aged receivables and write-off history indicated that an adjustment was required. PCG segment SG&A expenses in fiscal 2001 were approximately $1 million.

Research and development ("R&D") expenses of approximately $2.2 million were 9.5% higher than last year. QWI research and development expenditures of approximately $2.2 million were 27.1% higher than fiscal 2001, due to the inclusion of approximately $437,000 of development efforts of digital pen products. PCG segment R&D expenses were approximately $276,000 in fiscal 2001.

Service and distribution ("S&D") expenses of $1.5 million were 61.4% less than fiscal 2001. An approximate $2.2 million pre-tax adjustment was recorded as a reduction to accrued warranty costs in the fourth quarter of fiscal 2002. This adjustment was required, due to a change in estimate to reflect significantly lower cost trends, measured over a period of years, among several factors that impact the Company's cost to service the warranty. The most significant factors include: the operating efficiency and related cost of the service department, writing instrument unit sales, the number of units that are eventually returned for warranty repair and, more recently, a five dollar shipping and handling fee that was established in 2000 for all warranty claims. This fee had the twofold impact of reducing service department costs and contributing to the recent trend of fewer units being returned for warranty repair.

In the fourth quarter of fiscal 2002, the environmental remediation reserve, established in fiscal 2000 for the Company's property in Ireland, was reduced by approximately $179,000 based upon updated remediation cost estimates provided by the Company's environmental consultant. In the fourth quarter of fiscal 2001, approximately $412,000 of the environmental remediation reserve was reversed based upon remediation cost estimates provided by the Company's environmental consultant. The accrued liability for remediation in Ireland was approximately $464,000 at December 28, 2002.

There was no restructuring and loss on impairment of assets charge in fiscal 2002 as compared to $857,000 in fiscal 2001. For further discussion of the 2001 charge, see the "Comparison of Fiscal 2001 with Fiscal 2000" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Form 10-K Annual Report.

Interest and other income (expense) for fiscal 2002 was income of $734,000 as compared to an expense of $5.7 million in fiscal 2001. The expense in 2001 was almost entirely due to activities relating to the Company's investments in internet companies. In fiscal 2001, the Company recorded losses of approximately $6.3 million, due to other than temporary declines in value of its DigitalConvergence.:Com Inc. ("DCCI") investment and NeoMedia Technologies, Inc. ("NeoMedia") marketable securities. Interest income in fiscal 2002 of approximately $305,000 was 35% lower than interest income in 2001, as interest rates were lower than the prior year.

In fiscal 2002, the Company recorded an income tax provision of $1.8 million on approximately $6.7 million of income from continuing operations. The effective tax rate was 26.5% as compared to 63.7% in fiscal 2001. This decrease in tax rate was primarily due to greater than expected benefits from operating loss carryforwards as well as the effect of foreign tax credits and export sales in 2002. In addition, 2001 losses on internet investments, which utilized offshore funds, unfavorably impacted the 2001 tax rate. For an analysis of income taxes from continuing operations, see Note I to the Company's consolidated financial statements in Item 8 of this Form 10-K Annual Report.

As a result of the foregoing, the consolidated net income in fiscal 2002 was $4.9 million ($0.31 earnings per share, basic and diluted) as compared to the fiscal 2001 net income of $980,000 ($0.06 earnings per share, basic and diluted). Income from continuing operations in fiscal 2002 was $4.9 million ($0.31 earnings per share, basic and diluted) as compared to the fiscal 2001 income from continuing operations of $922,000 ($0.06 earnings per share, basic and diluted).

Consolidated net sales of $123.5 million decreased 5.4%, or $7 million, in fiscal 2001 as compared to fiscal 2000. Writing instrument net sales of $121 million in 2001 were less than 2000 by approximately $5.4 million, or 4.3%. Domestic writing instrument net sales decreased by $2.1 million, or 3.5%, and international writing instrument net sales were lower by $3.3 million, or 4.9%, as compared to fiscal 2000.

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Domestic writing instrument volume was unfavorably affected by the slowing United States economy, especially in the second half of 2001. Sales through the Company's retail division for the full year were 2.5% higher as compared to 2000, as an approximate 6% increase in sales to large office supply accounts was partially offset by a 9% decrease in sales to carriage trade accounts (department, gift and jewelry stores). Sales of business gift products by the Company's special markets division decreased approximately 8.8%, as companies reduced their spending in light of worsening United States economic conditions and as discretionary spending was diverted to charitable causes. OEM revenue declined 42.8% from fiscal 2000. The revenue of this business division was highly dependent upon one large luxury goods retailer in 2001. This retailer was adversely affected in 2001 by the same overall economic conditions as those affecting the Company.

International writing instrument sales were unfavorably affected by the weak Asian economy. Sales in Asia in fiscal 2001 were lower than fiscal 2000 by approximately 12.5%, as unfavorable Yen/Dollar exchange rates and a slowdown in tourist travel adversely affected duty free sales. Sales in Canada increased over fiscal 2000 by 11.5%, whereas Latin America sales were flat. Sales in the EMEA markets were 3.1% less than fiscal 2000; the positive effects of new product launches and new in-store merchandising on retail sales in 2001 were more than offset by a 5% reduction of corporate gift business, unfavorable foreign exchange rates and a 20% decline in sales to the Middle East market.

PCG sales were approximately 40% less than fiscal 2000. In fiscal 2001, sales consisted primarily of one electronic pen product, whereas in fiscal 2000 sales were generated from the fulfillment of an OEM order for CrossPads from existing inventory, OEM sales of digital pens, NetPens® and Cross :Convergence® pens.

Consolidated gross profit margins of 52.8% in fiscal 2001 increased 1.9 percentage points from 50.9% in fiscal 2000. The increase in gross margin was attributable to improved writing instrument margins offset somewhat by negative gross margins generated by PCG. Writing instrument margins in fiscal 2001 were 55.1%, up 2.8 percentage points over fiscal 2000. This improvement was due, in part, to lower manufacturing costs resulting from the consolidation of the Irish manufacturing and distribution operation into the Lincoln, Rhode Island facility as part of the Company's restructuring plan. PCG's margins were negative in fiscal 2001, due to the effect of low sales volume combined with relatively fixed manufacturing costs and a $1.2 million charge for the write-down of slow moving inventory in the fourth quarter of 2001.

Consolidated SG&A expenses of approximately $50.6 million in fiscal 2001 were 6.9% lower than fiscal 2000 and were 41% of net sales in fiscal 2001 as compared to 41.7% in fiscal 2000. SG&A expenses for QWI were approximately $49.6 million in fiscal 2001, 6.4% less than fiscal 2000, as the Company continued strict controls over costs. PCG's SG&A expenses in fiscal 2001 were approximately $1 million as compared to $1.4 million in fiscal 2000.

R&D expenses of approximately $2 million were 5.8% higher than fiscal 2000, due to QWI new product development efforts and PCG activities.

S&D costs of $3.9 million were $2.3 million higher than fiscal 2000. Approximately half of this increase was due to the closure of the manufacturing and distribution facility in Ireland in 2001. The remaining increase was the result of an approximate $761,000 favorable change in estimate adjustment that was made to accrued warranty costs in fiscal 2000 and recorded as a reduction of service and distribution costs in fiscal 2000.

In the fourth quarter of fiscal 2001, approximately $412,000 of the environmental remediation reserve, established in fiscal 2000 for the Company's property in Ireland, was reversed based upon remediation cost estimates provided by the Company's environmental consultant.

In fiscal 2001, the Company recorded approximately $857,000 of restructuring charges and loss on impairment of assets. Of this, approximately $862,000 related to the impairment of PCG assets, as certain long-lived assets were written off. The Company determined that the carrying amount of these assets exceeded their fair value. In addition, in fiscal 2001, the Company recorded a $5,000 favorable change in the estimated liabilities of the restructuring plan. See Note D to the Company's consolidated financial statements in Item 8 of this Form 10-K Annual Report.

Interest and other income (expense) was an expense of $5.7 million in fiscal 2001, as compared to income of $5.2 million in fiscal 2000. The expense in 2001 was almost entirely due to activities relating to the Company's investments in internet companies. In fiscal 2001, the Company recorded losses of approximately $6.3 million, due to other than temporary declines in value of its DCCI investment and NeoMedia marketable securities. In fiscal 2000, the Company recorded an approximate $3.3 million gain on the sale of a portion of the Company's investment in NeoMedia. Interest income in fiscal 2001 was approximately $868,000, 55% lower than interest income in 2000, as average invested funds and interest rates were lower than in the prior year.

In fiscal 2001, the Company recorded an income tax provision of approximately $1.6 million on $2.5 million of income from continuing operations. For an analysis of income taxes from continuing operations, see Note I to the Company's consolidated financial statements in Item 8 of this Form 10-K Annual Report.

In fiscal 2001, the Company recorded after-tax income from discontinued operations of approximately $58,000. For a full analysis of discontinued operations, see Note J to the Company's consolidated financial statements in Item 8 of this Form 10-K Annual Report.

Consolidated net income in fiscal 2001 was $980,000 ($0.06 earnings per share, basic and diluted) as compared to the fiscal 2000 net loss of $8.1 million ($0.49 loss per share, basic and diluted). Income from continuing operations in fiscal 2001 was $922,000 ($0.06 earnings per share, basic and diluted) as compared to the fiscal 2000 loss from continuing operations of $7.7 million ($0.47 loss per share, basic and diluted).

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Cash, cash equivalents and short-term investments ("cash") of $18 million at the end of fiscal 2002 declined $3.5 million from the prior year, a result of many factors, the most significant of which are described in this section.

Accounts receivable decreased approximately $1.3 million from the prior year, due to lower sales volume. The Company offers its United States retail writing instrument customers a dating program whereby they may either delay payment on certain third and fourth quarter purchases until January of the next year or earn a greater discount if payment is made earlier; therefore, the cash level tends to be lower at the end of the year when accounts receivable are generally higher.

Total inventory of approximately $13.5 million decreased by $438,000 as compared to fiscal 2001. It is expected that inventory levels may increase to support the Company's new product launches in fiscal 2003.

Additions to property, plant and equipment were approximately $5.3 million in fiscal 2002 as compared to $6.3 million in fiscal 2001. In fiscal 2003, the Company expects capital expenditures to be slightly higher than in fiscal 2002, whereas depreciation expense is expected to approximate that of 2002.

In fiscal 2001, the Company's Board of Directors authorized the repurchase of up to 10% of the Company's outstanding Class A common stock. This plan was completed in October 2002. A total of 1,499,967 shares were purchased under this plan for approximately $10.2 million at an average price per share of $6.78. On October 23, 2002, the Company's Board of Directors authorized a new plan to repurchase up to an additional 10% of the outstanding Class A common stock. Under this new plan, the Company plans to purchase approximately 1.4 million shares of stock on the open market, subject to regulatory considerations, from time to time, depending on market conditions. At December 28, 2002, the Company had repurchased 180,000 shares under this new plan for approximately $1.1 million at an average price per share of $6.09.

The Company's working capital was $37.8 million at the end of fiscal 2002, a decrease of $1.8 million from fiscal 2001, and its current ratio at the end of fiscal 2002 and 2001 was 2.3:1 and 2.2:1, respectively. Operating cash flow from continuing operations was $7.2 million in fiscal 2002 as compared to $7 million in fiscal 2001.

The Company maintains a $25 million unsecured line of credit with a bank. The agreement requires the Company to meet certain liquidity levels and covenants. The most restrictive covenant is to maintain a consolidated cash, cash equivalents and short-term investments balance of not less than $15 million at the end of each quarter. There is also a restriction on the Company's ability to grant a security interest in its assets. Any amounts borrowed under this agreement are payable on demand. Under this agreement, the Company has the option to borrow at either the bank's prime lending rate or at one percent per annum in excess of the London Interbank Offering Rate ("LIBOR"). At December 28, 2002, there was $1 million outstanding on this line of credit.

In fiscal 2002, approximately $1 million of restructuring charges were paid. At December 28, 2002, total restructuring charges paid to date were approximately $14 million. The remaining approximate $1.4 million cash obligation for restructuring is expected to be paid in 2003. The total cash portion of the restructuring plan is expected to be approximately $15.4 million.

As part of the Company's restructuring plan, the Irish facility was closed in 2001 and placed for sale. Accordingly, the net book value of the Irish facility, approximately $1 million, is included in other assets as an asset held for sale.

In response to mutual concerns regarding sales velocity in the quality writing instrument category, the Company, in conjunction with its office superstore trading partners, is reviewing alternative methods of going to market. The issues being addressed are more dedicated merchandising of the Company's quality writing instruments and gift products, more effective inventory management, matching inventory to peak selling seasons and more concentrated Company sponsored merchandising, particularly during peak gift-giving periods. The implementation of any or all of these alternatives could have an effect on revenue.

The Company expects that health care costs will continue to increase at a rate in excess of general inflation for the near term.

Given the actual investment return on the Company's defined benefit retirement plan portfolio in 2002, the Company will make a cash contribution of approximately $500,000 in fiscal 2003. The Company's defined benefit pension plan expense is expected to increase by approximately $900,000 in fiscal 2003 as compared to fiscal 2002.

The Company expects fiscal 2003 research and development expenses to approximate fiscal 2002.

The Company believes that existing cash, funds from operations and funds from the potential sale of its Irish facility, supplemented, as appropriate, by the Company's short-term borrowing arrangements, will be adequate to finance its foreseeable operating and capital requirements, the remaining requirements of the restructuring plan and the stock repurchase plan. Should operating cash flows in 2003 not materialize as projected, the Company has a number of alternatives to ensure that it will have sufficient cash to meet its operating needs. These alternatives include implementation of strict cost controls on discretionary spending, delaying non-critical research and development and capital projects and delaying the completion of the stock repurchase plan.

At the end of fiscal 2002, cash available for domestic operations amounted to approximately $4.7 million, and cash held offshore for international operations amounted to approximately $13.3 million. At the end of fiscal 1999, the Company determined that approximately $15 million in undistributed foreign earnings were no longer considered to be invested indefinitely and recorded a provision for deferred taxes of approximately $5.3 million. This represented the estimated tax associated with these undistributed earnings. As of December 28, 2002, approximately $13 million of these earnings had been repatriated to the United States. At present, management continues to believe that the unremitted foreign earnings for which deferred taxes have not been provided will continue to be permanently invested in the growth of business outside the United States; hence, no additional deferred taxes were recorded in fiscal 2002.

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Contractual Obligations: The Company leases office and warehouse space and certain equipment under non-cancelable operating leases that expire through 2007. Future minimum lease payments under all non-cancelable leases and other contractual obligations at December 28, 2002 were approximately:

For a description of new accounting pronouncements that affect the Company and the status of the Company's implementation thereof, see the "New Accounting Pronouncements" section of Note A to the Company's consolidated financial statements in Item 8 of this Form 10-K Annual Report. None are expected to have a material impact on the Company's consolidated financial position or results of operations.

The Company's operations are subject to the effects of general inflation as well as fluctuations in foreign currencies. Policies and programs are in place to manage the potential risks in these areas. The Company has generally been successful in controlling cost increases due to general inflation. The Company continues to review its number of suppliers in order to obtain lower costs and higher quality on many of its materials and purchased components. Steps taken in conjunction with restructuring efforts have reduced operating costs in its manufacturing operations.

The Company normally enters into foreign currency exchange contracts to economically hedge that portion of its net financial position exposed to foreign currency fluctuations.

The Company has adopted accounting practices that tend to reflect current costs in its consolidated statements of operations. A portion of total inventories at the end of fiscal years 2002, 2001 and 2000 were accounted for using the last-in, first-out ("LIFO") valuation method. Normally under this method, the cost of goods sold reported in the financial statements approximates current costs, thus reducing distortions in reported income, due to the effect of changing prices.

The Company applies certain accounting policies requiring management's estimates in determining reported results, see Note A "Significant Accounting Policies" to the Company's consolidated financial statements in Item 8 of this Form 10-K Annual Report. The most critical accounting policies, requiring significant management judgement, are as follows:

Revenue recognition requires estimates of product returns, term discounts and rebates at the time revenue is recognized.

Inventory is valued at the lower of cost or market value, requiring management to establish inventory reserves based upon estimated market values for the Company's product lines.

Allowances for doubtful accounts receivable requires management to estimate the collectability of accounts receivable.

The Company's Cross branded writing instruments are sold with a full warranty of unlimited duration against mechanical failure. In establishing the accrual for warranty costs, management analyzes trends, measured over a period of several years, of several factors that impact the Company's cost to service the warranty. The most significant factors include: the operating costs of the service department, writing instrument unit sales, the number of units that are returned for warranty repair and the cost of product repairs.

The Company tests goodwill for impairment at least annually. Management's estimates of future cash flows are a significant factor in testing goodwill for impairment.

Marketable equity securities are carried at market value. Temporary unrealized holding gains and losses on such securities, net of the related tax effect, are included in accumulated other comprehensive income (loss), which is reflected in shareholders' equity. If management determines that changes in market value are other than temporary, such gains or losses would be reported in net income (loss).

Management believes that the degree to which actual results differ from these estimates could have a material affect on the Company's consolidated financial position or results of operations.

For additional information regarding management's estimates, see the "Risks and Uncertainties; Forward-Looking Statements" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Form 10-K Annual Report.

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Statements contained herein that are not historical fact are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, words such as "believes," "anticipates," "expects," "will" and similar expressions are intended to identify forward-looking statements, including but not limited to statements related to new products; alternative methods of bringing product to market; anticipated compliance with laws and regulations (including but not limited to environmental laws); anticipated increases in healthcare and other employee benefit plan costs; anticipated availability of the unsecured line of credit; anticipated sufficiency of available working capital; the anticipated level of research and development costs; and the expectation that unremitted foreign earnings for which taxes have not been provided will continue to be permanently invested. The Company cautions that a number of important factors could cause the C ompany's actual results for fiscal 2003 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Forward-looking statements involve a number of risks and uncertainties.

The following section describes certain of the more prominent risks and uncertainties inherent in the Company's operations. However, this section does not intend to discuss all possible risks and uncertainties to which the Company is subjected, nor can it be assumed necessarily that there are no other risks and uncertainties that may be more significant to the Company. The Company undertakes no obligation to correct or update any forward-looking statements for any reason.

History of Losses; Uncertainty of Future Profitability: The Company has experienced losses in three of the last five fiscal years. There can be no assurances that the Company will be able to sustain profitability in the future.

New Products: The Company's ability to restore growth in sales depends largely on consumer acceptance of various new products recently introduced and planned for introduction. The markets in which the Company sells are highly competitive, and there is no assurance that consumer acceptance will be realized to the degree necessary to generate growth in the Company's sales and earnings, nor to maintain them at their current level.

Dependence on Certain Suppliers: To maintain the highest level of product quality, the Company relies on a limited number of domestic and international suppliers for certain raw materials, manufacturing technologies and certain finished products. The Company may be adversely affected in the event that these suppliers cease operations or if pricing terms become less favorable. The Company believes, but cannot be assured, that the raw materials currently supplied by these vendors could be obtained from other sources and that the manufacturing technologies could either be developed internally or that suitably similar technologies could be located.

Technological Change; Intellectual Property: The Company's electronic products may be subject to technological change, new product introductions and enhancements and evolving industry standards that may render existing products obsolete. As a result, the Company's position in its existing market or other markets that it may enter could be eroded rapidly by technological advancements. In addition, the manufacture and distribution of certain of the Company's electronic products are dependent on licensing and other contractual arrangements, some of which are non-exclusive, for varying lengths of time with third parties.

Sensitivity to Economic Conditions: Sales of the Company's products may be adversely affected by economic conditions in its domestic and international markets. These include but are not limited to the fact that economic conditions may be adversely affected by the threat or occurrence of armed conflict in Iraq, and/or the threat of terrorist attacks both domestically and internationally.

Dependence on Certain Accounts: The Company is dependent on three large office supply accounts, Staples, Inc., OfficeMax, Inc. and Office Depot, Inc., for approximately 16.5% of its consolidated revenues. The loss of one or more of these customers could have a material adverse effect on the Company. In addition, a change in the way or how often the Company's products are distributed through one or more of these accounts could have a material adverse effect on the Company's financial performance.

The Company is exposed to changes in interest rates and foreign currency exchange, primarily in its investments, note payable to bank and foreign currency transactions.

The Company's short-term investment portfolio consists primarily of high-grade investments, with the majority maturing in less than five years. A hypothetical 10% adverse change in current average interest rates for these investments would not have a material impact on the Company's pre-tax earnings.

The Company maintains a $25 million unsecured line of credit with a bank. Any amounts borrowed under this agreement are payable on demand. Under this agreement, the Company has the option to borrow at either the bank's prime lending rate or at one percent per annum in excess of LIBOR. The Company believes that changes in interest rates would not be material to its operations, due to its level of borrowings.

There was $1 million outstanding under the Company's line of credit at December 28, 2002. There was no amount outstanding at December 29, 2001.

The Company's foreign exchange exposure is generated primarily from its international operating subsidiaries. The Company seeks to minimize the impact of foreign currency fluctuations by hedging certain foreign currency denominated balance sheet

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positions with foreign currency forward exchange contracts or options. Most of these contracts are short-term, generally expire in one to three months and do not subject the Company to material market risk. The Company does not enter into foreign currency exchange transactions for speculative purposes.

To the Board of Directors and Shareholders of
A.T. Cross Company
Lincoln, Rhode Island

We have audited the accompanying consolidated balance sheets of A.T. Cross Company and subsidiaries (the "Company") as of December 28, 2002 and December 29, 2001, and the related consolidated statements of operations, comprehensive income (loss), shareholders' equity, and cash flows for each of the three years in the period ended December 28, 2002. Our audits also included the financial statement schedule listed at Item 15D. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 28, 2002 and December 29, 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 28, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 13, 2003

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