Adaptec 2002 Annual Report Download - page 30

Because the level of demand for the networking equipment that our customers sell depends upon global
economic conditions, it is difficult to predict when end market demand for our products will improve.
However, we believe that our customers may consume much of their inventories of some of our older products
in 2003 and begin to purchase more of our products as their inventories become depleted.
We expect our networking revenues for the first quarter of 2003 to increase slightly from the fourth quarter
of 2002. Beyond the first quarter of 2003, we anticipate revenues will vary depending on changes in the
demand environment and customer component inventory levels. We do not anticipate any meaningful revenue from
our non−networking products in the future as the single product in this revenue category has reached
end−of−life.
We anticipate our gross margins will be in the high 50% to low 60% range in 2003
but could vary significantly depending on the volumes and mix of products sold.
Excluding the impact of any restructuring activities that are reflected in R&D and MG&A expenses, we expect
these costs to decline in 2003 as compared to 2002 due to our cost cutting initiatives, including the
restructuring we announced in January 2003. We anticipate that interest and other income will decline
significantly in 2003 compared to 2002 because we expect to earn lower average yields on our cash balances
and expect to consume cash throughout 2003 to primarily meet restructuring obligations accrued as current
liabilities.
Liquidity and Capital Resources
Our principal sources of liquidity at December 31, 2002 were our cash, cash equivalents and short−term
investments of $416.7 million. We also held $148.9 million of investments in bonds and notes with maturities
ranging from 1 to 2.5 years. The aggregate cash and investments of $565.6 million at December 31, 2002 was
$16.2 million lower than it was on December 31, 2001 and included $5.3 million of restricted cash (see note
6 to the Consolidated Financial Statements).
In 2002, we used $19.7 million of cash for operating activities, $3.1 million for purchases of property and
equipment and $2.3 million, net of proceeds on sales, for other investments. We generated $9.4 million of
cash through financing activities, primarily through the issuance of common stock.
We invested our portfolio of short and long term bonds and notes in corporate and US and Canadian government
securities having an S&P, Moody's or equivalent rating of A or better. All of our bond and note investments
mature in less than 2.5 years. We invest these capital resources primarily for preservation of capital and
secondarily for yield.
We have a line of credit with a bank that allows us to borrow up to $5.3 million at the bank's alternate
base rate as long as the Company maintains eligible investments with the bank in an amount equal to its
drawings. At December 31, 2002 we had committed all of this facility under letters of credit as security for
office leases. These letters of credit renew automatically each year and expire in 2011.
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