Notes to Financial Statements
(unaudited)

February 2, 1996

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION -- The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three-month period ending February 2, 1996 are not necessarily indicative of the results of future periods. For further information, refer to the financial statements and footnotes thereto included in the Registrant Company’s annual report on Form 10-K for the year ended October 31, 1995.

INVESTMENTS -- The Company’s investment securities, which consist primarily of U.S. Treasury securities, are classified as available-for-sale and are carried at fair market value. Unrealized gains and losses, net of tax, are reported in shareholders equity as part of retained earnings. Realized gains and losses on available-for-sale securities are included in interest income (expense), net. The cost of securities sold is based on the specific identification method. Interest on securities classified as available-for-sale are included in interest income (expense), net. At February 2, 1996, the contractual maturities of the debt securities are staggered through June 30, 1998.

REVENUES FROM CONTRACTS -- The Company accounts for fixed price contracts using the percentage-of-completion method of accounting. Under this method, all contract costs are charged to operations as incurred; and a portion of the contract revenues, based on the estimated profits and the degree of completion of the contract as measured by a comparison of the actual and estimated costs, is recognized as revenues each quarter. The Company accounts for cost plus reimbursement contracts by charging contract costs to operations as incurred and recognizing contract revenues and profits by applying an estimated fee rate to actual costs. Management reviews contract performance, costs incurred and estimated completion costs regularly and adjusts revenues and profits on contracts in the month in which changes become determinable.

EARNINGS PER SHARE -- Net income per share is computed using the weighted average number of shares of common stock outstanding and common equivalent shares from stock options (using the treasury stock method).

The components of inventories consist of the following (in thousands):

                                    Feb. 2, 1996      October 31, 1995

          Raw Materials               $   652               $   548

          Work in Process               4,020                 2,148

          Finished Goods                  462                   387
                                      _______               _______

                                        5,134                 3,083

          Precontract Costs               390                   391
                                      _______               _______
                                      _______               _______

                                      $ 5,524               $ 3,474

The Company records contract revenues and costs for interim reporting purposes based on annual targeted indirect rates. At year end, the revenues and costs are adjusted for actual indirect rates. During the interim reporting periods, variances may accumulate between the actual indirect rates and the annual targeted rates. All timing-related indirect spending variances are inventoried as part of work in process during these interim reporting periods. These rates are reviewed regularly and any permanent variances are reflected in the income statement as they become known. At February 2, 1996, the inventoried variance was approximately $1,110,000 ($1,671,000 at January 27, 1995) and was included in work in process. At October 31, 1995 and 1994 the variance was zero since all revenues and costs were recorded at the actual indirect rates for each fiscal year end.

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