SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    Form 10-Q

(X)     QUARTERLY  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF  THE
              SECURITIES  EXCHANGE  ACT  OF  1934

                  For the quarterly period ended March 29, 2003

                                       OR

(   )   TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF  THE
              SECURITIES  EXCHANGE  ACT  OF  1934

For the transition period from                     to
                               -------------------     ------------------------
Commission file number               0-20109
                       --------------------------------------------------------
                               Kronos Incorporated
-------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

      Massachusetts                                      04-2640942
-------------------------------               ---------------------------------
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                       Identification No.)

                    297 Billerica Road, Chelmsford, MA 01824
-------------------------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (978) 250-9800
-------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


-------------------------------------------------------------------------------
        (Former name, former address and former fiscal year, if changed
                               since last report)

     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
                           ------         ------

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act).

                        Yes  X          No
                           ------         ------

As of April 26, 2003,  19,800,393 shares of the registrant's  common stock, $.01
par value, were outstanding.

<PAGE>

                               KRONOS INCORPORATED

                                      INDEX



PART I.  FINANCIAL INFORMATION                                             Page
                                                                           ----
Item 1.  Condensed Consolidated Financial Statements (Unaudited)

         Condensed Consolidated Statements of Income for the Three and
            Six Months Ended March 29, 2003 and March 30, 2002               1

         Condensed Consolidated Balance Sheets at March 29, 2003
            and September 30, 2002                                           2

         Condensed Consolidated Statements of Cash Flows for the Six
            Months Ended March 29, 2003 and March 30, 2002                   3

         Notes to Condensed Consolidated Financial Statements                4

Item 2.  Management's Discussion and Analysis of Financial Condition and
            Results of Operations                                           15

Item 3.  Quantitative and Qualitative Disclosure About Market Risk          30

Item 4.  Evaluation of Disclosure Controls and Procedures                   31

PART II. OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders                32

Item 6.  Exhibits and Reports on Form 8-K                                   32

Signatures

<PAGE>


PART I.  FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements (Unaudited)

                               KRONOS INCORPORATED
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
               (In thousands, except share and per share amounts)
                                    UNAUDITED
<TABLE>
<CAPTION>

                                                          Three Months Ended                Six Months Ended
                                                     -----------------------------     -----------------------------
                                                       March 29,        March 30,       March 29,        March 30,
                                                         2003             2002            2003             2002
                                                     ------------     ------------     ------------     ------------
<S>                                                  <C>              <C>              <C>              <C>
Net revenues:
   Product ......................................    $     44,143     $     33,979     $     83,030     $     69,193
   Maintenance ..................................          29,666           26,953           58,651           50,374
   Professional services ........................          22,672           19,002           44,509           36,496
                                                     ------------     ------------     ------------     ------------
                                                           96,481           79,934          186,190          156,063
Cost of sales:
   Costs of product .............................          10,929            8,396           20,356           16,850
   Costs of maintenance and professional services          27,627           22,930           53,500           43,744
                                                     ------------     ------------     ------------     ------------
                                                           38,556           31,326           73,856           60,594
                                                     ------------     ------------     ------------     ------------
       Gross profit .............................          57,925           48,608          112,334           95,469
Operating expenses and other income:
   Sales and marketing ..........................          31,369           26,058           60,422           51,249
   Engineering, research and development ........           9,552            9,251           18,035           17,187
   General and administrative ...................           6,390            5,075           12,435            9,607
   Amortization of intangible assets ............             789              724            1,508            1,367
   Other income, net ............................          (1,522)          (1,314)          (2,427)          (2,289)
                                                     ------------     ------------     ------------     ------------
                                                           46,578           39,794           89,973           77,121

       Income before income taxes ...............          11,347            8,814           22,361           18,348
Provision for income taxes ......................           4,085            3,041            8,050            6,378
                                                     ------------     ------------     ------------     ------------
       Net income ...............................    $      7,262     $      5,773     $     14,311     $     11,970
                                                     ============     ============     ============     ============

Net income per common share:
       Basic ....................................    $       0.37     $       0.29     $       0.72     $       0.61
                                                     ============     ============     ============     ============
       Diluted ..................................    $       0.35     $       0.28     $       0.70     $       0.58
                                                     ============     ============     ============     ============

Weighted-average common shares outstanding:
       Basic ....................................      19,853,535       19,760,008       19,746,681       19,582,466
                                                     ============     ============     ============     ============
       Diluted ..................................      20,555,609       20,765,450       20,482,681       20,576,827
                                                     ============     ============     ============     ============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

<PAGE>


                              KRONOS INCORPORATED
                      CONDENSED CONSOLIDATED BALANCE SHEETS
               (In thousands, except share and per share amounts)
                                    UNAUDITED

<TABLE>
<CAPTION>

                                                                                               March 29,    September 30,
                                                                                                 2003           2002
                                                                                              ----------    -------------

                                            ASSETS
<S>                                                                                           <C>           <C>
Current assets:
     Cash and equivalents ................................................................    $  56,466     $  34,117
     Marketable securities ...............................................................       12,207        16,096
     Accounts receivable, less allowances of $8,014 ......................................       71,716        84,128
         at March 29, 2003 and $9,697 at September 30, 2002
     Deferred income taxes ...............................................................        7,397         6,893
     Other current assets ................................................................       18,960        17,835
                                                                                              ---------     ---------
             Total current assets ........................................................      166,746       159,069

Property, plant and equipment, net .......................................................       39,537        38,635
Marketable securities ....................................................................       25,347        24,534
Intangible assets ........................................................................       25,202        20,545
Goodwill .................................................................................       65,758        56,167
Capitalized software, net ................................................................       22,434        22,237
Other assets .............................................................................       10,905        11,837
                                                                                              ---------     ---------
             Total assets ................................................................    $ 355,929     $ 333,024
                                                                                              =========     =========

                             LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Accounts payable ....................................................................    $   7,692     $   6,212
     Accrued compensation ................................................................       28,546        32,674
     Accrued expenses and other current liabilities ......................................       12,105        10,831
     Deferred product revenues ...........................................................        5,620         6,853
     Deferred professional service revenues ..............................................       33,953        33,551
     Deferred maintenance revenues .......................................................       71,555        66,550
                                                                                              ---------     ---------
             Total current liabilities ...................................................      159,471       156,671

Deferred maintenance revenues ............................................................        7,317         8,588
Deferred income taxes ....................................................................        6,124         4,565
Other liabilities ........................................................................        3,765         3,531

Shareholders' equity:
     Preferred Stock, par value $1.00 per share:  authorized 1,000,000 shares,
         no shares issued and outstanding ................................................         --            --
     Common Stock, par value $.01 per share:  authorized 50,000,000 shares, 19,919,288 and
          19,911,952 shares issued at March 29, 2003 and September 30, 2002, respectively           199           199
     Additional paid-in capital ..........................................................       26,743        31,494
     Retained earnings ...................................................................      157,486       143,175
     Cost of Treasury Stock (113,709 shares and 366,062 shares at
         March 29, 2003 and September 30, 2002, respectively) ............................       (4,187)      (14,020)
     Accumulated other comprehensive loss:
         Foreign currency translation ....................................................         (912)       (1,372)
         Net unrealized (loss)/gain on available-for-sale investments ....................          (77)          193
                                                                                              ---------     ---------
                                                                                                   (989)       (1,179)

             Total shareholders' equity ..................................................      179,252       159,669
                                                                                              ---------     ---------
             Total liabilities and shareholders' equity ..................................    $ 355,929     $ 333,024
                                                                                              =========     =========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

<PAGE>


                               KRONOS INCORPORATED
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                    UNAUDITED

<TABLE>
<CAPTION>


                                                                                        Six Months Ended
                                                                                     -----------------------
                                                                                      March 29,    March 30,
                                                                                        2003         2002
                                                                                     ----------    ---------

<S>                                                                                   <C>          <C>
Operating activities:
     Net income ..................................................................    $ 14,311     $ 11,970
     Adjustments to reconcile net income to net cash and equivalents
        provided by operating activities:
           Depreciation ..........................................................       5,317        4,518
           Amortization of intangible assets .....................................       1,514        1,369
           Amortization of capitalized software ..................................       5,673        4,516
           Provision for deferred income taxes ...................................       1,061           45
           Changes in certain operating assets and liabilities:
              Accounts receivable, net ...........................................      12,487       24,692
               Deferred product revenues .........................................      (1,302)        (976)
               Deferred professional service revenues ............................        (480)      (3,531)
               Deferred maintenance revenues .....................................       1,055       (3,718)
              Accounts payable, accrued compensation
               and other liabilities .............................................      (2,212)      (6,604)
               Taxes payable .....................................................      (1,960)      (7,054)
               Other .............................................................         419         (385)
           Tax benefit from exercise of stock options ............................       4,258        9,654
                                                                                      --------     --------
               Net cash and equivalents provided by operating activities .........      40,141       34,496
Investing activities:
     Purchase of property, plant and equipment ...................................      (6,106)      (5,202)
     Capitalized internal software development costs .............................      (5,870)      (5,429)
     Decrease (increase) in marketable securities ................................       3,075      (16,704)
     Acquisitions of businesses and software, net of cash acquired ...............      (9,943)     (27,424)
                                                                                      --------     --------
               Net cash and equivalents used in investing activities .............     (18,844)     (54,759)
Financing activities:
     Net proceeds from exercise of stock options and
        employee purchase plans ..................................................      10,582       15,006
     Purchase of treasury stock ..................................................     (12,474)     (14,217)
     Proceeds from (net investment in) call options ..............................       2,596       (2,810)
                                                                                      --------     --------
               Net cash and equivalents provided by/(used in) financing activities         704       (2,021)
Effect of exchange rate changes on cash and equivalents ..........................         348          (27)
                                                                                      --------     --------
Increase (decrease) in cash and equivalents ......................................      22,349      (22,311)
Cash and equivalents at the beginning of the period ..............................      34,117       36,561
                                                                                      --------     --------
Cash and equivalents at the end of the period ....................................    $ 56,466     $ 14,250
                                                                                      ========     ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

<PAGE>

                               KRONOS INCORPORATED
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE A - General

The accompanying  unaudited condensed  consolidated financial statements include
all  adjustments,  consisting of normal  recurring  accruals that  management of
Kronos  Incorporated (the "Company" or "Kronos")  considers necessary for a fair
presentation of the Company's financial position and results of operations as of
and for the interim periods  presented  pursuant to the rules and regulations of
the Securities and Exchange  Commission.  Certain footnote  disclosures normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted pursuant to such rules and
regulations,  although the Company  believes the  disclosures in these financial
statements are adequate to make the information presented not misleading.  These
condensed  consolidated  financial statements should be read in conjunction with
the Company's audited  financial  statements for the fiscal year ended September
30, 2002. The results of operations for the three and six months ended March 29,
2003 are not  necessarily  indicative  of the results  for a full  fiscal  year.
Certain  reclassifications  have  been  made  in the  accompanying  consolidated
financial statements in order to conform to the fiscal 2003 presentation.

NOTE B  -  Fiscal Quarters

The Company utilizes a system of fiscal quarters.  Under this system,  the first
three  quarters  of each  fiscal  year end on a  Saturday.  However,  the fourth
quarter of each fiscal year will always end on  September  30.  Because of this,
the number of days in the first  quarter  (89 days in fiscal 2003 and 90 days in
fiscal  2002) and fourth  quarter  (94 days in fiscal 2003 and 93 days in fiscal
2002) of each  fiscal  year  varies  from  year to year.  The  second  and third
quarters of each fiscal year will be exactly  thirteen  weeks long.  This policy
does not have a material  effect on the  comparability  of results of operations
between quarters.

NOTE C - Other Current Assets

Other current assets consists of the following (in thousands):

                                    March 29,            September 30,
                                      2003                   2002
                                    ---------            -------------
Inventory                            $ 6,440                $ 6,492
Prepaid expenses                      12,520                 11,343
                                     -------                -------
    Total                            $18,960                $17,835
                                     =======                =======


<PAGE>


NOTE D - Intangible Assets

Acquired intangible assets subject to amortization are presented in the
following table (in thousands).

As of March 29, 2003:

<TABLE>
<CAPTION>
                                            Weighted
                                            Average        Gross
                                            Life in       Carrying      Accumulated         Net Book
                                             Years         Value        Amortization         Value
                                            --------      --------      ------------        --------


<S>                                           <C>         <C>              <C>              <C>
Intangible assets:
    Customer related ........                  9.9        $21,458          $ 8,036          $13,422

    Maintenance relationships                 11.9          8,883              725            8,158

    Tax benefits ............                 10.7          2,131              417            1,714

    Non-compete agreements ..                  4.2          3,265            1,357            1,908
                                                          -------          -------          -------
Total intangible assets .....                             $35,737          $10,535          $25,202
                                                          =======          =======          =======


As of September 30, 2002:

Intangible assets:
    Customer related ........                  9.5        $19,166          $ 6,851          $12,315

    Maintenance relationships                 11.9          6,267              535            5,732

    Tax benefits ............                 10.7          2,127              309            1,818

    Non-compete agreements ..                  5.1          1,908            1,228              680
                                                          -------          -------          -------
Total intangible assets .....                             $29,468          $ 8,923          $20,545
                                                          =======          =======          =======
</TABLE>

For the three  months  ended  March 29, 2003 and March 30,  2002,  the amount of
acquired goodwill is $8.1 million and $6.7 million,  respectively. The amount of
goodwill  acquired during the six months ended March 29, 2003 and March 30, 2002
is $9.3 million and $21.7 million, respectively.

For the  three and six  months  ended  March  29,  2003,  the  Company  recorded
amortization  expense for  intangible  assets of $.8  million and $1.5  million,
respectively.  The estimated annual  amortization  expense for intangible assets
for the current and next five fiscal years is as follows (in thousands):

<PAGE>

          Fiscal Year Ending                     Estimated Annual
            September 30,                      Amortization Expense
          ------------------                   --------------------

                 2003                                   $3,452
                 2004                                    3,553
                 2005                                    3,073
                 2006                                    2,791
                 2007                                    2,555
                 2008                                    2,452


NOTE E - Acquisitions

On March 11, 2003,  the Company  completed the  acquisition of certain assets of
Ban-koe Systems,  Inc. ("BKS"),  the former  Minnesota-based  Kronos dealer. The
aggregate purchase price was not material to the Company's  financial  position.
The results of BKS's operations, which are not material to the Company's results
of operations, have been included in the consolidated financial statements since
that  date.  BKS was  engaged  in the  sale and  service  of  employee  time and
attendance,  employee scheduling,  data collection and labor management hardware
and software systems,  including the resale of the Company's  products through a
dealer relationship.  As a result of the acquisition,  the Company gained access
to existing and  prospective  customers in several states  (including  Michigan,
Illinois,  Iowa, Wisconsin,  and Minnesota) through its direct sales and service
organizations, as well as access to the existing maintenance revenue stream from
BKS customers.  The deferred revenue related to the maintenance  revenue stream,
which was recorded at an amount approximating cost, plus a normal profit margin,
was  recognized  as the Company had assumed a legal  performance  obligation  as
described in EITF 01-03. Due to the timing of the BKS  acquisition,  the Company
has not finalized the allocation of the purchase price.


On January 20, 2003, the Company  completed the  acquisition of the  maintenance
agreements of DataPro Solutions,  Inc. ("DP"), the former Washington state-based
Kronos  dealer.  The aggregate  purchase price was not material to the Company's
financial position. The results of DP operations,  which are not material to the
Company's  results  of  operations,  have  been  included  in  the  consolidated
financial  statements since that date. DP was engaged in the sale and service of
employee time and  attendance,  employee  scheduling,  data collection and labor
management hardware and software systems,  including the resale of the Company's
products  through a dealer  relationship.  As a result of the  acquisition,  the
Company  gained  access  to the  existing  maintenance  revenue  stream  from DP
customers. The deferred revenue related to the maintenance revenue stream, which
was recorded at an amount  approximating  cost, plus a normal profit margin, was
recognized  as the  Company  had  assumed  a  legal  performance  obligation  as
described in EITF 01-03.

<PAGE>

On November 20, 2002,  the Company  completed the  acquisition of certain assets
and the ongoing business operations of Hi-Tek Special Systems,  Inc. ("HT"), the
former  Texas-based Kronos dealer. The aggregate purchase price was not material
to the Company's financial position.  The results of HT's operations,  which are
not material to the Company's  results of operations,  have been included in the
consolidated  financial  statements  since that date. HT was engaged in the sale
and  service  of  employee  time  and  attendance,   employee  scheduling,  data
collection and labor  management  hardware and software  systems,  including the
resale of the Company's products through a dealer  relationship.  As a result of
the acquisition, the Company gained access to existing and prospective customers
in the Texas,  New Mexico and Mexico area  through its direct  sales and service
organizations, as well as access to the existing maintenance revenue stream from
HT customers.  The deferred  revenue related to the maintenance  revenue stream,
which was recorded at an amount approximating cost, plus a normal profit margin,
was  recognized  as the Company had assumed a legal  performance  obligation  as
described in EITF 01-03.

On December 28, 2001,  the Company  completed the  acquisition of certain assets
and the ongoing  business  operations  of the  Integrated  Software  Business of
SimplexGrinnell's   Workforce   Solutions  Division   ("SimplexGrinnell").   The
aggregate   purchase   price  was  $22.1   million  in  cash.   The  results  of
SimplexGrinnell's  operations have been included in the  consolidated  financial
statements  since that date.  SimplexGrinnell  was  engaged in the  development,
sales and support of integrated  workforce  management software solutions.  As a
result of the  acquisition,  the  Company  has  increased  its  presence  in the
mid-market  sector,   which  includes  companies  with  between  100  and  1,000
employees.

The  SimplexGrinnell  transaction was accounted for under the purchase method of
accounting and accordingly, the assets and liabilities acquired were recorded at
their  estimated  fair  values at the  effective  date of the  acquisition.  The
goodwill  recognized is deductible for income tax purposes.  The following table
summarizes  the  estimated  fair values of the assets  acquired and  liabilities
assumed at the date of the acquisition (in thousands).

                                                           At December 28, 2001
                                                           --------------------

Accounts receivable                                                  $6,678
Customer related intangible asset (amortized over                     1,100
12 years)
Maintenance relationships intangible asset                            2,500
(amortized over 12 years)
Goodwill                                                             18,065
Other assets                                                            768
                                                                     ------
    Total assets acquired                                            29,111

Deferred professional services revenue                              (1,564)
Deferred maintenance revenue                                        (5,157)
Other liabilities                                                     (340)
                                                                    -------
    Total liabilities assumed                                       (7,061)
                                                                    -------
Net assets acquired                                                 $22,050
                                                                    =======

<PAGE>

In  connection   with  the   acquisition  of  the  assets  and   liabilities  of
SimplexGrinnell  in December 2001, the Company  acquired  obligations to provide
services  associated  with  maintenance  contracts  and  obligations  to provide
professional services,  primarily installation services. The amounts of deferred
revenue ascribed to acquired maintenance  obligations and professional  services
amounts to $5.2 million and $1.6 million,  respectively.  The deferred  revenue,
which was recorded at an amount approximating cost, plus a normal profit margin,
was  recognized  as the Company had assumed a legal  performance  obligation  as
described in EITF 01-03.  The  acquired  maintenance  arrangements  required the
Company to provide phone  support,  bug fixes and  unspecified  upgrades for the
remaining  contract  terms.  The  acquired   professional  services  obligations
required the Company to provide installation services.

Certain  agreements  contain  provisions  that  require  the  Company  to make a
guaranteed  payment and/or contingent  payments based upon  profitability of the
business  unit or if  specified  minimum  revenue  requirements  are met.  These
provisions  expire  during  fiscal 2003 through  2006.  Guaranteed  payments are
accrued at the time of the  acquisition  and are included in the purchase  price
allocation.  Contingent  payments  due  under the  terms of the  agreements  are
recognized when earned and are principally recorded as goodwill.  However, under
certain  circumstances,  a portion of the contingent  payment may be recorded as
compensation expense. During the three months ended March 29, 2003 and March 30,
2002, $1.2 million and $.6 million,  respectively,  of contingent  payments were
earned,  all of which were recorded as goodwill.  During the first six months of
fiscal 2003 and 2002, $1.8 million and $.8 million,  respectively, of contingent
payments were earned, all of which were recorded as goodwill.  There are several
contingent payment arrangements currently outstanding,  on which the Company may
have future  payment  obligations,  contingent  upon the  achievement of various
financial  performance  goals.  As of  March  29,  2003,  the  Company  has  the
obligation to pay $4.9 million in guaranteed  payments.  These  payments will be
made at various dates through fiscal 2006.

NOTE F - Comprehensive Income

For the three and six months ended March 29, 2003 and March 30, 2002,
comprehensive income consisted of the following (in thousands):

<TABLE>
<CAPTION>

                                           Three Months Ended                 Six Months Ended
                                        -------------------------        --------------------------
                                        March 29,       March 30,        March 29,        March 30,
                                          2003            2002             2003             2002
                                        ---------       ---------        ---------        ---------
<S>                                      <C>             <C>             <C>              <C>
Comprehensive income:
Net income ......................         $7,262          $5,773          $14,311          $11,970
Cumulative translation adjustment            262             125              460              328
Unrealized loss on
available-for-sale securities ...           (155)           (274)            (270)            (425)
                                         -------         -------         --------         --------
Total comprehensive income ......         $7,369          $5,624          $14,501          $11,873
                                         =======         =======         ========         ========
</TABLE>

<PAGE>

NOTE G - Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except share and per share data):

<TABLE>
<CAPTION>

                                                 Three Months Ended                       Six Months Ended
                                            ------------------------------        ---------------------------------
                                             March 29,          March 30,          March 29,            March 30,
                                               2003               2002               2003                 2002
                                            -----------        -----------        -----------        --------------

<S>                                         <C>                <C>                <C>                <C>
Net income .........................        $     7,262        $     5,773        $    14,311        $       11,970
                                            ===========        ===========        ===========        ==============

Weighted-average shares ............         19,853,535         19,760,008         19,746,681            19,582,466
Effect of dilutive securities:
    Employee stock options .........            702,074          1,005,442            736,000               994,361
                                            -----------        -----------        -----------        --------------
Adjusted weighted-average shares and
assumed conversions ................         20,555,609         20,765,450         20,482,681            20,576,827
                                            ===========        ===========        ===========        ==============
Basic earnings per share ...........        $      0.37        $      0.29        $      0.72        $         0.61
                                            ===========        ===========        ===========        ==============
Diluted earnings per share .........        $      0.35        $      0.28        $      0.70        $         0.58
                                            ===========        ===========        ===========        ==============
</TABLE>


NOTE H - New Accounting Pronouncements

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation  - Transition  and  Disclosure - an amendment of FASB Statement No.
123." This statement provides  alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based compensation.  The
statement  amends  the  disclosure  requirements  of FASB  Statement  No. 123 to
require  prominent  disclosure in both annual and interim  financial  statements
about the method of accounting for  stock-based  compensation  and the effect of
the method  used on  reported  results.  The Company  accounts  for  stock-based
compensation  arrangements  in  accordance  with the  provisions  of  Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
complies  with  the  disclosure  provisions  of  FASB  Statement  No.  123.  The
transition  provisions  are effective for fiscal years ending after December 15,
2002. The  disclosure  provisions  are effective for interim  periods  beginning
after December 15, 2002.  The Company has  implemented  the required  disclosure
provisions in the three month period ending March 29, 2003. The adoption of this
statement  is  not  expected  to  have  a  material   impact  on  the  Company's
consolidated  financial  position,  results of  operations  or cash flows as the
Company does not anticipate making the voluntary change to the fair value method
of accounting for stock-based compensation.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities,  an interpretation of Accounting Research Bulletin No. 51." FIN No. 46
requires certain variable interest entities,  or VIEs, to be consolidated by the
primary  beneficiary of the entity if the equity  investors in the entity 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.  FIN No. 46 is
effective  for all VIEs created or acquired  after  January 31,  2003.  For VIEs
created or acquired prior to February 1, 2003, the provisions of FIN No. 46 must
be applied for the first interim or annual period beginning after June 15, 2003.
The  Company  currently  has  no  contractual  relationship  or  other  business
relationship  with a variable  interest entity and therefore the adoption of FIN
No. 46 did not have a material  effect on the Company's  consolidated  financial
position, results of operations or cash flows.

<PAGE>

NOTE I - Call  Option  Arrangements

The  Company  periodically  enters  into  call  option  arrangements,  which are
classified as an equity  instrument in  accordance  with the  provisions of EITF
00-19,   "Accounting  for  Derivative  Financial  Instruments  Indexed  to,  and
Potentially  Settled in, a Company's  Own  Stock."  During the six month  period
ended March 29, 2003, a call option  arrangement  matured in December  2002.  At
maturity,  the  Company's  stock price  exceeded  the strike price of $25.00 per
share and the  Company  received a return of its cash  investment  and a premium
totaling   approximately   $2.6   million,   which  is  credited  to  additional
paid-in-capital.  If at  maturity  the  Company's  stock price was less than the
strike  price,  the Company would use its cash  investment  to purchase  Company
shares at a predetermined  price. A call option arrangement provides the Company
an  opportunity  to lock in a repurchase  price for shares  under the  Company's
stock  repurchase  program.  There are no dividend and liquidation  preferences,
participation rights,  sinking-fund  requirements,  unusual voting rights or any
other significant terms pertaining to these call option arrangements.  As of the
balance  sheet  date,  the  Company  did not have any call  option  arrangements
outstanding.

NOTE J - Stock-Based Compensation

The Company accounts for its stock-based compensation plan under the recognition
and measurement  principles of APB Opinion No. 25,  "Accounting for Stock Issued
to Employees", and related Interpretations. No stock-based employee compensation
cost is reflected in net income, as all options granted under those plans had an
exercise price equal to the market value of the  underlying  common stock on the
date of grant.  The  following  table  illustrates  the effect on net income and
earnings  per  share if the  Company  had  applied  the fair  value  recognition
provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation",
to stock-based employee compensation (in thousands, except per share data).

<PAGE>
<TABLE>
<CAPTION>
                                                    Three Months Ended            Six Months Ended
                                                 -----------------------     --------------------------
                                                 March 29,     March 30,     March 29,        March 30,
                                                   2003          2002          2003             2002
                                                 ---------     ---------     ---------       ----------

<S>                                               <C>           <C>           <C>            <C>
Net income, as reported ..................        $7,262        $5,773        $14,311        $   11,970
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects                               (2,525)       (2,663)        (4,130)           (4,035)
                                                  ------        ------        -------        ----------

Pro forma net income .....................        $4,737        $3,110        $10,181        $    7,935
                                                  ======        ======        =======        ==========

Earnings per share:
     Basic--as reported ..................        $ 0.37        $ 0.29        $  0.72        $     0.61
                                                  ======        ======        =======        ==========
     Basic--pro forma ....................        $ 0.24        $ 0.16        $  0.52        $     0.41
                                                  ======        ======        =======        ==========

     Diluted--as reported ................        $ 0.35        $ 0.28        $  0.70        $     0.58
                                                  ======        ======        =======        ==========
     Diluted--pro forma ..................        $ 0.23        $ 0.15        $  0.50        $     0.39
                                                  ======        ======        =======        ==========

</TABLE>

NOTE K - Additional Stock Option Program Information

Option Program Description: The Company intends that its stock option program be
its  primary  vehicle  for  offering  long-term  incentives  and  rewarding  its
executives and key employees.  Stock options are granted to key employees  based
upon,  among other things,  prior  performance of the executive or key employee,
the importance of retaining their services for the Company and the potential for
their  performance to help the Company attain its long-term  goals.  There is no
set formula for the award of options to individual executives or employees.

Stock  options  are  generally   granted   annually  in  conjunction   with  the
Compensation  Committee's formal review of the individual performance of its key
executives,  including its Chief Executive Officer,  and their  contributions to
the Company.  In the six month  period ended March 29, 2003,  76% of the options
granted went to employees  other than the Named  Executive  Officers.  The Named
Executive  Officers for the first six month period of fiscal 2003 and for fiscal
2002, for purposes of this footnote,  are the same Named Executive  Officers for
fiscal 2002,  which are identified in the Company's  definitive  proxy statement
for the 2003 Annual Meeting of  Stockholders.  The Named Executive  Officers for
fiscal 2001 are the officers  which are  identified in the Company's  definitive
proxy  statement for the 2002 Annual  Meeting of  Stockholders.  All the options
awarded are granted from the same plan.  Options,  which are granted at the fair
market  value on the date of grant,  typically  vest  annually  over a four-year
period  beginning one year from the date of grant and have a contractual life of
four years and six months.

<PAGE>


Distribution and Dilutive Effect of Options:

Employee and Named Executive Officer Option Grants:
<TABLE>
<CAPTION>


                                                       For the Six Month       For the Fiscal         For the Fiscal
                                                          Period Ended           Year Ended             Year Ended
                                                         March 29, 2003      September 30, 2002     September 30, 2001
                                                       ------------------    ------------------     ------------------

<S>                                                              <C>                 <C>                 <C>
Net grants during period as % of outstanding ...                  4.2%                4.7%                4.2%
shares
Grants to Named Executive Officers during period                 24.2%               25.3%               17.0%
as % of options granted
Grants to Named Executive Officers .............                  1.0%                1.2%                0.7%
during period as % of shares outstanding

</TABLE>

General Option Information:

Summary of Option Activity
(in thousands, except per share data)
<TABLE>
<CAPTION>


                                                                    Number of           Weighted-Average
                                           Shares Available       Option Shares          Exercise Price
                                             for Options           Outstanding             per Share
                                           ----------------       -------------         ----------------
<S>                                              <C>                   <C>                     <C>
Outstanding at September 30, 2002                1,624                 2,641                   $23.18

      Grants ....................                 (827)                  827                    25.34
      Exercises .................                   --                  (483)                   16.57


      Cancellations .............                    2                   (27)                   23.08
      Additional shares reserved                    --                    --                       --
                                                ------                ------                   ------

Outstanding at  March 29, 2003 ..                  799                 2,958                   $24.86
                                                ======                ======                   ======
</TABLE>

In-the-Money and Out-of-the-Money Option Information as of March 29, 2003
(in thousands, except per share data)
<TABLE>
<CAPTION>

                                       Exercisable                Unexercisable                  Total
                                 ----------------------      -----------------------    ------------------------
                                              Weighted-                    Weighted-                   Weighted-
                                               Average                      Average                     Average
                                              Exercise                     Exercise                    Exercise
                                              Price per                    Price per                   Price per
                                 Shares         Share        Shares          Share      Shares           Share
                                 ------       ---------      ------        ---------    ------         ---------
<S>                                <C>          <C>          <C>            <C>          <C>            <C>
In-the-Money ............          746          $23.28       2,063          $24.26       2,809          $24.00

Out-of-the-Money (1) ....           28          $43.68         121          $40.52         149          $41.12
                                   ---          ------       -----          ------       -----          ------

Total Options Outstanding          774          $24.02       2,184          $25.16       2,958          $24.86
                                   ===          ======       =====          ======       =====          ======
</TABLE>


(1)  Out-of-the-Money  options are those options with an exercise price equal to
     or above the closing price of $36.25 at the end of the current quarter.


<PAGE>

Executive  Options:  The following  tables summarize option grants and exercises
during  the six  month  period  ended  March  29,  2003 to the  Company's  Named
Executive  Officers  and the value of the options  held by such persons at March
29, 2003.

Options Granted to Named Executive Officers
<TABLE>
<CAPTION>

                                                                                                      Potential Realizable
                                                                                                        Value at Assumed
                                                                                                        Annual Rates of
                                                                                                          Stock Price
                                                                                                        Appreciation for
                                                  Individual Grants                                      Option Term(4)
                            ---------------------------------------------------------------        --------------------------


                                              Percent of Total
                              Number of       Options Granted
                              Securities      to Employees in
                              Underlying      Six Month Period    Exercise or
                            Options Granted   Ended March 29,     Base Price     Expiration
Name                              (1)             2003 (2)       per Share (3)      Date              5%                10%
----                        ---------------   ----------------   -------------   ----------        --------          --------

<S>                                <C>               <C>         <C>             <C>               <C>               <C>
Mark S. Ain .............          60,000            7.3%        $   24.86       04/07/07          $366,775          $801,444
CEO & Chairman

Paul A. Lacy ............          40,000            4.8%            24.86       04/07/07           244,517           534,296
Exec. V.P. and Chief
Financial &
Administrative Officer

Aron J. Ain .............          40,000            4.8%            24.86       04/07/07           244,517           534,296
Exec. V.P. and Chief
Operating Officer

Peter C. George .........          30,000            3.6%            24.86       04/07/07           183,388           400,722
V.P., Engineering & Chief
Technology Officer

James Kizielewicz .......          30,000            3.6%            24.86       04/07/07           183,388           400,722
V.P., Marketing and
Corporate Strategy

</TABLE>

(1)  Each option vests in four equal  annual  installments  commencing  one year
     from the date of grant.

(2)  Based on an  aggregate  of 827,400  shares  subject  to options  granted to
     employees of the Company in the six month period ended March 29, 2003.

(3)  The exercise price of each option was equal to the fair market value of the
     Company's  common  stock on the date of grant  as  reported  by The  NASDAQ
     National Market(R).

(4)  Amounts  represent  hypothetical  gains  that  could  be  achieved  for the
     respective  options if exercised at the end of the option term. These gains
     are based on assumed rates of stock  appreciation  of 5% and 10% compounded
     annually  from  the date  the  respective  options  were  granted  to their
     expiration date (and are shown net of the option exercise price, but do not
     include deductions for taxes or other expenses associated with the exercise
     of the options or the sale of the underlying shares.) Actual gains, if any,
     on stock  option  exercises  will depend on the future  performance  of the
     common stock,  the  optionholder's  continued  employment  with the Company
     through  the option  vesting  period and the date on which the  options are
     exercised.

<PAGE>

Option Exercises and Remaining Holdings of Named Executive Officers (for the
six month period ended March 29, 2003)

<TABLE>
<CAPTION>

                                                              Number of Securities
                                                                   Underlying           Value of Unexercised
                                                              Unexercised Options      In-The-Money Options at
                                                               at March 29, 2003          March 29, 2003 (2)

                      Shares Acquired      Value Realized        Exercisable/                Exercisable/
Name                    on Exercise             (1)             Unexercisable               Unexercisable
----                  ---------------      --------------     --------------------     -----------------------
<S>                        <C>             <C>                 <C>                     <C>
Mark S. Ain .....          67,500          $1,890,675          96,000/153,000          $1,106,438/1,657,463


Paul A. Lacy ....          27,000             725,940          52,500/98,500           610,823/1,061,458

Aron J. Ain .....          27,000             783,720          52,500/98,500           610,823/1,061,458


Peter C. George .          11,250             284,288          42,000/73,500           584,025/807,675

James Kizielewicz          13,500             398,620          27,000/75,000           313,605/799,305

</TABLE>

(1)  Represents  the  difference  between the exercise price and the fair market
     value of the common stock on the date of exercise.

(2)  Based on the  fair  market  value of the  common  stock on March  29,  2003
     ($36.25),  the last day of the second  quarter of the Company's 2003 fiscal
     year, less the option exercise price.

<PAGE>

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

Forward-Looking Statements

     This discussion includes certain  forward-looking  statements about Kronos'
business  and its  expectations,  including  statements  relating  to  revenues,
product and service  revenues and revenue  growth  rates,  deferred  maintenance
revenue,  gross profit, future acquisitions and available cash,  investments and
operating cash flow,  Kronos' ability to obtain third-party  financing,  and the
future effects of accounting pronouncements.  Any such statements are subject to
risk that could cause the actual results to vary materially  from  expectations.
For a further  discussion of the various risks that may affect Kronos'  business
and expectations, see "Certain Factors That May Affect Future Operating Results"
in our Annual  Report of Form 10-K for the fiscal year ended  September 30, 2002
at the end of  Management's  Discussion and Analysis of Financial  Condition and
Results of Operations.  The risks and uncertainties  discussed herein and in our
Annual Report on Form 10-K for the year ended  September 30, 2002 do not reflect
the potential  future impact of any mergers,  acquisitions or  dispositions.  In
addition, any forward-looking  statements represent our estimates only as of the
day this Quarterly Report was filed with the Securities and Exchange  Commission
and should not be relied upon as representing our estimates as of any subsequent
date. While we may elect to update  forward-looking  statements as some point in
the  future,  we  specifically  disclaim  any  obligation  to do so, even if our
estimates change.

Overview

     Kronos is a single-source provider of human resources, payroll, scheduling,
and time and labor solutions. Kronos' solutions are designed for a wide range of
businesses  from  single-site to large  multi-site  enterprises.  Kronos derives
revenues  from the  licensing of its software  solutions,  sales of its hardware
solutions  and  providing  professional  services  as well as  ongoing  customer
support and maintenance.

     Management  at Kronos  believes that the  continued  economic  downturn may
result in many customers deferring or reducing their technology purchases in the
future.  While  management  believes the impact on technology  purchasing may be
temporary,  the effect may  continue to cause delays or  reductions  in customer
purchases of Kronos products and services in the future.

     Regarding  expectations  for the  remainder  of the  current  fiscal  year,
management  presently  anticipates that revenue growth for the third quarter and
for the entire fiscal 2003,  including  revenues from customers  obtained in the
acquisition  of  businesses,  will  range  between  11% -  15%  and  11% -  13%,
respectively.

<PAGE>

Critical Accounting Policies

     Management's  discussion and analysis of financial condition and results of
operations are based upon Kronos' consolidated financial statements,  which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
Kronos to make  estimates and  assumptions  that affect the reported  amounts of
assets and  liabilities,  revenue  and  expenses,  and  related  disclosures  of
contingent  assets and  liabilities.  Kronos bases its  estimates on  historical
experience  and various  other  assumptions  that are believed to be  reasonable
under the circumstances.  Actual results could differ from these estimates under
different assumptions or conditions.

     Kronos has  identified  the  following  critical  accounting  policies that
affect the more  significant  judgments and estimates used in the preparation of
consolidated  financial statements.  This listing is not a comprehensive list of
all of  Kronos'  accounting  policies.  Please  refer to Note A in the  Notes to
Consolidated  Financial  Statements in Item 15 of Kronos'  Annual Report on Form
10-K for the fiscal year ended September 30, 2002 for further information.

     Revenue  Recognition  -  The  Company  licenses  software  and  sells  data
collection hardware and related ancillary products to end-user customers through
its direct sales force as well as indirect  channel  customers,  Automatic  Data
Processing, Inc. ("ADP") and its independent resellers. Substantially all of the
Company's  software  license  revenue  is  earned  from  perpetual  licenses  of
off-the-shelf software requiring no modification or customization.  The software
license,  data collection  hardware and related  ancillary product revenues from
the Company's  end-user  customers and indirect channel  customers are generally
recognized using the residual method when:

o    persuasive  evidence of an  arrangement  exists,  which is typically when a
     non-cancelable sales and software license agreement has been signed;
o    delivery,  which is  typically  FOB  shipping  point,  is complete  for the
     software (either physically or  electronically),  data collection  hardware
     and related ancillary products;
o    the  customer's  fee is  deemed  to be  fixed or  determinable  and free of
     contingencies or significant uncertainties;
o    collectibility is probable; and
o    vendor specific objective evidence of fair value exists for all undelivered
     elements, typically maintenance and professional services.


     Under the residual  method,  the fair value of the undelivered  elements is
deferred and the remaining  portion of the  arrangement  fee is allocated to the
delivered  elements and is recognized as revenue,  assuming all other conditions
for revenue recognition have been satisfied.  Substantially all of the Company's
product  revenue is recognized in this manner.  If the Company cannot  determine
the fair  value of any  undelivered  element  included  in an  arrangement,  the
Company  will defer  revenue  until all  elements  are  delivered,  services are
performed or until fair value can be objectively determined.

<PAGE>

     As  part  of  an  arrangement,   end-user   customers   typically  purchase
maintenance  contracts  as well  as  professional  services  from  the  Company.
Maintenance  services include  telephone and Web-based support as well as rights
to  unspecified  upgrades and  enhancements,  when and if the Company makes them
generally  available.  Professional  services are deemed to be non-essential and
typically are for implementation planning, loading of software,  installation of
the data collection hardware, training, building simple interfaces, running test
data, and assisting in the development and  documentation  of pay rules and best
practices consulting.

     Revenues from maintenance  services are recognized ratably over the term of
the maintenance  contract period based on vendor specific  objective evidence of
fair value.  Vendor specific  objective evidence of fair value is based upon the
amount  charged when  purchased  separately,  which is typically the  contract's
renewal  rate.  Maintenance  services  are  typically  stated  separately  in an
arrangement.  The Company has  classified  the allocated  fair value of revenues
pertaining  to the  contractual  maintenance  obligations  that  exist  for  the
12-month period subsequent to the balance sheet date as a current liability, and
the  contractual  obligations  with a term  beyond 12  months  as a  non-current
liability.  Revenues from time and material  maintenance services are recognized
as the services are delivered.

     Revenues  from  professional  services are  generally  recognized  based on
vendor  specific  objective  evidence of fair value when:  (1) a  non-cancelable
agreement  for the services has been signed or a customer's  purchase  order has
been received;  and (2) the  professional  services have been delivered.  Vendor
specific  objective  evidence of fair value is based upon the price charged when
these  services  are  sold  separately  and are  typically  an  hourly  rate for
professional  services  and a per  class  rate  for  training.  Based  upon  the
Company's  experience in completing product  implementations,  it has determined
that these services are typically  delivered within a 12-month period subsequent
to the contract signing and therefore classifies deferred  professional services
as a current liability.

     The Company's arrangements with its end-user customers and indirect channel
customers  do not  include  any  rights of return  or price  protection,  nor do
arrangements with indirect channel customers include any acceptance  provisions.
Generally,  the  Company's  arrangements  with  end-user  customers  also do not
include any  acceptance  provisions.  However,  if an  arrangement  does include
acceptance  provisions,  they  typically  are  based on the  Company's  standard
acceptance  provision.  The Company's standard acceptance provision provides the
end-user  customer  with a right to a refund if the  arrangement  is  terminated
because the product did not meet Kronos'  published  specifications.  Generally,
the Company determines that these acceptance  provisions are not substantive and
therefore should be accounted for as a warranty in accordance with SFAS No. 5.

<PAGE>

     At the time the Company enters into an  arrangement,  the Company  assesses
the  probability of collection of the fee and the terms granted to the customer.
For end-user  customers,  the Company's  typical payment terms include a deposit
and subsequent payments, based on specific due dates, such that all payments for
the software license,  data collection  hardware and related ancillary products,
as well as services  included in the original  arrangement  are  ordinarily  due
within  one year of  contract  signing.  The  Company's  payment  terms  for its
indirect  channel  customers  are less than 90 days and  typically due within 30
days of invoice date.

     If the payment terms for the arrangement are considered  extended or if the
arrangement  includes a substantive  acceptance  provision,  the Company  defers
revenue not meeting the criterion for recognition  under SOP 97-2 and classifies
this revenue as deferred  revenue,  including  deferred  product  revenue.  This
revenue is recognized,  assuming all other  conditions  for revenue  recognition
have been satisfied,  when the payment of the arrangement fee becomes due and/or
when the uncertainty  regarding acceptance is resolved as generally evidenced by
written  acceptance or payment of the  arrangement  fee. The Company reports the
allocated fair value of revenues  related to the product element of arrangements
as a current  liability  because of the expectation  that these revenues will be
recognized within 12 months of the balance sheet date.

     Since  fiscal  1996,  the Company has had a standard  practice of providing
creditworthy end-user customers the option of financing  arrangements beyond one
year. These  arrangements,  which encompass  separate fees for software license,
data  collection  hardware  and  ancillary  products,  maintenance  and  support
contracts and professional  services,  are evidenced by distinct standard sales,
license and maintenance agreements and typically require equal monthly payments.
The term of these arrangements  typically range between 18 and 36 months. At the
time  the  Company  enters  into  an  arrangement,   the  Company  assesses  the
probability  of  collection  and  whether  the   arrangement  fee  is  fixed  or
determinable.   The  Company   considers  its  history  of  collection   without
concessions as well as whether each new transaction  involves similar customers,
products and  arrangement  economics to ensure that the history  developed under
previous  arrangements remains relevant to current  arrangements.  If the fee is
not  determined  to be  collectible,  fixed or  determinable,  the Company  will
initially  defer the revenue and recognize  when  collection  becomes  probable,
which typically is when payment is due assuming all other conditions for revenue
recognition have been satisfied.

     Allowance  for  Doubtful  Accounts  and Sales  Returns  Allowance  - Kronos
maintains  an  allowance  for  doubtful  accounts  to reflect  estimated  losses
resulting  from the  inability  of  customers to make  required  payments.  This
allowance is based on estimates  made by Kronos after  consideration  of factors
such as the composition of the accounts  receivable  aging and bad debt history.
If the financial  condition of customers  were to  deteriorate,  resulting in an
impairment of their ability to make payments, additional allowances and bad debt
expense may be required. In addition, Kronos maintains a sales returns allowance
to reflect estimated losses for sales returns and adjustments. Sales returns and
adjustments are generally due to incorrect ordering of product, general customer
satisfaction  issues or incorrect  billing.  This  allowance is  established  by
Kronos using estimates based on historical experience.  If Kronos experiences an
increase in sales returns and  adjustments,  additional  allowances  and charges
against revenue may be required.

<PAGE>

     Valuation  of   Intangible   Assets  and   Goodwill  -  In  assessing   the
recoverability  of  goodwill  and  other  intangible  assets,  Kronos  must make
assumptions  regarding  the  estimated  future  cash flows and other  factors to
determine  the fair value of these assets.  If these  estimates or their related
assumptions  change in the future,  Kronos may be required to record  impairment
charges against these assets in the reporting  period in which the impairment is
determined.  For  intangible  assets,  this  evaluation  includes an analysis of
estimated  future  undiscounted  net cash flows  expected to be generated by the
assets over their estimated useful lives. If the estimated  future  undiscounted
net cash flows are insufficient to recover the carrying value of the assets over
their  estimated  useful lives,  Kronos will record an impairment  charge in the
amount by which the carrying value of the assets  exceeds their fair value.  For
goodwill,  the impairment evaluation includes a comparison of the carrying value
of the reporting unit which houses goodwill to that reporting unit's fair value.
Kronos has only one  reporting  unit.  The fair value of the  reporting  unit is
based upon the net  present  value of future  cash  flows,  including a terminal
value  calculation.  If the reporting  unit's  estimated  fair value exceeds the
reporting unit's carrying value, no impairment of goodwill  exists.  If the fair
value of the  reporting  unit does not exceed its carrying  value,  then further
analysis would be required to determine the amount of the impairment, if any. If
Kronos  determines that there is an impairment in either an intangible asset, or
goodwill, Kronos may be required to record an impairment charge in the reporting
period in which the impairment is determined,  which may have a negative  impact
on earnings.

     Capitalization  of  Software  Development  Costs  - Costs  incurred  in the
research,  design and  development of software for sale to others are charged to
expense until  technological  feasibility is established.  Thereafter,  software
development  costs are  capitalized  and amortized to product cost of sales on a
straight-line  basis over the lesser of three  years or the  estimated  economic
lives of the  respective  products,  beginning when the products are offered for
sale. Costs incurred in the development of software for internal use are charged
to expense  until it becomes  probable  that future  economic  benefits  will be
realized.  Thereafter,  certain costs are capitalized and amortized to operating
expense on a straight-line basis over the lesser of three years or the estimated
economic life of the software.


Results of Operations

     Revenues. Revenues for the three and six month periods ended March 29, 2003
of fiscal 2003 were $96.5 million and $186.2 million,  respectively, as compared
to $79.9  million  and $156.1  million for the  comparable  periods in the prior
fiscal year.  Revenue growth was 21% and 19% for the three and six month periods
ended  March 29,  2003,  as compared to 18% for both the three and six months in
the  comparable  periods in the prior fiscal year.  Revenues  from core business
(business  generated  from  customers  that  have not been  part of an  acquired
business  transaction  over the last four quarters) grew 19% and 5% in the three
month periods ended March 29, 2003 and March 30, 2002, respectively. For the six
months ended March 29, 2003,  core business growth was 15% as compared to 8% for
the comparable period in the prior fiscal year.  Revenue growth  attributable to
acquisitions  of  businesses  over the last four  quarters was 2% and 4% for the
three and six months ended March 29, 2003, respectively,  as compared to 13% and
10% for the comparable periods in the prior fiscal year.

<PAGE>

     Product  revenues for the three month period ended March 29, 2003 increased
30% to $44.1 million as compared to $34.0 million and a product revenue increase
of 4% in the comparable period of fiscal 2002. Product revenue for the six month
period ended March 29, 2003  increased 20% to $83.0 million as compared to $69.2
million and a product revenue increase of 4% in the comparable  period of fiscal
2002. The principal  factors driving product revenue growth in the three and six
month periods ended March 29, 2003 were primarily  increased customer demand for
Kronos products,  as well as capacity  upgrades and upgrades to the newest badge
terminals from existing customers. In addition,  product revenue growth was also
the result of unusually low product sales volume in the three month period ended
March 30, 2002, which management  believes was due to various factors  including
the broad economic slowdown, which resulted in the deferral of many larger value
transactions.  Another factor driving the product revenue growth  experienced in
the three and six month period ended March 29, 2003 was revenues  related to the
conversion to Kronos products by, and add-on sales to,  customers  acquired from
other  providers of labor  management  solutions.  Product  revenue derived from
acquired  customers  was $.3  million or 1% of total  product  revenue  and $2.4
million or 3% of total product  revenue in the three and six month periods ended
March 29, 2003,  respectively.  Although product  revenues  increased during the
quarter,  management believes that the continued economic downturn may result in
many customers  deferring or reducing their technology  purchases in the future.
While management believes the impact on technology  purchasing may be temporary,
the  effect may cause  delays or  reductions  in  customer  purchases  of Kronos
products and services in the future.

     Maintenance  revenues  for the three  month  period  ended  March 29,  2003
increased  10% to $29.7  million as compared to $27.0  million and a maintenance
revenue  increase of 38% in the  comparable  period of fiscal 2002.  Maintenance
revenues for the first six months of fiscal 2003  increased 16% to $58.7 million
as compared to $50.4  million and a maintenance  revenue  increase of 32% in the
first six months of fiscal 2002. Excluding the effect of incremental maintenance
revenues  from  acquisitions  of  businesses  in the  preceding  four  quarters,
maintenance  revenues  would have  increased 8% and 11% for the three months and
six months  ended March 29,  2003,  and 16% and 15% for the three months and six
months  ended March 30,  2002.  The growth in  maintenance  revenue  experienced
during the three  months  and six months  ended  March 30,  2002 was  positively
impacted by an improvement in the  maintenance  billing  process,  as well as an
acceleration  of the start of the  maintenance  period related to upgrade sales.
The impact of these  improvements  resulted in an immediate and one-time benefit
during fiscal 2002, and the growth rates experienced during the three months and
six months ended March 29, 2003 are what management  believes to be more typical
and expected  growth rates in maintenance  revenue.  The increase in maintenance
revenues in both periods was  primarily a result of  expansion of the  installed
base,  an  increase  in the  value  of  maintenance  contracts  and  incremental
maintenance revenues  attributable to customers obtained from the acquisition of
businesses.  The  increase  in  the  value  of  the  maintenance  contracts  was
principally  attributable  to the  platform  upgrade of  existing  customers  to
Kronos' new products. Platform and capacity upgrade sales typically result in an
increased value of maintenance contracts.

<PAGE>

     Professional  services  revenues for the three month period ended March 29,
2003  increased  19% to  $22.7  million  as  compared  to  $19.0  million  and a
professional services revenue increase of 22% in the comparable period of fiscal
2002.  Professional  service  revenues  for the first six months of fiscal  2003
increased  22% to $44.5  million  as  compared  to an  increase  of 30% to $36.5
million  in the  first  six  months  of fiscal  2002.  Excluding  the  effect of
incremental professional service revenues from acquisitions of businesses in the
preceding four quarters,  professional service revenues would have increased 18%
in the three and six months ended March 29, 2003,  as compared to 10% and 19% in
the three and six month periods ended March 30, 2002,  respectively.  The growth
in professional services in both the three and six month periods ended March 29,
2003,  was  primarily due to an increase in the level of  professional  services
accompanying  new and  platform  upgrade  sales and an  increase  in demand  for
Kronos' services.  The growth in professional service revenues for the three and
six  months  ended  March  30,  2002  reflected  an  increase  in the  level  of
professional  services  accompanying  new and upgrade sales,  an increase in the
level of  follow-on  services  sold to the  installed  base,  and an increase in
delivery of  professional  services  resulting  from improving the efficiency of
Kronos services organization.

     Deferred maintenance revenues increased 5% from September 30, 2002. Current
deferred  maintenance  revenues increased 8% and long-term deferred  maintenance
revenues decreased 15% from September 30, 2002.  Maintenance revenues have grown
at a faster rate than deferred maintenance  primarily due to the positive impact
on the maintenance revenues of the acquisitions completed during the past fiscal
year,  primarily the December 28, 2001  acquisition of the  Integrated  Software
Business  of  SimplexGrinnell's  Workforce  Solutions  Division,  as well as the
effect of the timing of the expiration of multi-year  maintenance contracts sold
in previous  fiscal years and smaller  acquisitions  in the current fiscal year.
The decrease in the long-term portion was due to Kronos' decision in fiscal 2000
to curtail the practice of selling multi-year  maintenance  contracts.  Deferred
professional   services   revenues   increased  1%  from   September  30,  2002.
Professional  services  revenues  have grown at a faster rate than the  deferred
professional  services primarily due to an increase in the level of professional
services  that are billed in arrears as services  are  delivered,  as well as an
increase in the utilization  efficiency of the service  organization as compared
to the prior fiscal year.

     Gross Profit. Gross profit as a percentage of revenues was 60% for both the
three and six month periods ended March 29, 2003,  respectively,  as compared to
61% in the same periods in the prior fiscal year.  The reduction in gross profit
is primarily  attributable  to a reduction in service  gross  profit,  partially
offset by a higher  proportion of product  revenue,  which  typically  carries a
higher gross profit than service  revenue.  Product gross profit as a percentage
of product revenues was 75% for both the three and six month periods ended March
29, 2003, respectively, compared to 75% and 76% in the same periods of the prior
fiscal year.  Service  gross profit as a percentage  of service and  maintenance
revenues  was 47% and 48% for the three and six month  periods  ended  March 29,
2003,  respectively,  as compared to 50% in the same periods of the prior fiscal
year.  This  reduction in service  gross profit was  primarily the result of the
addition of  personnel  responsible  for the  implementation  and support of the
Human Resource Management System (HRMS) product, an increase in costs related to
additional  investments  in  support of Kronos'  training  offerings,  partially
offset by an increase in the utilization efficiency of the service organization.
Management  anticipates  overall  gross profit to decline in fiscal 2003 as more
revenue is derived from newer  products  including  its Kronos 4500 terminal and
HRMS products,  which carry higher production and royalty  costs,  and increased
investment in  infrastructure  to support the introduction of its HRMS products.
In  addition,  if service  revenues  grow  proportionately  faster than  product
revenues,  gross margins may decrease as service revenues typically have a lower
gross profit.

<PAGE>

     Net Operating  Expenses.  Net operating expenses for the three months ended
March 29, 2003 increased  $6.8 million,  or 17%, to $46.6 million as compared to
an increase of $0.3 million,  or 1%, to $39.8 million for the comparable  period
in the prior  fiscal year.  For the six month  period ended March 29, 2003,  net
operating expenses increased $12.9 million, or 17%, to $90.0 million as compared
to an  increase of $1.3  million,  or 2%, to $77.1  million  for the  comparable
period in the prior fiscal year.  The increase in actual  spending for the three
and six month  periods  ended March 29, 2003, as compared to the same periods in
the prior fiscal year was primarily attributable to investments in personnel and
related  compensation  and support  costs,  as well as additional  investment in
infrastructure  costs required to support higher sales volumes.  As a percentage
of revenues, net operating expenses were 48% for the three and six month periods
ended  March 29,  2003,  respectively,  as  compared to 50% and 49% for the same
periods in the prior fiscal year.  The reduction in net operating  expenses as a
percentage of revenues was  attributable  to the  leveraging of  investments  in
infrastructure  to generate higher sales volumes,  and continued  corporate-wide
efforts to contain  costs.  Although  management  intends to decrease  operating
expenses  as a  percentage  of revenues  during the  remainder  of fiscal  2003,
principally through continued productivity improvements,  uncertainty related to
the  current  economic  climate  and its  impact  on the  timing  of  customers'
purchases,  as  well as  increased  investments  in  productivity  programs  and
infrastructure  to support the introduction of the new HRMS products may prevent
decreases in operating expenses as a percentage of revenues from being realized.

     Sales and  marketing  expenses  increased  $5.3  million,  or 20%, to $31.4
million  for the three  month  period  ended  March 29,  2003 as  compared to an
increase of $1.4 million,  or 6%, to $26.1 million in the  comparable  period of
fiscal  2002.  For the first six  months of  fiscal  2003,  sales and  marketing
expenses  increased  $9.2  million,  or 18%, to $60.4  million as compared to an
increase of $4.3  million,  or 9%, to $51.2  million for the first six months of
fiscal 2002. The increase in sales and marketing  spending was  attributable  to
Kronos'  investments  in sales  personnel and related  compensation  and support
costs to maximize the penetration of existing  accounts and to add new customers
as well as  initiatives  to  expand  market  awareness  of Kronos  products  and
services. As a percentage of revenues,  sales and marketing were 33% and 32% for
the three and six month periods ended March 29, 2003, respectively,  as compared
to 33% for the same periods in the prior fiscal year.  The decrease in sales and
marketing  expense as a percentage  of revenues was  primarily due to leveraging
the investments in infrastructure to generate higher sales volumes.

<PAGE>

     Engineering,   research  and  development  expenses  have  increased  $0.3
million,  or 3%, to $9.6  million  for the quarter as compared to an increase of
$0.8  million,  or 10%, to $9.3  million for the same period in the prior fiscal
year.  For the six  months  ended  March  29,  2003  engineering,  research  and
development expenses increased $0.8 million, or 5%, to $18.0 million as compared
to an increase of $0.9 million, or 5%, to $17.2 million for the first six months
of fiscal  2002.  The increase in spending in the three month period ended March
29, 2003,  as compared to the same period in the prior fiscal year was primarily
due to an increase in expenses related to the training of engineering  personnel
as well as compensation  related expenses,  partially offset by the reallocation
of certain  engineering  resources  focused upon information  systems support to
general and administrative  expenses.  The increase in spending in the first six
months of fiscal  2003,  as compared to the same period in the prior fiscal year
was principally due to an increase in compensation related expenses,  as well as
an increase  in  training  expenses,  partially  offset by a reduction  in costs
associated  with  engineering  consultants as well as the  previously  discussed
reallocation of engineering  resources to general and  administrative  expenses.
Engineering,  research and development expenses as a percentage of revenues were
10% for both the three and six month  periods  ended March 29, 2003, as compared
to 12% and 11% for the same periods in the prior fiscal year.  The decrease as a
percentage  of  revenues  for the three and six months  ended  March 29, 2003 as
compared  to the same  periods in the prior  fiscal  year was  primarily  due to
higher sales volume in fiscal 2003. In addition,  the expenses  during the first
six  months of fiscal  2003 were  lower as a  percentage  of  revenues  due to a
reduction  in  costs  associated  with  engineering  consultants.   Engineering,
research and development expenses of $9.6 million and $9.3 million in the second
quarter of fiscal 2003 and 2002,  respectively,  are net of capitalized software
development  costs of $3.0  million  and $2.8  million,  respectively,  for each
quarter.  Engineering,  research and  development  expenses of $18.0 million and
$17.2 million in the first six months of fiscal 2003 and 2002, respectively, are
net of capitalized  software development costs of $5.9 million and $5.4 million,
respectively.  The  significant  project  development  efforts  in the first six
months of fiscal 2003 principally related to further development and enhancement
of the Workforce  Central(R)  suite,  Workforce HR(TM),  Workforce  Payroll(TM),
Kronos  4500(TM)  terminal  and,  to a lesser  extent,  the  eForce(R)  software
acquired from SimplexGrinnell on December 28, 2001.

     General and administrative expenses increased $1.3 million, or 26%, to $6.4
million  for the three  month  period  ended  March 29,  2003 as  compared to an
increase of $0.6 million,  or 13%, to $5.1 million in the  comparable  period of
fiscal  2002.  For the first  six  months of 2003,  general  and  administrative
expenses  increase  $2.8  million,  or 29%,  to $12.4  million as compared to an
increase of $1.0  million,  or 12%, to $9.6  million for the first six months of
fiscal 2002.  The increase in general and  administrative  expenses in the three
and six  month  periods  ended  March  29,  2003 was  primarily  due to  Kronos'
investment in personnel and related  compensation  and support costs  (including
those costs associated with the previously discussed reallocation of engineering
resources to general and administrative  expenses), an increase  in fees related
to tax planning services as well as audit and legal services, an increase in bad
debt expense and  continued  investment in other  infrastructure  to support the
growth of  operations.  General and  administrative  expenses as a percentage of
revenues  were 7% for both the three and six month periods ended March 29, 2003,
as compared to 6% for the same  periods in the prior  fiscal  year.  General and
administrative  expenses  primarily  consist of personnel  and overhead  related
expenses for administrative,  information  technology,  finance, legal and human
resources support functions.

<PAGE>

     Amortization  of intangible  assets as a percentage of revenues were 1% for
all periods presented. Other income, net as a percentage of revenues were 2% and
1% in the three and six month  periods  ended March 29, 2003,  respectively,  as
compared  to 2% and 1% for the same  periods  in the prior  fiscal  year.  Other
income,  net is principally  interest income earned from Kronos' cash as well as
investments in its marketable securities and financing arrangements.

     Income  Taxes.  The  provision  for income taxes as a percentage  of pretax
income was 36.0% in the three and six month  periods  ended March 29, 2003. As a
percentage of pretax  income,  the three month period ended March 30, 2002 had a
tax  provision  of 34.5% and the six month period ended March 30, 2002 had a tax
provision of 34.8%.  Kronos'  effective  income tax rate may  fluctuate  between
periods as a result of various factors,  including  income tax credits,  foreign
tax rate differentials and state income taxes.

     Newly Issued Accounting  Standards.  In December 2002, the FASB issued SFAS
No. 148, "Accounting for Stock-Based  Compensation - Transition and Disclosure -
an amendment of FASB  Statement No. 123." This  statement  provides  alternative
methods  of  transition  for a  voluntary  change  to the fair  value  method of
accounting for  stock-based  compensation.  The statement  amends the disclosure
requirements of FASB Statement No. 123 to require  prominent  disclosure in both
annual and  interim  financial  statements  about the method of  accounting  for
stock-based  compensation and the effect of the method used on reported results.
Kronos accounts for stock-based compensation arrangements in accordance with the
provisions of Accounting  Principles Board Opinion No. 25, "Accounting for Stock
Issued to  Employees",  and  complies  with the  disclosure  provisions  of FASB
Statement  No. 123. The  transition  provisions  are  effective for fiscal years
ending after  December 15, 2002.  The  disclosure  provisions  are effective for
interim periods  beginning  after December 15, 2002.  Kronos has implemented the
required  disclosure  provisions in the three month period ended March 29, 2003.
The  adoption of this  statement  is not  expected to have a material  impact on
Kronos' consolidated financial position,  results of operations or cash flows as
Kronos does not anticipate  making the voluntary change to the fair value method
of accounting for stock-based compensation.

     In January  2003,  the FASB issued FIN No. 46,  "Consolidation  of Variable
Interest  Entities,  an interpretation of Accounting  Research Bulletin No. 51."
FIN  No.  46  requires  certain  variable  interest  entities,  or  VIEs,  to be
consolidated by the primary beneficiary of the entity if the equity investors in
the entity 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.
FIN No. 46 is effective for all VIEs created or acquired after January 31, 2003.
For VIEs created or acquired  prior to February 1, 2003,  the  provisions of FIN
No. 46 must be applied for the first  interim or annual period  beginning  after
June  15,  2003.  Kronos  currently  has no  contractual  relationship  or other
business relationship with a variable interest entity and therefore the adoption
of FIN No. 46 did not have a material effect on Kronos'  consolidated  financial
position,  results of operations or cash flows.  However,  if Kronos enters into
any such  arrangement  with a variable  interest  entity in the future,  Kronos'
consolidated  financial  position  or results  of  operations  may be  adversely
effected.

<PAGE>

Liquidity and Capital Resources

     Kronos  funds  its  business  through  cash  generated  by  operations.  If
near-term  demand for Kronos'  products  weakens or if  significant  anticipated
sales in any quarter do not close when expected,  the availability of such funds
may be adversely impacted.  If the need arose, Kronos believes that based on its
current  debt-free  balance  sheet  and its  financial  position,  it  would  be
successful in securing financing from the capital markets.

     Cash, cash equivalents and marketable securities (which includes both short
and long term  securities)  amounted to $94.0 million as of March 29, 2003,  and
$74.7 million as of September 30, 2002. This increase in cash, cash  equivalents
and  marketable  securities is due to cash generated  from  operations.  Working
capital as of March 29,  2003  amounted to $7.3  million as  compared  with $2.4
million at September 30, 2002. This increase in working capital is primarily due
to an increase in cash resulting from cash provided by operations.

     Cash  provided by  operations  amounted  to $40.1  million in the first six
months of fiscal 2003 as  compared  to $34.5  million in the first six months of
fiscal 2002.  The increase in operating cash flows in fiscal 2003 is principally
attributable  to higher net income,  increased  non-cash  charges that are added
back in the calculation of cash flow from operations,  as well as the net impact
of changes in  accounts  receivable,  deferred  revenues,  accounts  payable and
accrued expenses.  In addition,  although the tax benefit from exercise of stock
options contributed less to cash flow from operations in the first six months of
fiscal  2003,  as compared to the same  period  last  fiscal  year,  the related
increase in taxes payable offsets this effect.

     Cash used for  property,  plant and equipment was $6.1 million in the first
six months of fiscal 2003  compared  to $5.2  million in the first six months of
fiscal  2002.  Kronos' use of cash for  property,  plant and  equipment  in both
periods presented includes  investments in information system and infrastructure
to  improve  and  support  expanding  operations.  Kronos'  use of cash  for the
acquisition  of businesses  and software for the six months ended March 29, 2003
and March 30, 2002 was  principally  related to the  acquisitions  of  specified
assets and/or  businesses  of Kronos'  dealers  and/or other  providers of labor
management solutions.  In addition,  during the first six months of fiscal 2002,
Kronos' use of cash for the acquisition of businesses and software included cash
used for the  acquisition  of the source code  license  for the Abra  Enterprise
human resources and payroll software.  Kronos is assessing  several  acquisition
opportunities that may be completed over the next twelve months,  although there
can be no  assurance  that these  acquisitions  will be  completed.  Excess cash
reserves  not  required  for  operations,  investments  in  property,  plant and
equipment or acquisitions are invested in marketable securities. Net investments
in  marketable  securities  decreased by $3.1 million in the first six months of
fiscal 2003  compared to an increase of $16.7 million in the first six months of
fiscal 2002.

<PAGE>

     Under Kronos' stock repurchase  program,  Kronos repurchased 296,300 common
shares  in the  first  six  months  of  fiscal  2003 at a cost of $11.0  million
compared to 230,500 at a cost of $10.4  million for the same period in the prior
fiscal  year.  The common  shares  repurchased  under the  program  are used for
Kronos' employee stock option plans and employee stock purchase plan. During the
first quarter of fiscal 2003,  Kronos received $2.6 million upon the maturity of
a call  option  arrangement.  As of  March  29,  2003,  Kronos  did not have any
outstanding  call option  arrangements.  Please  refer to Note I in the Notes to
Condensed  Consolidated  Financial Statements for further details regarding call
option  arrangements.  Cash  provided  by  operations  was  sufficient  to  fund
investments in  capitalized  software  development  costs,  property,  plant and
equipment and stock repurchases.

     Kronos leases certain office space,  manufacturing facilities and equipment
under long-term  operating lease agreements.  In addition,  certain  acquisition
agreements  contain  provisions that require Kronos to make a guaranteed payment
and/or contingent  payments based upon  profitability of the business unit or if
specified   minimum  revenue   requirements   are  met.  Future  minimum  rental
commitments  under  operating  leases with  noncancellable  terms of one year or
more,  and future  payment  obligations  related to  guaranteed  payments are as
follows (in thousands):

<TABLE>
<CAPTION>

                                                        Payments Due by Period
                                   -------------------------------------------------------------------
                                                Less than                                    More than
Contractual Obligations            Total         1 year         1-3 years      3-5 years      5 years
-----------------------            -----        ---------       ---------      ---------     ---------
<S>                                <C>            <C>            <C>            <C>            <C>
Operating Lease Obligations        $36,795        $ 9,378        $15,793        $ 8,866        $ 2,758
Guaranteed Payment
   Obligations ............          4,877          2,795          1,970            112           --
                                   -------        -------        -------        -------        -------
Total .....................        $41,672        $12,173        $17,763        $ 8,978        $ 2,758
                                   =======        =======        =======        =======        =======

</TABLE>


     Kronos  believes that with cash  generated  from ongoing  operations it has
adequate cash and investments and operating cash flow to fund its investments in
property,  plant and equipment,  software  development  costs, cash requirements
under operating leases,  cash payments related to acquisitions,  if any, and any
additional stock repurchases for the foreseeable future.

<PAGE>

During the three months ended March 29, 2003, Kronos did not engage in:

o    material  off-balance  sheet  activities,  including  the use of structured
     finance or special purpose entities,

o    material trading activities in non-exchange traded commodity contracts, or

o    transactions   with   persons  or   entities   that   benefit   from  their
     non-independent relationship with Kronos.

Certain Factors That May Affect Future Operating Results

     Except for  historical  matters,  the matters  discussed in this  Quarterly
Report on Form 10-Q are  "forward-looking  statements" within the meaning of the
Private Securities  Litigation Reform Act of 1995 (the "Act"). Kronos desires to
take  advantage of the safe harbor  provisions of the Act and is including  this
statement for the express  purpose of availing  itself of the  protection of the
safe harbor with respect to all  forward-looking  statements  that involve risks
and uncertainties.

     Kronos'  actual  operating  results  may  differ  from those  indicated  by
forward-looking  statements  made in this  Quarterly  Report  on Form  10-Q  and
presented  elsewhere  by  management  from time to time  because  of a number of
factors including the potential  fluctuations in quarterly  results,  timing and
acceptance  of new  product  introductions  by Kronos and its  competitors,  the
dependence on Kronos' time and  attendance  product line, the ability to attract
and  retain   sufficient   technical   personnel,   the  protection  of  Kronos'
intellectual  property and the potential  infringement  on Kronos'  intellectual
property rights,  competitive pricing pressure,  and the dependence on alternate
distribution  channels and on key  vendors,  as further  described  below and in
Kronos' Annual Report on Form 10-K for the fiscal year ended September 30, 2002,
which are specifically incorporated by reference herein.

     Potential  Fluctuations in Results.  Kronos' operating  results,  including
revenue  growth,  sources of  revenue,  effective  tax rate and  liquidity,  may
fluctuate as a result of a variety of factors, including the purchasing patterns
of its  customers,  mix of products and services  sold, the ability of Kronos to
effectively integrate acquired businesses into Kronos' operations, the timing of
the  introduction  of new  products and product  enhancements  by Kronos and its
competitors,  the  strategy  employed  by Kronos  to enter  the Human  Resources
Management   System  ("HRMS")  market,   market   acceptance  of  new  products,
competitive   pricing   pressure  and  general   economic   conditions.   Kronos
historically has realized a relatively  larger percentage of its annual revenues
and profits in the third and fourth quarters and a relatively smaller percentage
in the first and second  quarters of each fiscal year,  although there can be no
assurance that this pattern will  continue.  In addition,  substantially  all of
Kronos'  product revenue and profits in each quarter result from orders received
in that  quarter.  If  near-term  demand  for  Kronos'  products  weakens  or if
significant anticipated sales in any quarter do not close when expected, Kronos'
revenues for that quarter will be adversely  affected.  Kronos believes that its
operating  results for any one period are not necessarily  indicative of results
for any future period.

<PAGE>

     Dependence on Labor  Management  Product  Line.  To date,  more than 90% of
Kronos' revenues have been attributable to sales of labor management systems and
related  services.  Although Kronos has introduced its products for the licensed
HRMS market during fiscal 2002,  Kronos expects that its dependence on the labor
management  product line for revenues will continue for the foreseeable  future.
Competitive  pressures or other factors  could cause  Kronos'  labor  management
products to lose market  acceptance or  experience  significant  price  erosion,
adversely affecting the results of Kronos' operations.

     Product  Development  and  Technological   Change.   Continual  change  and
improvement  in computer  software  and  hardware  technology  characterize  the
markets for labor management systems. Kronos' future success will depend largely
on its ability to enhance the  capabilities  and increase the performance of its
existing  products  and to develop new products and  interfaces  to  third-party
products on a timely basis to meet the increasingly  sophisticated  needs of its
customers.  Although Kronos is continually  seeking to further enhance its labor
management,  HR and payroll product offerings  (including  products for the HRMS
market) and to develop new  products and  interfaces,  there can be no assurance
that  these  efforts  will  succeed,  or  that,  if  successful,   such  product
enhancements or new products will achieve widespread market acceptance,  or that
Kronos'  competitors  will not develop and market products which are superior to
Kronos' products or achieve greater market acceptance.


     Dependence on Alternate Distribution Channels. Kronos markets and sells its
products through its direct sales  organization,  independent  resellers and ADP
under an OEM agreement. In the first six months of fiscal 2003, approximately 9%
of Kronos' revenue was generated through sales to resellers and ADP.  Management
does not anticipate  that its entrance into the HRMS market will have a negative
impact on its relationship with ADP.  However,  a reduction in the sales efforts
of either  Kronos' major  resellers or ADP, or  termination  or changes in their
relationships  with Kronos,  could have a material adverse effect on the results
of Kronos'  operations.  During the three month  period  ended  March 29,  2003,
Kronos and ADP signed a letter of intent to extend their  business  relationship
for an additional term of five years.

     Competition.   The  labor  management   industry  is  highly   competitive.
Technological  changes such as those  allowing for increased use of the Internet
have resulted in new entrants into the market.  Although  Kronos believes it has
core  competencies  that  position it strongly in the  marketplace,  maintaining
Kronos'  technological  and  other  advantages  over  competitors  will  require
continued  investment  by Kronos in research and  development  and marketing and
sales  programs.  There can be no  assurance  that Kronos  will have  sufficient
resources  to make such  investments  or be able to  achieve  the  technological
advances necessary to maintain its competitive advantages. Increased competition
could adversely affect Kronos' operating results through price reductions and/or
loss of market  share.  With  Kronos'  efforts  to expand  its labor  management
offering with the recent  introduction  of its HRMS product  suite,  Kronos will
continue to meet strong  competition.  Many of these  competitors may be able to
adapt  more  quickly  to new  or  emerging  technologies  or to  devote  greater
resources to the promotion and sale of their HRMS products. Many of Kronos' HRMS
competitors  have  significantly  greater  financial,  technical  and  sales and
marketing  resources than Kronos,  as well as more experience in delivering HRMS
solutions.  There  can be no  assurance  that  Kronos  will be  able to  compete
successfully  in the HRMS  marketplace,  and its  failure  to do so could have a
material adverse impact upon its business,  prospects,  financial  condition and
operating results.

<PAGE>

     Attracting  and  Retaining   Sufficient  Technical  Personnel  for  Product
Development,  Support and Sales.  Kronos has encountered intense competition for
experienced  technical personnel for product development,  technical support and
sales and expects such  competition to continue in the future.  Any inability to
attract and retain a sufficient  number of qualified  technical  personnel could
adversely  affect  Kronos'  ability to produce,  support and sell  products in a
timely manner.

     Protection of Intellectual Property.  Kronos has developed, and through its
acquisitions  of businesses and software,  acquired  proprietary  technology and
intellectual  property rights.  Kronos' success is dependent upon its ability to
further develop and protect its proprietary technology and intellectual property
rights.  Kronos seeks to protect  products,  software,  documentation  and other
written  materials  primarily  through a combination  of trade  secret,  patent,
trademark  and  copyright  laws,   confidentiality  procedures  and  contractual
provisions. While Kronos has attempted to safeguard and maintain its proprietary
rights, it is unknown whether Kronos has been or will be successful in doing so.

     Despite  Kronos' efforts to protect its  proprietary  rights,  unauthorized
parties  may  attempt  to  copy  aspects  of its  products  or  obtain  and  use
information  that is  regarded  as  proprietary.  Policing  unauthorized  use of
Kronos' products is difficult. While Kronos is unable to determine the extent to
which piracy of its software products exists, software piracy can be expected to
be a persistent  problem,  particularly in foreign  countries where the laws may
not  protect  proprietary  rights as fully as in the United  States.  Kronos can
offer no assurance that it can adequately protect its proprietary rights or that
its  competitors  will not reverse  engineer or  independently  develop  similar
technology.

     Infringement  of  Intellectual   Property  Rights.  Kronos  cannot  provide
assurance  that  others  will  not  claim  that  Kronos  developed  or  acquired
intellectual  property  rights are  infringing  on their  intellectual  property
rights or that Kronos does not in fact infringe on those  intellectual  property
rights.

     Any litigation regarding  intellectual  property rights could be costly and
time-consuming  and divert the attention of Kronos' management and key personnel
from business  operations.  The  complexity of the  technology  involved and the
uncertainty of intellectual  property litigation increase these risks. Claims of
intellectual  property  infringement  might  also  require  Kronos to enter into
costly royalty or license agreements,  and in this event, Kronos may not be able
to obtain royalty or license  agreements on acceptable  terms, if at all. Kronos
may also be subject to significant  damages or an injunction  against the use of
its  products.  A  successful  claim of  patent or other  intellectual  property
infringement  against Kronos could cause immediate and substantial damage to its
business and financial condition.

<PAGE>

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Kronos is exposed to a variety of market  risks,  including  changes in interest
rates affecting the return on its investments, foreign currency fluctuations and
decreases in its common stock price affecting capped call options. Refer to Note
A "Summary of  Significant  Accounting  Policies"  in the Notes to  Consolidated
Financial  Statements  in the  Annual  Report  on Form  10-K for the year  ended
September  30,  2002 for further  discussion  regarding  marketable  securities,
foreign currency forward exchange contracts and capped call option arrangements.
Kronos' marketable  securities that expose it to market rate risks are comprised
of debt  securities.  A decrease in interest  rates would not  adversely  impact
interest income or related cash flows pertaining to securities held at March 29,
2003, as all of these securities have fixed rates of interest. A 100 basis point
increase in interest  rates would not  adversely  impact the fair value of these
securities  by a material  amount due to the size and  average  duration  of the
portfolio.  Kronos' exposure to market risk for fluctuations in foreign currency
relate primarily to the amounts due from subsidiaries. Exchange gains and losses
related to amounts due from  subsidiaries  have not been  material.  For foreign
currency exposures existing at March 29, 2003, a 10% unfavorable movement in the
foreign exchange rates for each subsidiary location would not expose the Company
to material losses in earnings or cash flows. The calculation  assumes that each
exchange rate would change in the same direction relative to the U.S. dollar.

Kronos  has  periodically  entered  into  short  term  capped  call  options  in
conjunction with its stock repurchase  initiatives.  As of March 29, 2003, there
were no capped call option arrangements outstanding.

<PAGE>

Item 4. Evaluation of Disclosure Controls and Procedures

1.   Evaluation of disclosure controls and procedures. Based on their evaluation
     of the Company's  disclosure  controls and  procedures (as defined in Rules
     13a-14( c) and 15d-14( c) under the Securities  Exchange Act of 1934) as of
     a date within 90 days of the filing of this quarterly  report on Form 10-Q,
     the Company's  chief  executive  officer and chief  financial  officer have
     concluded  that  the  Company's  disclosure  controls  and  procedures  are
     designed to ensure that information required to be disclosed by the Company
     in the reports that it files or submits under the Exchange Act is recorded,
     processed, summarized and reported within the time periods specified in the
     SEC's rules and forms and are operating in an effective manner.

2.   Changes in  internal  controls.  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  most  recent
     evaluation.

<PAGE>


PART II.  OTHER INFORMATION

Item 4.   Submission of Matters to a Vote of Security Holders

(a)  The 2003 Annual Meeting of Stockholders of Kronos  Incorporated was held on
     February 6, 2003.

(b)  At the Annual Meeting,  Messrs. Mark S. Ain, W. Patrick Decker and David B.
     Kiser were elected as Class II Directors for  three-year  terms expiring in
     2006. In addition,  the Directors  whose terms of office continue after the
     meeting  are two Class I  Directors:  Messrs.  D.  Bradley  McWilliams  and
     Lawrence Portner and two Class III Directors: Messrs. Richard J. Dumler and
     Samuel Rubinovitz. The tabulation was as follows:

                                            FOR                 WITHHELD
                                            ---                 --------
          Mark S. Ain                    17,688,612              189,947
          W. Patrick Decker              17,834,691              43,868
          David B. Kiser                 17,834,242              44,317

(c)  Adoption of the Company's 2003 Employee Stock Purchase Plan was approved as
     follows:

                            FOR            AGAINST                ABSTAIN
                            ---            -------                -------

                         17,510,770        224,994                142,795

(d)  The other  item  voted  upon at the  meeting  was the  ratification  of the
     selection of Ernst & Young LLP as the  Company's  independent  auditors for
     the 2003 fiscal year.

                            FOR            AGAINST                ABSTAIN
                            ---            -------                -------

                         17,463,927        411,045                  3,587


Item 6.   Exhibits and Reports on Form 8-K

(a)  Exhibits

     99.1     Certification pursuant to 18 U.S.C. Section 1350, as adopted
              pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


(b)  Reports on Form 8-K

     On April 8, 2003, the Company furnished a Current Report on Form 8-K
     under Item 9, containing a copy of its earnings release, dated April
     7, 2003, for the period ending March 29, 2003 pursuant to Item 12
     (Results of Operations and Financial Condition).

     On April 24, 2003, the Company furnished a Current Report on Form 8-K
     under Item 9, containing a copy of its earnings release, dated April
     24, 2003, for the period ending March 29, 2003 (including financial
     statements ) pursuant to Item 12 (Results of Operations and Financial
     Condition).

<PAGE>


                                   SIGNATURES

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.


                                      KRONOS INCORPORATED


May 12, 2003                          By   /s/ Paul A. Lacy
                                      ------------------------------------------
                                               Paul A. Lacy
                                      Executive Vice President,
                                      Chief Financial and Administrative Officer
                                      (Duly Authorized Officer and
                                      Principal Financial Officer)


<PAGE>


                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER


I, Mark S. Ain, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Kronos Incorporated;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     c)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date: May 12, 2003                              /s/ Mark S. Ain
                                           ----------------------------
                                                    Mark S. Ain
                                             Chief Executive Officer


<PAGE>


                    CERTIFICATION OF CHIEF FINANCIAL OFFICER


I, Paul A. Lacy, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Kronos Incorporated;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a.   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     b.   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     c.   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a.   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b.   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date: May 12, 2003                         /s/ Paul A. Lacy
                                         -------------------------
                                               Paul A. Lacy
                                         Chief Financial Officer

<PAGE>

                               KRONOS INCORPORATED

                                  EXHIBIT INDEX



Exhibit
Number      Description
-------     -----------

99.1        Certification pursuant to 18 U.S.C. Section 1350, as adopted
            pursuant to section 906 of the Sarbanes-Oxley Act of 2002.


<PAGE>
                                                                   EXHIBIT 99.1


                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report on Form 10-Q of Kronos Incorporated
(the "Company") for the period ended March 29, 2003 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), the undersigned, Mark
S. Ain, Chief Executive Officer of the Company, and Paul A. Lacy, Executive Vice
President,  Chief  Financial  and  Administrative  Officer of the Company,  each
hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

     (1) The Report fully  complies  with the  requirements  of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
Company.

                                           /s/ Mark S. Ain
                                          ------------------------------------
Dated:   May 12, 2003                          Mark S. Ain
                                          Chief Executive Officer

                                           /s/ Paul A. Lacy
                                          ------------------------------------
Dated:   May 12, 2003                          Paul A. Lacy
                                          Executive Vice President, Chief
                                          Financial and Administrative Officer

A signed  original of this  written  statement  required by Section 906 has been
provided to Kronos  Incorporated and will be retained by Kronos Incorporated and
furnished to the Securities and Exchange Commission or its staff upon request.