Adaptec Reports Fiscal Fourth Quarter Net Revenues of $105.6 Million

4/30/2003 - Adaptec, Inc. (NASDAQ:ADPT), the global leader in storage infrastructure solutions, announced its fourth quarter and fiscal 2003 year-end financial results.

"In the quarter just completed, Adaptec maintained top-line revenues, cut operating expenses, increased cash flow from operations and reduced inventories," said David A. Young, Adaptec chief financial officer. "In fiscal 2003, we completed two restructuring actions that we believe will achieve approximately $30 million in annualized savings, ensuring that Adaptec is well positioned to continue to invest in new products and services and expand the business during the coming fiscal year."

Net Revenues
Adaptec reported fiscal 2003 fourth-quarter net revenues of $105.6 million, down 3 percent from $109.0 million in the prior quarter and down 2 percent from $108.1 million in the fourth quarter of fiscal 2002. Sequentially, net revenues were down due to a reduction in shipments of ServeRAID products to IBM during the quarter. Compared to the fourth quarter of fiscal 2002, net revenues were down due to lower demand in the server market. However, ServeRAID net revenues realized in the fourth quarter of fiscal 2003 helped offset the market downturn.

Gross Margin
Adaptec's fiscal 2003 fourth-quarter gross margin was 47.6 percent, up from 44.1 percent last quarter, but down from 55.5 percent in the fourth quarter of fiscal 2002. Compared to last quarter, gross margin increased due to a 4 percent shift in sales from OEMs to distributors and a favorable product mix. Compared to the fourth quarter of fiscal 2002, gross margin decreased primarily due to 2003 sales of ServeRAID products, which carry lower margins.

Operating Expenses
Operating expenses this quarter were $59.8 million, up 8 percent from $55.2 million last quarter and down 58 percent from $142.1 million in the fourth quarter of fiscal 2002. The 8 percent increase in operating expenses from last quarter is primarily due to fourth-quarter restructuring charges of $7.2 million, partially offset by associated expense reductions. The 58 percent decrease in operating expenses from the fourth quarter of fiscal 2002 is primarily due to the impairment of DPT goodwill recognized in the fourth quarter of fiscal 2002, representing a $69.0 million charge to operating expenses. In addition, Adaptec realized operating expense reductions this quarter due to restructuring actions taken during fiscal 2003 and late in the fourth quarter of fiscal 2002.

Earnings
Adaptec reported a fourth-quarter net loss of $3.1 million, compared to a net loss of $3.5 million last quarter and a net loss of $81.2 million in the fourth quarter of fiscal 2002. Net loss per share this quarter and last quarter was $0.03, compared to a net loss per share of $0.77 in the fourth quarter of fiscal 2002.

Non-GAAP Results
The non-GAAP, formerly pro forma, information provided below is a supplement to, not a substitute for, our financial results presented in accordance with GAAP. The non-GAAP results have been adjusted on a consistent basis to exclude certain expenses, gains and losses we believe provide a more complete understanding of our underlying operational results and trends.

Non-GAAP operating expenses were $45.9 million this quarter, down 4 percent from $47.7 million last quarter and down 9 percent from $50.4 million in the fourth quarter of fiscal 2002. The decline in operating expenses from last quarter represented reductions in sales, marketing and administrative areas. Approximately two-thirds of the 9 percent decline in operating expenses from the fourth quarter of fiscal 2002 came from sales, marketing and administrative functions, while the remaining third was attributable to research and development.

Non-GAAP net income was $5.4 million this quarter, compared to $3.0 million last quarter and $8.7 million in the fourth quarter of fiscal 2002. Non-GAAP diluted earnings per share were $0.05 this quarter, compared to $0.03 last quarter and $0.08 in the fourth quarter of fiscal 2002.

Business Update
"During the quarter, we expanded our customer base, deepened our OEM and channel relationships and opened a broad range of opportunities in new markets through the Eurologic acquisition," said Robert N. Stephens, Adaptec chief executive officer. "We have expanded our ability to serve customers with complete, end-to-end storage infrastructure solutions, including storage components and software, storage networking products and networked storage subsystems. Based upon these initiatives, we strongly believe that Adaptec is well positioned for growth in fiscal 2004."

Major milestones in the fourth quarter of fiscal 2003 include:

Net Revenues
Fiscal 2003 net revenues were $408.1 million, compared to $418.7 million in fiscal 2002. Fiscal 2003 was impacted by the unfavorable economic environment, which caused a reduction in demand in the server market. However, the company began generating ServeRAID product sales mid-year, which balanced a majority of the downturn.

Gross Margin
Gross margin for the year was 50.3 percent, down slightly from 51.5 percent in fiscal 2002. The reduction in gross margin is due primarily to sales of ServeRAID products, which began shipping in the middle of fiscal 2003 and carry lower margins.

Operating Expenses
Fiscal 2003 operating expenses were $238.5 million, compared to $426.5 million in fiscal 2002. The significant decrease is primarily due to certain charges taken only in fiscal 2002, including a $69.0 million charge for the impairment of goodwill associated with the DPT acquisition and a $53.4 million write-off of in-process technology associated with the acquisition of Platys. In addition, amortization charges taken in fiscal 2002 were $42.5 million higher than amortization charges taken in fiscal 2003.

Earnings
Adaptec reported a fiscal 2003 net loss of $14.8 million, compared to a net loss of $196.2 million in fiscal 2002. Adaptec recorded a net loss per share of $0.14 in fiscal 2003, compared to a net loss per share of $1.91 for fiscal 2002.

Non-GAAP Results
Non-GAAP fiscal 2002 gross margin was 51.9 percent, excluding an excess royalty payment of $1.6 million made to Agilent in the first quarter of fiscal 2002.

Non-GAAP operating expenses were $194.3 million in fiscal 2003, down 2 percent from $197.8 million in fiscal 2002. Adaptec has taken significant actions during the year to focus the Company's spending on current revenue levels.

Non-GAAP fiscal 2003 net income was $17.4 million, compared to $29.0 million in fiscal 2002. Non-GAAP fiscal 2003 diluted earnings per share were $0.16, compared to $0.28 for fiscal 2002.

About Adaptec
Adaptec Inc. (NASDAQ:ADPT) provides highly available storage access solutions that reliably move, manage and protect critical data and digital content. Adaptec's storage solutions are found in high-performance networks, servers, workstations and desktops from the world's leading manufacturers, and are sold through OEMs and distribution channels to ISPs, enterprises, medium and small businesses and consumers. Adaptec is an S&P SmallCap 600 Index member.

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