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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

STRATEX NETWORKS, INC.
(Exact name of registrant specified in its charter)

Registrant’s former name:    DMC Stratex Networks, Inc.

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   [   ]

The number of outstanding shares of the Registrant’s common stock, par value $.01 per share, was 82,649,828 on November 11, 2002.

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INDEX

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PART I — FINANCIAL INFORMATION

STRATEX NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

See accompanying Notes to Condensed Consolidated Financial Statements.

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STRATEX NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

See accompanying Notes to Condensed Consolidated Financial Statements.

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STRATEX NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

See accompanying Notes to Condensed Consolidated Financial Statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION

			The condensed consolidated financial statements include the accounts of Stratex Networks, Inc. and its wholly-owned subsidiaries (the “Company”). Intercompany accounts and transactions have been eliminated. Certain prior year amounts have been reclassified to conform to current year presentation.
			While the financial information furnished is unaudited, the financial statements included in this report reflect all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for a fair presentation of the results of operations for the interim periods covered and of the financial condition of the Company at the date of the interim balance sheet. The results for interim periods are not necessarily indicative of the results for the entire year. The condensed consolidated financial statements should be read in connection with the Company’s financial statements included in its annual report and Form 10-K for the fiscal year ended March 31, 2002, filed with the Securities and Exchange Commission on May 15, 2002.

CASH AND CASH EQUIVALENTS

			For purposes of the consolidated statement of cash flows, we consider all highly liquid debt instruments purchased with a remaining maturity of three months or less to be cash equivalents.
			We have, as of September 30, 2002, $1.6 million in standby letters of credit outstanding with several financial institutions to support bid and performance bonds issued to various customers. In connection with the issuance of these letters of credit, we have, as of September 30, 2002, restricted $0.8 million of cash as collateral for these specific obligations. In addition, as of September 30, 2002, we had outstanding forward foreign exchange contracts in the aggregate amount of $19.8 million, for which restricted cash of $0.8 million was held as collateral by one of the financial institutions utilized to hedge our foreign currency risk exposure.

SHORT- TERM INVESTMENTS

			We invest our excess cash in high-quality and easily marketable instruments to ensure that cash is readily available for use in our current operations. Accordingly, all of our marketable securities are classified as “available-for-sale” in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 115. All investments are reported at fair market value with the related unrealized holding gains and losses reported as a component of accumulated other comprehensive loss. Unrealized holding losses on the portfolio as of September 30, 2002 were insignificant. At September 30, 2002, our available-for-sale securities had contractual maturities ranging from 1 day to 343 days, with a weighted average maturity of 87 days.
			There were no impairment losses on our short-term investments in marketable securities in the first half of fiscal 2003. There were impairment losses of approximately $8.3 million during the first half of fiscal 2002. Of this $8.3 million loss, $0.9 million was on our short-

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term investments in marketable securities and the remaining $7.4 million was on our equity investments, which are discussed in the “Other Assets” footnote below.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or market, where cost includes material, labor and manufacturing overhead. We maintain an inventory reserve to record inventory at the lower of cost or market value. This reserve is calculated by comparing on hand quantities against backlog and forecasted revenues. Inventories, net of reserves, consist of (in thousands):

In the first half of fiscal 2003, we realized a $1.5 million benefit due to the sale of inventory that had been fully reserved in periods prior to the six months ending September 30, 2002.

OTHER CURRENT ASSETS

Other current assets included the following (in thousands):

OTHER ASSETS

Included in other assets are equity investments and long-term deposits for premises leased by us. The equity investments were purchased for the promotion of business and strategic objectives. Equity investments represent voting interest of less than 20% and are accounted for under the cost method because the Company is not able to exercise significant influence over the investee. Equity investments in marketable securities are classified as “available-for-sale” in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 115 and reported at fair value with

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unrealized gains and losses recorded in accumulated other comprehensive income (loss). Equity investments in non-marketable securities are recorded at cost. We continually review these equity investments to evaluate whether conditions have occurred that would suggest an impairment of carrying value. Impairment losses of $0.4 million were recorded in the first half of fiscal 2003 on our equity investments in marketable securities, included in other assets. There were impairment losses of approximately $8.3 million during the first half of fiscal 2002. Of this $8.3 million loss, $0.9 million was on our short-term investments in marketable securities, which are discussed in the “Short-Term Investments” footnote above. The remaining $7.4 million loss was on our equity investments, which consisted of a $3.3 million loss on our equity investments in marketable equity securities and a $4.1 million loss on our equity investments in non-marketable securities. We determined that the recorded value for these certain investments exceeded their fair value and that these losses were other than temporary in nature.

ACCRUED LIABILITIES

Accrued liabilities included the following (in thousands):

In accordance with SAB 101, if the revenue recognition criteria are not met (as described in the revenue recognition footnote below), revenue is deferred until certain services have been performed. With a few of our customers we have collected the amounts due according to payment terms; however, the revenue is deferred due to the reasons described above. The increase in accrued deferred income is due to these amounts collected from customers while the corresponding revenue is currently deferred.

CURRENCY TRANSLATION

The functional currency of the Company’s subsidiaries located in the United Kingdom and New Zealand is the U.S. dollar. Accordingly, all of the monetary assets and liabilities of these subsidiaries are remeasured into U.S. dollars at the current exchange rate as of the applicable balance sheet date, and all non-monetary assets and liabilities are remeasured at historical rates. Sales and expenses are remeasured at the average exchange rate prevailing during the period. Gains and losses resulting from the remeasurement of the subsidiaries’ financial statements are included in the consolidated statements of operations. The Company’s other international subsidiaries use their local currency as

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their functional currency. Assets and liabilities of these subsidiaries are translated at the current exchange rates in effect at the balance sheet date, and income and expense accounts are translated at the average exchange rates during the period. The resulting translation adjustments are included in accumulated other comprehensive loss in the accompanying financial statements.

DERIVATIVE FINANCIAL INSTRUMENTS

			In accordance with Financial Accounting Standard No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”), all derivatives are recorded on the balance sheet at fair value.
			Derivatives are employed to eliminate, reduce, or transfer selected foreign currency risks that can be identified and quantified with confidence. Our policy is to hedge forecasted and actual foreign currency risk with forward contracts that expire within twelve months. Specifically, we hedge foreign currency risks relating to firmly committed backlog, open purchase orders and non-functional currency monetary assets and liabilities. Derivatives hedging non-functional currency monetary assets and liabilities are recorded on the balance sheet at fair value and changes in fair value are recognized currently in earnings.
			Additionally, we hedge forecasted non-U.S. dollar sales and non-U.S. dollar purchases. In accordance with FAS 133, hedges of anticipated transactions are designated and documented at inception as “cash flow hedges” and are evaluated for effectiveness, excluding time value, at least quarterly. We record effective changes in the fair value of these cash flow hedges in accumulated other comprehensive income (“OCI”) until the revenue is recognized or the related purchases are recognized in cost of sales, at which time the changes are reclassified to revenue and cost of sales, respectively. All amounts accumulated in OCI at quarter end will be reclassified to earnings within the next 12 months. A gain of $0.1 million was recognized in other income and expense in the first half of fiscal 2003 related to the exclusion of time value from effectiveness testing and ineffectiveness resulting from forecasted transactions that did not occur.
			The following table summarizes the activity in OCI, with regard to the changes in fair value of derivative instruments, for the first half of fiscal 2003 (in thousands):

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CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject us to concentrations of credit risk consist principally of temporary cash investments and trade receivables. We have cash investment policies that limit the amount of credit exposure to any one financial institution and restrict placement of investments to financial institutions evaluated as highly creditworthy. Investments, under our policy, must have a rating of A1 or P1 for short-term paper and a rating of A or better for long-term notes or bonds. Accounts receivable concentrated with certain customers primarily in the telecommunications industry and in certain geographic locations may subject us to concentration of credit risk. Three customers accounted for approximately 13%, 12%, and 10% of net sales for the second quarter of fiscal 2003, respectively. Three customers accounted for approximately 15%, 10%, and 10% of net sales for the second quarter of fiscal 2002, respectively. For the first half of fiscal 2003, one customer accounted for 14% of net sales. For the first half of fiscal 2002 one customer accounted for 11% of net sales. One customer accounted for approximately 21% of the total accounts receivable balance at the end of the first half of fiscal 2003. No other customer accounted for more than 10% of the total accounts receivable balance at the end of the first half of fiscal 2003. In the first half of fiscal 2002 two customers accounted for approximately 15% and 11%, respectively of the total accounts receivable balance. We actively market and sell products in Africa, Asia, Europe, the Middle East and the Americas. We perform on-going credit evaluations of our customers’ financial conditions and generally require no collateral, although sales to Asia, Eastern Europe and the Middle East are primarily paid through letters of credit.

REVENUE RECOGNITION

			We recognize revenue pursuant to Staff Accounting Bulletin No. 101 (SAB 101) “Revenue Recognition in Financial Statements.” Accordingly, revenue is recognized when all four of the following criteria are met: (i) persuasive evidence that the arrangement exists; (ii) delivery of the products and/or services has occurred; (iii) the selling price is fixed or determinable; and (iv) collectibility is reasonably assured.
			In accordance with SAB 101, revenues from product sales are generally recognized when title and risk of loss passes to the customer, except when product sales are combined with significant post-shipment installation services. Under this exception, revenue is deferred until such services have been performed. Service and repair revenue, is recognized when the related services and repairs are delivered.
			At the time revenue is recognized, we establish an accrual for estimated warranty expenses associated with our sales, recorded as a component of cost of revenue. Our standard warranty is generally for a period of 27 months from the date of sale and our warranty accrual represents the best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. While we believe that our warranty accrual is adequate and that the judgment applied is appropriate, such amounts estimated to be due and payable could differ materially from what will actually transpire in the future. If our actual warranty costs are greater than the accrual, cost of revenues will increase accordingly.

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NET EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share (EPS) excludes dilution and is computed by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding for the period excluding the weighted average common shares subject to repurchase. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock (common stock options and warrants using the treasury stock method) were exercised into common stock. Potential common shares in the diluted EPS computation are excluded in net loss periods, as their effect would be antidilutive.

LITIGATION AND CONTINGENCIES

The Company is subject to legal proceedings and claims that arise in the normal course of its business. In the opinion of management, these proceedings should not have a material adverse effect on the business, financial position, and results of operations of the Company. In addition, suppliers have made claims against us and we have reasonably estimated and provided for these claims. If settlement of these claims results in amounts greater than our accruals, there could be additional liabilities required upon ultimate resolution of these claims.

RESTRUCTURING CHARGES

			During fiscal 2002, the industry experienced a severe downturn in the global economy which impacted our revenues significantly. In response to this downturn, we announced several restructuring programs in fiscal 2002 to focus on profit contribution by reducing expenses and improving operational efficiency. These restructuring programs included consolidation of our U.S. manufacturing operations by relocating our Seattle, Washington operations to our San Jose, California facility, a worldwide reduction in workforce and a consolidation of additional excess facilities. In the first half of fiscal 2003, we continued to see slowdown in the economy and tightening in the capital market. As we did not expect any significant recovery in the economy in the near future, we took additional steps in the first quarter of fiscal 2003 to reduce costs and to improve asset management. As part of this program, we entered into an agreement to outsource our San Jose manufacturing operations to Microelectronics Technology Inc. (MTI), our manufacturing partner in Taiwan. As a result of changes associated with this agreement, as well as other reductions in operating expenses and facilities, we recorded restructuring charges of $14.2 million in the first quarter of fiscal 2003. This restructuring charge consisted of $2.8 million for employee severance and benefits, $8.2 million for vacated building lease obligations, $0.6 million for legal costs, $3.3 million for transition costs related to outsourcing of our manufacturing operations as mentioned above and $1.8 million as a write off of manufacturing equipment. These restructuring costs were reduced by $2.5 million, which represented the amount reimbursable from MTI for the costs relating to the transfer of certain of our manufacturing assets to MTI in accordance with our joint agreement.
			Under the terms of our agreement with Microelectronics Technology Inc. (MTI) for transfer of our manufacturing operations to MTI in Taiwan, MTI is assuming assembly,

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			integration and testing of our Altium product family, as well as assembly and testing of the Outdoor Unit portion of our XP4 product. The agreement also provides for continuing cooperation between the companies for future products now being developed. Under terms of the agreement, MTI is acquiring certain of our manufacturing assets related to the production of the Altium and XP4 product lines, we are providing assistance in the transition of the operation. In addition, we are consigning certain inventory associated with these products to MTI and MTI is purchasing such inventory, as it is utilized in manufacturing. We are retaining product design and R&D functions for these products. We expect to complete the transition of affected manufacturing operations and transfer all of these assets to MTI by the end of calendar year 2002 and record a note receivable from MTI for the assets with total value of approximately $4.0 million, including interest, which MTI has agreed to pay in equal quarterly installments over a period of three years. The transaction includes a five-year supply agreement between the two companies. As a result of the agreement, MTI will be our primary manufacturer of the Outdoor Unit portion of Altium products and of the XP4 products. Sales of our Altium and XP4 products for the first half of fiscal 2003, account for 61% of total revenues for that period.
			During the second quarter of fiscal 2003, we did not record any additional restructuring charges; however, we sold $1.4 million of manufacturing equipment to MTI with no net gain or loss.
			The severance and benefit charges of $2.8 million taken in the first quarter of fiscal 2003 were for a reduction in workforce of approximately 153 employees, with reductions affecting primarily the manufacturing operations area due to the outsourcing of our San Jose, California manufacturing operations. As of June 30, 2002 all affected employees had been notified. As of September 30, 2002, approximately 105 employees have been terminated. We anticipate that the remaining affected employees will be terminated by December 31, 2002.
			During fiscal 2002, we recorded restructuring and receivable valuation charges of $24.6 million. This consisted of $8.4 million for employee severance and benefits, $11.2 million for facility-related and other costs (including $8.6 million for vacated building lease obligations, $2.1 million for the loss on impairment of equipment, $0.1 million for legal costs and $0.4 million for the write off of goodwill) and $5.0 million for uncollectible accounts receivable. There were cumulative cash payments and non-cash expenses against this provision of $7.7 million and $7.5 million, respectively, resulting in an ending provision balance at March 31, 2002 of $9.4 million. The cash payments were related primarily to workforce reduction payments and the non-cash expenses were related primarily to equipment and receivable valuation charges.
			The vacated building lease obligations of $8.2 million and $8.6 million recorded in first quarter of fiscal 2003 and in fiscal 2002, respectively, included payments required under lease contracts, less estimated sublease income after the property was abandoned. To determine the lease loss, certain assumptions were made related to (1) the time period over which the building will remain vacant, (2) sublease terms, (3) sublease rates and (4) an estimate of brokerage fees. Should operating lease rental rates continue to decline in the current market or should it take longer than expected to find a suitable tenant to sublease the Seattle, WA, San Jose, CA and Coventry, United Kingdom facilities,

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			adjustments to the facilities lease loss reserve will be made in future periods, if necessary, based upon actual events and circumstances.
			The following table summarizes the balance of the restructuring accrual as of September 30, 2002 and the type and amount of restructuring costs utilized during the first six months of fiscal 2003 (in millions):

			The remaining accrual balance as of September 30, 2002 of $18.4 million is expected to be paid out in cash. We expect $3.5 million of the remaining cash restructuring charges to be paid out in fiscal 2003, additional severance and benefit costs of approximately $0.3 million we anticipate will be paid out in fiscal 2004, and vacated building lease obligations of $14.0 million and $0.6 million are expected to be paid out over the next nine years and sixteen years, respectively.
			We expect additional restructuring charges in the third quarter of fiscal 2003 of approximately $5.0 to $7.0 million primarily related to lease commitments for vacated space and fixed asset write offs.

COMPREHENSIVE INCOME

The following table reconciles net loss to comprehensive loss (in thousands):

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NEW ACCOUNTING PRONOUNCEMENTS

			In June 2001, the FASB issued FASB Statement No. 143 (FAS 143), “Accounting for Asset Retirement Obligations”. FAS 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period which it is incurred if a reasonable estimate of fair value can be made. Companies are required to adopt FAS 143 for fiscal years beginning after June 15, 2002, but early adoption is encouraged. We are in the process of determining what impact, if any, this standard will have on our financial position and results of operations, although we do not anticipate that the adoption of this standard will have a material impact on our financial position or results of operations.
			We have adopted SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supercedes SFAS No. 121 by requiring that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired and by broadening the presentation of discontinued operations to include more disposal transactions. The adoption of SFAS No. 144 does not have a material impact on our financial position or results of operations.
			In June 2002, the FASB issued SFAS 146, “ Accounting for Costs Associated with Exit or Disposal Activities”, which addresses accounting for restructuring and similar costs. SFAS 146 supersedes previous accounting guidance, principally Emerging Issues Task Force Issue No. 94-3. The Company will adopt the provisions of SFAS 146 for restructuring activities initiated after December 31, 2002. SFAS 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost was recognized at the date of the Company’s commitment to an exit plan. SFAS 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS 146 may affect the timing of recognizing future restructuring costs as well as the amounts recognized.

OPERATING SEGMENT AND GEOGRAPHIC INFORMATION

			The Company is organized into two operating segments: products and services. Service revenue includes repair revenue. The Company’s Chief Executive Officer has been identified as the Chief Operating Decision-Maker as defined by Statement of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosures about Segments of an Enterprise and Related Information.” Resources are allocated to each of these segments using information on their revenues and operating profits before interest and taxes.
			The Products operating segment includes the SPECTRUM II, XP4, Altium, and DXR digital microwave systems for digital transmission markets. We design and develop these products in New Zealand and California. We manufacture the DXR product in New Zealand. Prior to June 30, 2002, we manufactured the XP4 and Altium family of products in San Jose, California. In June 2002, we entered into an agreement with Microelectronics Technology, Inc (MTI) in Taiwan for outsourcing of our XP-4 and Altium products manufacturing operations to MTI. We expect to complete the transition of manufacturing operations by the end of calendar year 2002. The Services operating segment includes, but is not limited to, installation, repair, spare parts, network design, path surveys,

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			integration, and other revenues. We maintain regional service centers in Scotland and the Philippines.
			We do not identify or allocate assets or depreciation by operating segment, nor does the CEO evaluate these groups on these criteria. Operating segments generally do not sell products to each other, and accordingly, there are no significant inter-segment revenues to be reported. We do not allocate interest and taxes to operating segments. The accounting policies for each reporting segment are the same.
			The following table sets forth net revenues and operating income (loss) by operating segments (in thousands):

The following table sets forth net revenues from unaffiliated customers by product (in thousands):

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The following table sets forth revenues from unaffiliated customers by geographic region (in thousands) for:

Long-lived assets by country consisting of net property and equipment was as follows (in thousands):

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ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussions in this Quarterly Report should be read in conjunction with our accompanying Financial Statements and the related notes thereto. This Quarterly Report on Form 10-Q contains forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended. All statements included or incorporated by reference in this Quarterly Report, other than statements that are purely historical are forward-looking statements. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions also identify forward looking statements. The forward looking statements in this Quarterly Report are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward looking statements and include, without limitation, statements regarding:

•		Our belief that the transition of our manufacturing operations to Microelectronics Technology Inc. (MTI) will help us lower fixed costs and improve our gross margins;
•		Our expectation that the remaining affected employees from our reduction in workforce will be terminated by December 31, 2002;
•		Our expectation to adjust facilities lease loss reserve in future periods, if necessary, based upon actual events and circumstances;
•		Our plan to pay out in cash the remaining accrual balance as of September 30, 2002 of $18.4 million;
•		Our expectation that $3.5 million of the remaining cash restructuring charges will be paid out in fiscal 2003, additional severance and benefit costs of approximately $0.3 million we anticipate will be paid out in fiscal 2004, and vacated building lease obligations of $14.0 million and $0.6 million are expected to be paid out over the next nine years and sixteen years, respectively;
•		Our anticipation of additional restructuring charges in the third quarter of fiscal 2003 of approximately $5.0 to $7.0 million primarily related to lease commitments for vacated space and some fixed asset write offs
•		Our anticipation that the adoption of FASB Statement No. 143 (FAS 143), “Accounting for Asset Retirement Obligations” will not have a material impact on our financial position or results of operations;
•		Our expectation to have completed the transition of our manufacturing operations to MTI by the end of calendar year 2002 and to have recorded a note receivable from MTI with a total value of $4.0 million, including interest;
•		Our expectation that gross profit, as a percentage of sales, will increase slightly in the third quarter of fiscal 2003 as compared to the second quarter of fiscal 2003 due to reduced manufacturing costs as a result of the outsourcing program, subject to meeting revenue expectations;
•		Our anticipation of savings of approximately $1.0 to $1.5 million per quarter in connection with this transition;
•		Our estimation that under certain circumstances the facilities lease losses for our facilities in Seattle, Washington; San Jose, California and Coventry, United Kingdom could increase by an additional $14.3 million;

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•		Our belief that we have the financial resources needed to meet our business requirements for at least the next 12 months;
•		Our expectation that we will not experience material exchange rate gains and losses from unhedged foreign currency exposures;
•		Our expectation that competition will increase;
•		The possibility that we may restructure our activities to more strategically realign our resources in response to changes in our industry and market conditions;
•		Our expectation that international sales will continue to account for the majority of our net product sales for the foreseeable future.
•		The settlement of estimated supplier cancellation claims may result in additional charges upon ultimate resolution of these claims;
•		Our expectation to maintain our cash and short-term investments at or near the current level during the third quarter of fiscal 2003; and
•		Our discussions with several lenders about establishing a $20-25 million credit facility to provide additional liquidity to support our working capital requirements, although utilization of this facility is not anticipated over the next 12 months.

All forward looking statements included in this document are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward looking statement or statements. The reader should also consult the cautionary statements and risk factors listed in this Quarterly Report and those listed from time to time in our Reports on Forms 10-Q, 8-K, and our most recent Annual Report on Form 10-K for the year ended March 31, 2002, including those contained in the section, “Factors That May Affect Future Financial Results,” beginning on page 28 in this Quarterly Report, in evaluating these forward-looking statements.

Critical Accounting Policies and Estimates

There have been no changes to our critical accounting policies since March 31, 2002. For a description of our critical accounting policies, see our Annual Report on Form 10-K for the year ended March 31, 2002.

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Results of Operations

The following table sets forth the percentage relationships of certain items from the Company’s condensed consolidated statements of operations as percentages of net sales: