Adaptec 2003 Annual Report Download - page 34

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has reached end−of−life.
We anticipate our gross margins will be in the high 60% range in the first quarter of 2004, but these could vary significantly
depending on the volumes and mix of products sold.
We expect slightly elevated operating expenses in the first quarter of 2004 from the fourth quarter of 2003 as we incur additional
payroll benefits that are typically incurred in the first half of a calendar year.
We anticipate that interest and other income will increase in 2004 compared to 2003 as we expect to generate cash from operations
and financing activities. In addition, we have significantly reduced our interest expense through the repurchase of $206.9 million of
our outstanding 3.75% convertible subordinated notes (see Note 7 of our Consolidated Financial Statements).
We believe long−term trends that impact our operating performance, such service provider infrastructure spending, enterprise network
capital spending, communications component inventories, and general economic performance in North America and Asia, have
stabilized and are beginning to improve. While we are unable to ascertain the extent to which these factors will affect our operating
results, given our broad product and customer range and the complexity of the markets we serve, we believe these trends are positive
for our market opportunity over the years to come.
While we participate in a highly volatile industry, we believe we have substantially completed our effort to restructure and re−size our
financial and operating structure to a sustainable level for the foreseeable future, given our current market opportunities.
Liquidity and Capital Resources
Our principal source of liquidity at December 31, 2003 was $453.5 million in cash and investments, which included $411.9 million in
cash and cash equivalents, short−term investments and restricted cash and $41.6 million of long−term investments in bonds and notes
which mature within the next 12 to 24 months.
In 2003, we used $73.6 million of cash for operating activities. Changes in working capital accounts included:
•a $113.1 million reduction in accrued restructuring costs, primarily due to the settlement of a long−term lease obligation at a
Santa Clara, CA. office facility;
• a $14.6 million increase in income taxes payable;
• an $8.1 million reduction in inventories, as we continued our efforts to reduce our networking product inventories;
• a $5.0 million increase in accounts receivable, as a result of an increase in revenues;
• a $4.5 million reduction in prepaid expenses and other assets, as we reduced spending on development software and maintenance
in accordance with current cost control programs; and
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