(Mark One)
ý		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended December 31, 2002 or
o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to

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.

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

The number of shares outstanding of Adaptec's common stock as of January 31, 2003 was 107,221,116.

ADAPTEC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following is a list of acronyms that are contained within the Unaudited Notes to Condensed Consolidated Financial Statements ("Notes"). They are listed in the order in which they appear.

The following is a list of accounting rules and regulations referred to within the Notes. They are listed in the order in which they appear.

In the opinion of management, the accompanying Unaudited Condensed Consolidated Interim Financial Statements ("Financial Statements") of Adaptec, Inc. and its wholly-owned subsidiaries (collectively the "Company") have been prepared on a consistent basis with the March 31, 2002 audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, except as described in Notes 8, 9 and 10, necessary to provide a fair statement of the results for the interim periods presented. These Financial Statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K/A for the year ended March 31, 2002. The third quarters of fiscal 2003 and fiscal 2002 ended December 27, 2002 and December 28, 2001, respectively. For presentation purposes, the accompanying Financial Statements have been shown as ending on the last day of the calendar month. Certain amounts reported in previous periods have been reclassified to conform to the current period presentation. The results of operations for the third quarter and first nine months of fiscal 2003 are not necessarily indicative of the results to be expected for the entire fiscal year.

On April 12, 2001, the Company's Board of Directors formally approved a plan to spin-off the Software segment, Roxio, Inc., ("Roxio") into a fully independent and separate company. The Company effected the spin-off after the close of business on May 11, 2001 by issuing a dividend of Roxio common stock to the Company's stockholders of record as of April 30, 2001. As a result of the spin-off, the Company's Financial Statements have been restated to account for Roxio as discontinued operations for all periods presented in accordance with APB Opinion No. 30. Unless otherwise indicated, the Notes relate to the discussion of the Company's continuing operations.

The Company adopted EITF Issue No. 01-09 in January 2002. As a result, certain consideration paid to distributors is now classified as an offset to revenue rather than an operating expense. Prior period financial statements have been reclassified to conform to this presentation.

In December 2002, the FASB issued SFAS No. 148, which provides alternative methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the methods of accounting for stock-based employee compensation and the effect of the method used on reported results. This statement is effective for fiscal years ending after December 15, 2002. The Company will adopt the disclosure provisions of SFAS No. 148 in the fourth quarter of fiscal 2003, however, the Company has not yet determined whether the Company will voluntarily adopt the fair value method of accounting for stock-based compensation. The Company has not yet determined the impact of SFAS No. 148 on its results of operations or financial position.

In November 2002, the FASB issued FIN 45, which requires additional disclosures to be made by a guarantor in its financial statements regarding its obligations under certain guarantees that it has issued, which includes a rollforward of the Company's product warranty liabilities. FIN 45 also provides additional guidance for certain liabilities that the guarantor is required to recognize. The provisions related to the disclosure requirements are effective for financial statement periods ending after December 15, 2002. The provisions related to recognition and measurement of guarantees are effective for financial statement periods beginning after December 31, 2002, on a prospective basis. The Company adopted the disclosure provisions of FIN 45 in the third quarter of fiscal 2003. The Company adopted the provisions related to the recognition and measurement of guarantees as of January 1, 2003 and does not believe such provisions will have a significant impact on the Company's results of operations or financial position.

In June 2002, the FASB issued SFAS No. 146, which addresses significant issues regarding the recognition, measurement and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the EITF has set forth in Issue No. 94-3. SFAS No. 146 will be effective for exit and disposal activities initiated after December 31, 2002 and generally requires that liabilities for costs associated with exit and disposal activities be recognized when the liability is incurred, rather than when a commitment to the exit or disposal activity is made. Historically, the Company has implemented several restructuring plans and may implement additional restructuring plans in the future. At this time, however, the Company cannot determine what, if any, impact SFAS No. 146 will have on its results of operations or financial position.

In May 2002, the FASB issued SFAS No. 145, which requires gains and losses from extinguishments of debt to be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. As a result, the criteria in APB Opinion No. 30 will now be used to classify those gains and losses. SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. This amendment is consistent with the FASB's goal of requiring similar

accounting treatment for transactions that have similar economic effects. In addition, SFAS No. 145 makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. This statement is effective for fiscal years beginning after May 15, 2002 for the provisions related to the rescission of SFAS Nos. 4 and 64, and for all transactions entered into beginning May 15, 2002 for the provision related to the amendment of SFAS No. 13 although early adoption is permitted. The Company elected to adopt SFAS No. 145 as of January 1, 2002, and as a result, the Company has included the gain on extinguishment of debt of $3.3 million (net of unamortized debt issuance costs of $0.8 million) in "Interest and Other Income" for the first nine months of fiscal 2003.

In August 2001, the Company purchased Platys Communications, Inc. ("Platys"), a developer of IP storage solutions. The acquisition was accounted for under SFAS No. 141 and certain specified provisions of SFAS No. 142. As part of the purchase agreement, $15.0 million of the cash payment was held back (the "General Holdback") for unknown liabilities that may have existed as of the acquisition date. The General Holdback, which was included as part of the purchase price, was included in accrued liabilities as of March 31, 2002. As of December 31, 2002, the Company paid $10.6 million of the General Holdback to the former Platys shareholders and the remaining $4.4 million was retained pending the resolution of a claim submitted by the Company to the Representative of the Platys shareholders in August 2002. While the Company believes that its claims are meritorious, it cannot predict the outcome of this matter with certainty.

Inventories are stated at the lower of cost (first-in, first-out) or market. The components of net inventories were as follows:

		December 31, 2002		March 31, 2002
		(in thousands)
Raw materials		$	6,921	$	8,760
Work-in-process			5,625		4,088
Finished goods			13,409		17,324

	Total	$	25,955	$	30,172

In May 2001, the Company obtained an unsecured $20.0 million revolving line of credit. The line of credit has a term, as amended, through August 2003 and bears interest at a "Prime Rate" in effect or at a "Fixed Term Rate" as elected by the Company. Prime Rate refers to the rate of interest as established by the line of credit provider while the Fixed Term Rate is determined in relation to the LIBOR. In addition, the Company is charged a fee equal to 0.15% per annum on the average daily unused amount of the line of credit. Under the terms of the line of credit, the Company is required to maintain certain financial ratios, among other restrictive covenants. As of December 31, 2002, the

Company was in compliance with all such covenants. No borrowings were made under the line of credit during the first nine months of fiscal 2003.

During the first nine months of fiscal 2003, the Company repurchased 4³/4% Convertible Subordinated Notes with a book value of $120.4 million in principal amount for an aggregate price of $116.3 million. The repurchase resulted in a gain on extinguishment of debt of $3.3 million (net of unamortized debt issuance costs of $0.8 million). Because the Company elected to adopt SFAS No. 145 as of January 1, 2002 the gain on extinguishment of debt has been included in "Interest and other income" (Note 13).

Effective April 1, 2002, the Company adopted SFAS No. 142, which changes the accounting for goodwill from an amortization method to an impairment-only approach, whereby goodwill will be evaluated annually and whenever events or circumstances occur which indicate that goodwill might be impaired. In accordance with SFAS No. 142, the Company discontinued amortizing the remaining goodwill balances as of the beginning of fiscal 2003. All remaining and future acquired goodwill will be subject to annual impairment tests, or earlier if indicators of potential impairment exist, using a fair-value-based approach. All other intangible assets will continue to be amortized over their estimated useful lives and assessed for impairment under SFAS No. 144. The Company has completed the transitional impairment test required upon the adoption of SFAS No. 142 and concluded that goodwill was not impaired as of April 1, 2002. As of December 31, 2002, there had been no impairment of goodwill or intangible assets. There can be no assurance that future goodwill impairment tests will not result in a charge to earnings.

Upon adoption of SFAS No. 142, distribution network, acquired employees and OEM relationships no longer meet the definition of identifiable intangible assets. As a result, the net balance of $8.2 million was reclassified to goodwill as of April 1, 2002 (Note 9 and 10).

The following table discloses the effect on net loss and basic and diluted net loss per share as if the Company accounted for its goodwill (including distribution networks, acquired employees and OEM relationships) under SFAS No. 142 for all periods presented:

	Three Month Period Ended		Nine Month Period Ended
	December 31, 2002		December 31, 2001		December 31, 2002		December 31, 2001
	(in thousands, except per share amounts)
Reported net loss	$	(3,455	)	$	(34,133	)	$	(11,721	)	$	(115,004	)
Add: Amortization of goodwill, net of tax		—			10,115			—			30,344

Adjusted net loss	$	(3,455	)	$	(24,018	)	$	(11,721	)	$	(84,660	)

Basic and diluted net loss per share:
Reported net loss per share	$	(0.03	)	$	(0.33	)	$	(0.11	)	$	(1.13	)
Add: Amortization of goodwill, net of tax	$	—		$	0.10		$	—		$	0.30
Adjusted net loss per share	$	(0.03	)	$	(0.23	)	$	(0.11	)	$	(0.83	)

	December 31, 2002		March 31, 2002
	(in thousands)
SSG	$	8,187	$	—
DSG		—		—
SNG		45,667		45,684
Other		—		—

Total	$	53,854	$	45,684

During the third quarter and first nine months of fiscal 2003, no goodwill was acquired, impaired or written off.

During the third quarter of fiscal 2003, the Company purchased patented technology for managing highly scalable, NAS systems from Tricord Systems, Inc. The intellectual property was valued at $1.7 million and will be amortized over a useful life of three years. The amortization of the intellectual property will be recorded in "Research and development" in the Statement of Operations and will subsequently be amortized against "Cost of revenues" in the Statement of Operations upon shipment of products incorporating this technology. All the remaining intangible assets are being amortized using

the straight-line method over their estimated useful lives, ranging from three to five years. The components of intangible assets were as follows:

Amortization of acquisition-related intangible assets is included in "Amortization of goodwill and acquisition-related intangible assets" in the Unaudited Condensed Consolidated Statements of Operations ("Statements of Operations"). Amortization of acquisition-related intangible assets was $3.7 million and $5.7 million for the third quarter of fiscal 2003 and 2002, respectively. Amortization of acquisition-related intangible assets was $11.2 million and $14.8 million for the first nine months of fiscal 2003 and 2002, respectively. Amortization of other intellectual property is reflected in the Company's "Gross profit" and "Research and development" in the Statements of Operations. Amortization of other intellectual property was $1.8 million and $0.3 million for the third quarter of fiscal 2003 and 2002, respectively, and $3.3 million and $1.0 million for the first nine months of fiscal 2003 and 2002, respectively.

During the third quarter and first nine months of fiscal 2003, no intangible assets were impaired or written off. Based on the Company's intangible assets at December 31, 2002, the annual amortization expense is expected to be as follows:

	Estimated Amortization Expense
	Acquisition-related intangibles		Intellectual property assets
	(in thousands)
Fiscal Years:
2003 (remaining three months)	$	3,743	$	1,759
2004		12,372		7,127
2005		4,407		7,005
2006		1,566		6,670
2007		—		6,316
2008 and thereafter		—		1,931

Total	$	22,088	$	30,808

The Company provides an accrual for estimated future warranty costs based upon the historical relationship of warranty costs to sales. The estimated future warranty obligations related to certain products are recorded in the period in which the related revenue is recognized. The estimated future warranty obligations are affected by product failure rates, material usage and replacement costs incurred in correcting a product failure. If actual product failure rates, material usage or replacement costs differ from our estimates, revisions to the estimated warranty obligations would be required, however the Company made no adjustments to pre-existing warranty accruals in the third quarter of fiscal 2003. A reconciliation of the changes to the Company's warranty accrual for the third quarter of fiscal 2003 was as follows:

	Product Warranty Accrual/(Adjustment)
	(in thousands)
Balance at September 30, 2002	$	1,844
Accruals for warranties issued		1,108
Settlements made during the period		(1,452	)

Balance at December 31, 2002	$	1,500

In December 1999, the Company purchased Distributed Processing Technology Corp. ("DPT"). As part of the purchase agreement, $18.5 million of the purchase price was held back, (the "Holdback Amount") from former DPT stockholders, for unknown liabilities that may have existed as of the acquisition date. For accounting purposes, the Holdback Amount was included as part of the acquisition purchase price. Subsequent to the date of purchase, the Company determined that certain representations and warranties made by the DPT stockholders were incomplete or inaccurate, which caused the Company to lose revenues and incur additional expenses. In addition, certain DPT products were found to be defective. In December 2000, the Company filed a claim against the DPT stockholders for the entire Holdback Amount of $18.5 million. In January 2001, the DPT stockholders notified the Company as to their objection to the Company's claim. Under the terms of the purchase agreement, the Company's claim was submitted to arbitration. The arbitration hearing was conducted during December 2002. While the Company believes that its claims are meritorious, the Company cannot predict with certainty the outcome of the arbitration proceeding.

In October 2002, the Company licensed software specific to developing and designing ASICs for an aggregate license fee of $6.1 million that will be paid in five quarterly installments of $1.2 million beginning in the third quarter of fiscal 2003. This fee will be amortized over the three-year term of the license agreement. The Company also committed to pay a three year maintenance fee of $2.7 million on the software licenses.

On June 27, 2000, the Company received a statutory notice of deficiency from the IRS with respect to its Federal income tax returns for fiscal 1994 to 1996. The Company filed a Petition with the United States Tax Court on September 25, 2000, contesting the asserted deficiencies. In December 2001, settlement agreements were filed with the United States. Tax Court reflecting a total of $9.0 million of adjustments and an allowance of $0.5 million in additional tax credits. The outcome

did not have a material effect on the Company's financial position or results of operations, as sufficient tax provisions have been made. The final Tax Court stipulation will be filed when the subsequent audit cycles are completed. Tax credits that were generated but not used in subsequent years may be carried back to the fiscal 1994 to 1996 audit cycle.

On December 15, 2000, the Company received a statutory notice of deficiency from the IRS with respect to its Federal income tax return for fiscal 1997. The Company filed a Petition with the United States Tax Court on March 14, 2001, contesting the asserted deficiencies. Settlement agreements have been filed with the United States Tax Court on all but one issue. The Company believes that the final outcome of all issues will not have a material adverse impact on the Company's financial position or results of operations, as it believes that it has made sufficient tax provisions. However, the Company cannot predict with certainty how these matters will be resolved and whether it will be required to make additional payments.

In addition, the IRS is currently auditing the Company's Federal income tax returns for fiscal 1998 and 1999. The Company believes that it has provided sufficient taxes for these years and the ultimate outcome of the IRS audits will not have a material adverse impact on its financial position or results of operations. However, the Company cannot predict with certainty how these matters will be resolved and whether it will be required to make additional payments.

The Company is a party to other litigation matters and claims which are normal in the course of its operations, and while the results of such litigation matters and claims cannot be predicted with certainty, the Company believes that the final outcome of such matters will not have a material adverse impact on its financial position or results of operations.

The components of interest and other income for the third quarter and first nine months of fiscal 2003 and 2002, were as follows:

		Three Month Period Ended				Nine Month Period Ended
		December 31, 2002		December 31, 2001		December 31, 2002		December 31, 2001
		(in thousands)
Interest income		$	7,464	$	8,214	$	23,143	$	27,651
Gain on extinguishment of debt			—		—		3,297		—

	Total	$	7,464	$	8,214	$	26,440	$	27,651

Second Quarter of Fiscal 2003 Restructuring Plan: In July 2002, the Company announced a restructuring program to reduce expenses and streamline operations in all of its operating segments and recorded a restructuring charge of $6.2 million. The restructuring charge included $4.0 million for severance and benefits related to the involuntary termination of approximately 170 employees. These terminated employees were throughout all functions of the Company, which include manufacturing, administrative, sales and marketing and engineering. Approximately 73%, 24%, 2% and 1% were based

in the United States, Singapore, Europe and Japan, respectively. The Company recorded $0.5 million pertaining to the estimated future obligations for non-cancelable lease payments for excess facilities in New Hampshire and Colorado. The Company wrote-off leasehold improvements, furniture and fixtures and equipment with a net book value of $1.7 million. These assets were taken out of service, as they were deemed unnecessary due to the reductions in workforce.

The following table sets forth an analysis of the components of the second quarter of fiscal 2003 restructuring charge and payments made against the reserve through December 31, 2002:

The Company anticipates that the remaining restructuring reserve balance of $0.9 million will be substantially paid out by the second quarter of fiscal 2004. The longer term payments relate to lease obligations.

Fourth Quarter of Fiscal 2002 Restructuring Plan: In March 2002, the Company announced a series of actions to reduce costs and tailor the Company's expenses to current revenues for all of its operating segments. The Company recorded a restructuring charge of $3.8 million consisting of $2.7 million for severance and benefits related to the involuntary termination of approximately 70 employees, $0.4 million related to the termination of operating leases for facilities and equipment, $0.5 million accrual for legal, accounting and other similar costs and a $0.2 million write-down of leasehold improvements, furniture and fixtures and equipment. The terminated employees were throughout all functions of the Company, which include manufacturing, administrative, sales and marketing and engineering. Approximately 67% of these terminated employees were based in the United States and approximately 33% were based in Belgium. The assets were taken out of service as they were deemed unnecessary due to the reductions in workforce.

The following table sets forth an analysis of the components of the fourth quarter of fiscal 2002 restructuring charge and the payments made against the reserve through December 31, 2002:

The Company anticipates that the remaining restructuring reserve balance of $0.7 million will be substantially paid out by the third quarter of fiscal 2004. The longer term payments relate to lease obligations.

First Quarter of Fiscal 2002 Restructuring Plan: In response to the economic slowdown, the Company implemented a restructuring plan in the first quarter of fiscal 2002 and recorded a restructuring charge of $6.2 million. The goal of the restructuring plan was to reduce costs and improve operating efficiencies in all of its operating segments in order to match the current business environment. The restructuring charge consisted of severance and benefits of $5.2 million related to the involuntary termination of approximately 325 employees. These terminated employees were throughout all functions of the Company, which include manufacturing, administrative, sales and marketing and engineering. Approximately 53% of these terminated employees were based in the United States, 43% in Singapore and 4% in other locations. Additionally, the Company accrued for lease costs of $0.2 million pertaining to the estimated future obligations for non-cancelable lease payments for excess facilities in Florida that were vacated due to the reductions in workforce. The Company also wrote off leasehold improvements with a net book value of $0.4 million and production-related machinery and equipment with a net book value of $0.4 million. The assets were taken out of service as they were deemed unnecessary due to the reductions in workforce. The Company recorded a reduction to the fiscal 2002 first quarter restructuring provision of $0.4 million in the third quarter of fiscal 2002, as actual costs for severance and benefits were lower than originally anticipated.

In the second quarter of fiscal 2003, the Company recorded an additional $0.3 million charge consisting of accrued lease costs to the first quarter of fiscal 2002 restructuring provision.

The following table sets forth an analysis of the components of the first quarter of fiscal 2002 restructuring charge and the provision adjustments and payments made against the reserve through December 31, 2002:

The Company anticipates that the remaining restructuring reserve balance relating to lease obligations of $0.2 million will be substantially paid out by the second quarter of fiscal 2004.

Fourth Quarter of Fiscal 2001 Restructuring Plan: In response to the economic slowdown, the Company's management implemented a restructuring plan in the fourth quarter of fiscal 2001 to reduce costs and improve operating efficiencies across all of its operating segments, and the Company recorded a restructuring charge of $9.9 million. The restructuring charge consisted primarily of severance and benefits of $6.1 million related to the involuntary termination of approximately 275 employees. These employees were primarily in manufacturing and engineering functions, of which approximately 78% were based in the United States, 19% were based in Singapore and 3% were based in Belgium. Additionally, the Company accrued for lease costs of $1.4 million pertaining to the estimated future obligations for non-cancelable lease payments for excess facilities in California, New Hampshire, Florida and Belgium that were vacated due to the reductions in workforce. The Company wrote off leasehold improvements, furniture and fixtures, and production-related machinery and equipment with net book values of $1.2 million, $0.4 million and $0.3 million, respectively. The assets

were taken out of service as they were deemed unnecessary due to the reductions in workforce. In addition, the Company wrote down certain manufacturing equipment by $0.3 million to its estimated realizable value of $0.5 million. The manufacturing equipment was taken out of service and is expected to be sold in the fourth quarter of fiscal 2003. The Company accrued for legal, accounting and consulting costs of $0.2 million related to the restructuring.

In the first quarter of fiscal 2002, the Company recorded an additional $0.7 million charge to the fiscal 2001 restructuring provision. The adjustments included accrued lease costs of $0.5 million, and the Company wrote down an additional $0.3 million of the estimated realizable value of certain manufacturing equipment identified in the fourth quarter of fiscal 2001 restructuring provision. These adjustments were offset by a decrease in severance and benefits of $0.1 million, as actual costs were lower than originally anticipated. In the third quarter of fiscal 2002, the Company recorded a net reduction to the fourth quarter of fiscal 2001 restructuring provision of $0.4 million. The third quarter adjustment included a $0.6 million reduction in the restructuring provision as actual severance and benefit costs were lower than originally anticipated as well as an additional $0.2 million charge for the estimated realizable value of certain manufacturing equipment.

In the second quarter of fiscal 2003, the Company recorded an additional $0.6 million charge to the fourth quarter of fiscal 2001 restructuring provision. The adjustments included accrued lease costs of $0.4 million and the Company wrote down an additional $0.2 million of the estimated realizable value of certain manufacturing equipment that is being held for sale. The Company subleased a facility in California through April 2008. The estimated future sublease income will not be sufficient to cover the estimated future obligations for the non-cancelable lease payments. The Company accrued $0.4 million associated with the estimated loss through the end of the lease term.

The following table sets forth an analysis of the components of the fourth quarter of fiscal 2001 restructuring charge and the provision adjustments and payments made against the reserve through December 31, 2002:

The Company anticipates that the remaining restructuring reserve balance relating to lease obligations of $0.9 million will be substantially paid out by the first quarter of fiscal 2009.

Other charges consisted of asset impairment charges. The Company holds minority investments in certain non-public companies. The Company regularly monitors these minority investments for impairment and records reductions in the carrying values when necessary. Circumstances that indicate an other than temporary decline include subsequent "down" financing rounds, decreases in quoted market prices and declines in operations of the issuer. In the first nine months of fiscal 2003, the Company recorded an impairment charge of $0.5 million related to a decline in the value of a minority investment deemed to be other than temporary. In the third quarter and first nine months of fiscal 2002, the Company recorded impairment charges of $4.5 million and $8.6 million, respectively, related to a decline in the values of minority investments deemed to be other than temporary.

Income tax provisions for interim periods were based on the Company's estimated annual income tax rate. In the third quarter of fiscal 2003, the Company recorded an income tax provision of $0.1 million on a pretax loss of $3.3 million. The tax rate for the third quarter of 2003 differed from the combined United States. Federal and state statutory income tax rate of 40%, primarily due to the amortization of acquisition-related intangible assets, excluding goodwill, that are not fully deductible for tax purposes.

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share gives effect to all potentially dilutive common shares outstanding during the period. In computing diluted net income (loss) per share, the average stock price for the period is used in determining the number of shares assumed to be purchased upon the exercise of stock options.

Certain instruments potentially convertible into common stock were excluded from the diluted computation for all periods presented because the Company was in a net loss position and they were

anti-dilutive. The items excluded for the third quarter and first nine months of fiscal 2003 and 2002 were as follows:

	Three Month Period Ended	Nine Month Period Ended
	December 31, 2002	December 31, 2001	December 31, 2002	December 31, 2001
Outstanding employee stock options	20,538,000	17,744,000	19,373,000	12,450,000
Warrants	1,310,000	1,160,000	1,310,000	1,160,000
4³/4% Convertible Subordinated Notes	2,164,000	6,033,000	3,090,000	6,033,000
3% Convertible Subordinated Notes	16,327,000	—	16,327,000	—

The Company's comprehensive loss consisted of net loss and the changes in net unrealized gains (losses) on available-for-sale securities, net of tax.

The components of comprehensive loss, net of tax, for the third quarter and first nine months of fiscal 2003 and 2002, were as follows:

	Three Month Period Ended		Nine Month Period Ended
	December 31, 2002		December 31, 2001		December 31, 2002		December 31, 2001
	(in thousands)
Net loss	$	(3,455	)	$	(34,133	)	$	(11,721	)	$	(115,004	)
Increase (decrease) in net unrealized gains (losses) on available-for-sale securities, net of tax		(1,028	)		(2,948	)		1,596			1,986

Comprehensive loss	$	(4,483	)	$	(37,081	)	$	(10,125	)	$	(113,018	)

Accumulated other comprehensive income presented in the accompanying Unaudited Condensed Consolidated Balance Sheets represents the net unrealized gains (losses) on available-for-sale securities, net of tax. The realization of these gains is dependent on the market value of the securities, which is subject to fluctuation. There can be no assurance if and when these gains will be realized.

SSG's interface products enable the movement, storage and protection of data across a range of server platforms, direct attached storage servers, storage area network-based servers, NAS devices, storage subsystems and external storage systems. These products bring Host I/O, including SCSI, technology and RAID solutions to storage applications. SSG is also investing in SATA and SAS technologies.

DSG provides high-performance I/O connectivity, video multimedia and networking solutions for personal computing platforms, including notebook and desktop computers, sold to consumers and small and medium businesses.

SNG provides storage connectivity solutions for servers, storage devices, fabric switches and NAS devices. These products incorporate iSCSI, and TOE functionality, fibre channel and multi-port ethernet technologies. The Company is currently providing evaluation units of iSCSI and TOE products to OEM customers for integration and testing.

Unallocated corporate expenses includes write-off of acquired in-process technology, restructuring charges, other charges, interest and other income, and interest expense.

Summarized financial information on the Company's reportable operating segments is shown in the following table. There were no inter-segment revenues for the periods shown below. The Company does not separately track assets or depreciation by operating segments nor are the segments evaluated under these criteria. Segment income (loss) represents income (loss) before interest and taxes.

The following table presents the details of other income and expenses for the third quarter and first nine months of fiscal 2003 and 2002:

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

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. The statements contained in this document that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, beliefs, intentions or strategies regarding our business. We may identify these statements by the use of words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "project," "should," "will," "would" and other similar expressions. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements, except as may otherwise be required by law.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in the "Risk Factors" section and elsewhere in this document. In evaluating our business, prospective investors should consider carefully these factors in addition to the other information set forth in this document.

While management believes that the discussion and analysis in this report is adequate for a fair presentation of the information presented, we recommend that you read this discussion and analysis in conjunction with our Annual Report on Form 10-K/A for the year ended March 31, 2002.

As discussed further in the "Roxio Spin-Off" section below, we completed the spin-off of our Software segment, Roxio, Inc., or Roxio, into a fully independent and separate company in the first quarter of fiscal 2002. Unless otherwise indicated, the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section relates to our continuing operations.

The following table sets forth the items in the unaudited Condensed Consolidated Statements of Operations as a percentage of net revenues:

Business Segments. Our current reportable business segments are Storage Solutions Group, or SSG, Desktop Solutions Group, or DSG, and Storage Networking Group, or SNG. See "Item 1. Business" in Part I of our Annual Report on Form 10-K/A for the year ended March 31, 2002 and Note 19 to Notes to the Unaudited Condensed Consolidated Financial Statements included herein, for a detailed discussion of our reportable business segments.

Net Revenues. Net revenues were $109.0 million for the third quarter of fiscal 2003, an increase of 4% from net revenues of $105.2 million for the third quarter of fiscal 2002. Net revenues were $302.5 million for the first nine months of fiscal 2003, a decrease of 3% from net revenues of $310.7 million for the first nine months of fiscal 2002.

Net revenues for the third quarter of fiscal 2003, were comprised of $94.5 million from the SSG segment, an increase of 11% from the third quarter of fiscal 2002, $12.9 million from the DSG segment, a decrease of 22% from the third quarter of fiscal 2002, and $1.6 million from the SNG segment, a decrease of 56% from the third quarter of fiscal 2002. Net revenues for the first nine months of fiscal 2003, were comprised of $253.2 million from the SSG segment, flat to the first nine months of fiscal 2002, $41.3 million from the DSG segment, a decrease of 12% from the first nine months of fiscal 2002, and $8.0 million from the SNG segment, a decrease of 17% from the first nine months of fiscal 2002.

Distributor owned inventories decreased by approximately 18% in the third quarter of fiscal 2003 from the second quarter of fiscal 2003 and decreased by approximately 4% in the third quarter of fiscal 2003, as compared to the third quarter of fiscal 2002.

Net revenues from the SSG segment for the third quarter of fiscal 2003 increased from the corresponding period of fiscal 2002 due to sales of our ServeRAID products to International Business Machines Corporation, or IBM. ServeRAID sales to IBM began in the second quarter of fiscal 2003 following our entry into the ServeRAID agreement with IBM in the fourth quarter of fiscal 2002. However, the increase in ServeRAID revenues was offset by more than half due to a continued decline in sales volumes of our Small Computer System Interface, or SCSI, products. The decline in the volume of SCSI products sales is primarily attributable to a decline in demand due to penetration of other lower cost solutions, such as Advanced Technology Attachment, or ATA. In addition, we have seen a shift in the server market share from smaller Value Added Resellers, or VARs, to major Original Equipment Manufacturers, or OEMs. Because we derive a higher proportionate share of our SCSI revenues from VARs, our total SCSI revenues have been adversely impacted by this shift and may continue to be impacted in the future. Conversely we have experienced a small increase in sales of our Redundant Array of Independent Disks, or RAID, products, in addition to the increase in our ServeRAID revenues.

Net revenues from the SSG segment for the first nine months of fiscal 2003 were flat from the corresponding period of fiscal 2002, although the product mix varied. SSG net revenues for the first nine months of fiscal 2003 included revenue from sales of our ServeRAID products to IBM, whereas the first nine months of fiscal 2002 did not include ServeRAID revenues. Conversely, sales of our SCSI products declined period over period, offsetting the increase in ServeRAID revenues. As sales of our SCSI products decline period over period, we've experienced an increase in sales volumes of our RAID and external storage products. In addition, we are transitioning from our Ultra 160 family of products, the major product family of our SSG segment, to our new family of Ultra 320 products. As part of this transition, we are beginning to see a shift in our product mix towards sales of a greater portion of RAID products as compared to SCSI products. We expect that this Ultra 320 transition will occur over a period of several quarters. Our future revenues will, over time, be significantly influenced by the extent to which we are successful in achieving design wins for, and ultimately selling, our Ultra 320 products to our current customers, and to new customers.

Net revenues from the DSG segment for the third quarter of fiscal 2003 decreased from the corresponding period of fiscal 2002 due to a decline in sales volumes of our SCSI-based desktop computer solutions caused by a reduction in demand resulting from the penetration of other lower cost solutions and alternative technologies. The decrease in SCSI revenues was slightly offset by the launch of several new products in the second quarter of fiscal 2003, primarily our analog video products.

Net revenues from the DSG segment for the first nine months of fiscal 2003 decreased from the corresponding period of fiscal 2002, reflecting the continued decline in demand for our SCSI-based desktop computer solutions. However, the decrease was offset by more than half due to increased sales of our USB2.0 FireWire/1394 connectivity solutions, our new products launched in the second quarter of fiscal 2003, and increased sales of our Hub products launched in the third quarter of fiscal 2002.

Net revenues from the SNG segment for the third quarter and first nine months of fiscal 2003 decreased from the corresponding periods of fiscal 2002. Approximately half of the decrease in net revenues was due to a decline in sales volumes of our fibre channel products to OEMs and the other half was due to a decline in sales volumes of our Network Interface Cards, or NICs.

Gross Margin. As a percentage of net revenues, gross margin was 44% and 51% for the third quarter and first nine months of fiscal 2003, respectively, compared to 55% and 50% for the corresponding periods of fiscal 2002, respectively. Gross margin for the third quarter of fiscal 2003 decreased from the corresponding period last year due to a decline in sales of our SCSI products, which carry relatively high margins, and an increase in sales of our ServeRAID products to IBM, which have lower margins. Gross margin for the first nine months of fiscal 2003 improved slightly from the corresponding period last year, primarily because gross margin for the first nine months of fiscal 2002 was unfavorably impacted by excess inventory charges due to customers delaying shipments or canceling orders as a result of the slowdown in their capital expenditures, and a $1.6 million minimum royalty fee paid to Agilent Tehnologies, Inc., or Agilent, in connection with the termination of our development and marketing agreement with Agilent. In addition, gross margin in the first nine months of fiscal 2003 was favorably impacted by manufacturing-related cost reductions resulting from restructuring plans implemented in fiscal fourth quarter of 2002 and the second quarter of fiscal 2003.

Our RAID products generally carry lower margins than our SCSI products, and to the extent that the revenues from our RAID products increase relative to revenues from our SCSI products, we would expect our margins to be adversely impacted. In addition, we will continue to amortize expenses associated with the ServeRAID agreement with IBM and our margins on the ServeRAID products are considerably lower than our other RAID products.

Research and Development Expenses. Research and development expenses were $28.5 million, or 26% of net revenues, for the third quarter of fiscal 2003 compared to $41.9 million, or 40% of net revenues, for the third quarter of fiscal 2002. Both periods include deferred compensation charges from restricted stock, unvested cash and assumed stock options associated with the acquisition of Platys Communications, Inc., or Platys. In the third quarter of fiscal 2003, we recorded deferred compensation charges of $2.7 million representing the vesting of restricted stock, unvested cash and assumed stock options. In the third quarter of fiscal 2002, we recorded deferred compensation charges of $14.7 million, including $3.0 million representing the vesting of restricted stock, unvested cash, and assumed stock options and $11.7 million representing the value of stock and cash paid to certain Platys executives when specified milestones were met. Excluding the deferred compensation charges, research and development expenses were $25.8 million, or 24% of net revenues, for the third quarter of fiscal 2003 compared to $27.2 million, or 26% of net revenues, for the third quarter of fiscal 2002. Excluding the deferred compensation charges, the decrease in research and development expenses was attributable to savings from reductions in our workforce, resulting from restructuring plans implemented in the fourth quarter of fiscal 2002 and the second quarter of fiscal 2003.

Research and development expenses were $89.2 million, or 29% of net revenues, for the first nine months of fiscal 2003 compared to $92.1 million, or 30% of net revenues, for the first nine months of fiscal 2002. Both periods include deferred compensation charges associated with the acquisition of Platys. In the first nine months of fiscal 2003, we recorded deferred compensation charges of $8.2 million, representing nine months of vesting of restricted stock, unvested cash and assumed stock options. In the first nine months of fiscal 2002, we recorded deferred compensation charges of $15.7 million, including $4.0 million representing four months of vesting of restricted stock, unvested cash and assumed stock options and $11.7 million representing the value of stock and cash paid to certain Platys executives when specified milestones were met. Excluding the deferred compensation charges, research and development expenses were $81.0 million, or 27% of net revenues, for the first nine months of fiscal 2003 compared to $76.4 million, or 25% of net revenues, for the first nine months of fiscal 2002. Excluding the deferred compensation charges, the increase in research and development

expenses was attributable to increased spending associated with the additional workforce brought on through the acquisition of Platys and the ServeRAID agreement with IBM. The additional spending was only partially offset by savings obtained through reductions in our workforce, resulting from restructuring plans implemented in the fourth quarter of fiscal 2002 and the second quarter of fiscal 2003.

We remain committed to significant levels of research and development in order to enhance technological investments in our solutions. Our investment in research and development primarily focuses on developing new products for the Internet Protocol, or IP storage, server storage, networking, desktop, and external storage markets. We also invest in research and development of new technologies, including Serial Advanced Technology Attachment, or SATA, and Serial Attached SCSI, or SAS.

Selling, Marketing and Administrative Expenses. Selling, marketing and administrative expenses were $22.9 million, or 21% of net revenues, for the third quarter of fiscal 2003 compared to $33.0 million, or 31% of net revenues, for the third quarter of fiscal 2002. Both periods include deferred compensation charges associated with the acquisition of Platys. In the third quarter of fiscal 2003, we recorded deferred compensation charges of $1.1 million representing the vesting of restricted stock, unvested cash and assumed stock options. In the third quarter of fiscal 2002, we recorded deferred compensation charges of $10.4 million, including $1.1 million representing the vesting of restricted stock, unvested cash and assumed stock options and $9.3 million representing the value of stock and cash paid to certain Platys executives when specified milestones were met. Excluding the deferred compensation charges, selling, marketing and administrative expenses were $21.8 million, or 20% of net revenues, for the third quarter of fiscal 2003 compared to $22.6 million, or 22% of net revenues, for the third quarter of fiscal 2002. Excluding the deferred compensation charges, the decrease in selling, marketing and administrative expenses is attributable to reductions in our workforce resulting from restructuring plans implemented in the fourth quarter of fiscal 2002 and the second quarter of fiscal 2003, partially offset by additional marketing expenses associated with new product launches.

Selling, marketing and administrative expenses were $70.7 million, or 23% of net revenues, for the first nine months of fiscal 2003 compared to $81.7 million, or 26% of net revenues, for the first nine months of fiscal 2002. Both periods include deferred compensation charges associated with the acquisition of Platys. In the first nine months of fiscal 2003, we recorded deferred compensation charges of $3.3 million, representing nine months of vesting of restricted stock, unvested cash, and assumed stock options. In the first nine months of fiscal 2002, we recorded deferred compensation of $10.7 million, including $1.4 million representing four months of vesting of restricted stock, unvested cash and assumed stock options and $9.3 million representing the value of stock and cash paid to certain Platys executives when specified milestones were met. Excluding the deferred compensation charges, selling, marketing and administrative expenses were $67.4 million, or 22% of net revenues, for the first nine months of fiscal 2003 compared to $71.0 million, or 23% of net revenues, for the first nine months of fiscal 2002. Excluding the deferred compensation charges, the decrease in selling, marketing and administrative expenses is attributable to reductions in our workforce and our resulting from restructuring plans implemented in the fourth quarter of fiscal 2002 and the second quarter of fiscal 2003.

Amortization of Goodwill and Acquisition-Related Intangible Assets. Effective April 1, 2002, we adopted Statement of Financial Accounting Standards, or SFAS, No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach, whereby goodwill will be evaluated annually and whenever events or circumstances occur which indicate that goodwill might be impaired. In accordance with SFAS No. 142, we discontinued amortizing the remaining balances of goodwill as of the beginning of fiscal 2003. All remaining and future acquired goodwill will be subject to annual impairment tests, or earlier if

indicators of potential impairment exist, using a fair-value-based approach. All other intangible assets will continue to be amortized over their estimated useful lives and assessed for impairment under SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." We have completed the transitional impairment test required upon the adoption of SFAS No. 142 and concluded that goodwill was not impaired as of April 1, 2002. As of December 31, 2002, no impairment of goodwill and intangible assets has been recognized. We cannot assure you that future goodwill impairment tests will not result in a charge to our results of operations.

Amortization of acquisition-related intangible assets was $3.7 million for the third quarter of fiscal 2003 and amortization of goodwill and intangible assets was $14.9 million for the third quarter of fiscal 2002, consisting of $9.2 million of amortization of goodwill and $5.7 million of amortization of acquisition-related intangible assets. Amortization of acquisition-related intangible assets was $11.2 million for the first nine months of fiscal 2003 and amortization of goodwill and intangible assets was $42.5 million for the first nine months of fiscal 2002, consisting of $27.7 million of amortization of goodwill and $14.8 million of amortization of acquisition-related intangible assets. The decrease for both the third quarter and the first nine months of fiscal 2003 was attributable to the adoption of SFAS No. 142 as discussed above, partially offset by $2.2 million of additional amortization of intangible assets recorded in connection with the acquisition of Platys in the first nine months of fiscal 2003.

Write-off of Acquired In-Process Technology. In connection with our acquisition of Platys, approximately $53.4 million of the purchase price was allocated to the acquired in-process technology and written off in the second quarter of fiscal 2002. We identified research projects of Platys in areas for which technological feasibility had not been established and no alternative future uses existed. We acquired certain Application Specific Integrated Circuit, or ASIC, based Internet Protocol SCSI, or iSCSI, technology for the IP storage solutions market. The value was determined by estimating the expected cash flows from the products once commercially viable, discounting the net cash flows to their present value, and then applying a percentage of completion to the calculated value as defined below.

Net Cash Flows. The net cash flows from the identified projects were based on estimates of revenues, cost of revenues, research and development expenses, selling, general and administrative expenses, royalty expenses and income taxes from the projects. We believe the assumptions used in the valuation as described below were reasonable at the time of the acquisition. The research and development expenses excluded costs to bring the projects to technological feasibility.

Net Revenues. The estimated net revenues were based on management projections of the projects. The business projections were compared with and found to be in line with industry analysts' forecasts of growth in substantially all of the relevant markets. Estimated total net revenues from the projects were expected to grow and peak after fiscal 2006, and decline thereafter as other new products are expected to become available. These projections were based on estimates of market size and growth, expected trends in technology, and the nature and expected timing of our new product introductions and our competitors.

Gross Margins. Projected gross margins were based on Platys' historical margins, which were in line with our SNG segment that acquired Platys.

Operating Expenses. Estimated operating expenses used in the valuation analysis of Platys included research and development expenses and selling, marketing and administrative expenses. In developing future expense estimates and evaluation of Platys' overall business model, an assessment of specific project results including both historical and expected direct expense levels and general industry metrics was conducted.

Research and Development Expenses. Estimated research and development expenses consist of the costs associated with activities undertaken to correct errors or keep products updated with current

information (also referred to as "maintenance" research and development) after a product is available for general release to customers. These activities include routine changes and additions. The estimated maintenance research and development expense was 1.25% of net revenues for the in-process technologies throughout the estimation period.

Selling, Marketing and Administrative Expenses. Estimated selling, marketing and administrative expenses were consistent with Platys' historical cost structure in the first year net revenues were generated and decreased in later years to account for economies of scale as total net revenues increased.

Effective Tax Rate. The effective tax rate utilized in the analysis of the in-process technologies reflects a combined historical industry average for the United States Federal and state statutory income tax rates.

Royalty Rate. We applied a royalty charge of approximately 8% of the estimated net revenues for each in-process project to attribute value for dependency on existing technology.

Discount Rate. The cost of capital reflects the estimated time to complete and the level of risk involved. The cost of capital used in discounting the net cash flows ranged from approximately 40% to 60% for each of the projects.

Percentage of Completion. The percentage of completion was determined using costs incurred by Platys prior to the acquisition date compared to the estimated remaining research and development to be completed to bring the projects to technological feasibility. We estimated, as of the acquisition date, project completion ranged from 25% to 90%.

We expect to complete the initial in-process projects and begin shipping product in the fourth quarter of fiscal 2003 with the completion and commercialization of follow-on in-process products expected to occur by the end of fiscal 2004. These in-process projects will be completed approximately one year after the estimated completion dates used for valuation of the assets acquired. The longer development period is due to customer requests to incorporate increased functionality into the initial products, as well as the inherent challenges encountered in developing and commercializing a new and complex technology such as iSCSI. We believe market acceptance of iSCSI technology will accelerate when leading storage OEMs complete development of their external storage arrays incorporating iSCSI technology. The completion of the longer term in-process projects has been deferred until there is more wide spread market acceptance of the acquired ASIC based iSCSI technology. We expect the remaining costs to bring the planned in-process projects to completion to be approximately $24.0 million. Development of these projects remains a significant risk to us due to the remaining effort to achieve technological feasibility, rapidly changing customer markets and significant competition. Failure to bring these products to market in a timely manner could adversely impact our sales, profitability and our future growth. Additionally, the value of the intangible assets acquired may become impaired.

In July 2002, we announced a restructuring program to reduce expenses and streamline operations in all of our operating segments and recorded a restructuring charge of $6.2 million. The restructuring charge included $4.0 million for severance and benefits related to the involuntary termination of approximately 170 employees. These terminated employees were throughout all functions of Adaptec, which include manufacturing, administrative, sales and marketing and engineering. Approximately 73%, 24%, 2% and 1% were based in the United States, Singapore, Europe and Japan, respectively. We recorded $0.5 million pertaining to the estimated future obligations for non-cancelable lease payments for excess facilities in New Hampshire and Colorado. We wrote-off leasehold improvements, furniture

and fixtures and equipment with a net book value of $1.7 million. These assets were taken out of service, as they were deemed unnecessary due to the reductions in workforce.

In the second quarter of fiscal 2003, we recorded an additional $0.3 million charge consisting of accrued lease costs to the first quarter of fiscal 2002 restructuring provision. We also recorded an additional $0.6 million charge to the fourth quarter of fiscal 2001 restructuring provision. The adjustments included accrued lease costs of $0.4 million and we wrote down an additional $0.2 million of the estimated realizable value of certain manufacturing equipment that is being held for sale. We subleased a facility in California through April 2008. The estimated future sublease income will not be sufficient to cover the estimated future obligations for the non-cancelable lease payments. We accrued $0.4 million associated with the estimated loss through the end of the lease term.

As a result of our second quarter fiscal 2003 restructuring plan, we estimate that we will reduce our annual infrastructure spending by approximately $16.0 million, of which approximately 10%, 25% and 65% will be reflected as a reduction in cost of revenues, research and development expenses, and selling, marketing and administrative expenses, respectively.

In March 2002, we announced a series of actions to reduce costs and tailor our expenses to current revenues for all of our operating segments. We recorded a restructuring charge of $3.8 million consisting of $2.7 million for severance and benefits related to the involuntary termination of approximately 70 employees, $0.4 million in losses on termination of operating leases for facilities and equipment, $0.5 million accrual for legal, accounting and other similar costs and a $0.2 million write-down of leasehold improvements, furniture and fixtures and equipment. The terminated employees were throughout all functions of Adaptec, which include manufacturing, administrative, sales, marketing and engineering. Approximately 67% of these terminated employees were based in the United States and approximately 33% were based in Belgium. The assets were taken out of service as they were deemed unnecessary due to the reductions in workforce.

In response to the continuing economic slowdown, we implemented a restructuring plan in the first quarter of fiscal 2002 and recorded a restructuring charge of $6.2 million. The goal of the restructuring plan was to reduce costs and improve operating efficiencies in all of our operating segments in order to match the current business environment. The restructuring charge consisted of severance and benefits of $5.2 million related to the involuntary termination of approximately 325 employees. These terminated employees were throughout all functions of Adaptec, which included manufacturing, administrative, sales, marketing and engineering. Approximately 53% of these terminated employees were based in the United States, 43% in Singapore and 4% in other locations. Additionally, we accrued for lease costs of $0.2 million pertaining to the estimated future obligations for non-cancelable lease payments for excess facilities in Florida that were vacated due to the reductions in workforce. We also wrote off leasehold improvements with a net book value of $0.4 million and production-related machinery and equipment with a net book value of $0.4 million. The assets were taken out of service as they were deemed unnecessary due to the reductions in workforce. We recorded a reduction to the fiscal 2002 first quarter restructuring provision of $0.4 million in the third quarter of fiscal 2002, as actual costs for severance and benefits were lower than originally anticipated.

As a result of our fiscal 2002 restructuring plans, we estimate that we reduced our annual infrastructure spending by approximately $20 to $25 million, of which approximately 30%, 35% and 35% will be reflected as a reduction in cost of revenues, research and development expenses, and selling, marketing and administrative expenses, respectively.

In response to the economic slowdown, our management implemented a restructuring plan in the fourth quarter of fiscal 2001 to reduce costs and improve operating efficiencies across all of our operating segments, and we recorded a restructuring charge of $9.9 million. The restructuring charge consisted primarily of severance and benefits of $6.1 million related to the involuntary termination of approximately 275 employees. These employees were primarily in manufacturing and engineering functions, of which approximately 78% were based in the United States, 19% were based in Singapore and 3% were based in Belgium. Additionally, we accrued for lease costs of $1.4 million pertaining to the estimated future obligations for non-cancelable lease payments for excess facilities in California, New Hampshire, Florida and Belgium that were vacated due to the reductions in workforce. We wrote off leasehold improvements, furniture and fixtures, and production-related machinery and equipment with net book values of $1.2 million, $0.4 million and $0.3 million, respectively. The assets were taken out of service as they were deemed unnecessary due to the reductions in workforce. In addition, we wrote down certain manufacturing equipment by $0.3 million to its estimated realizable value of $0.5 million. The manufacturing equipment was taken out of service and is expected to be sold in the fourth quarter of fiscal 2003. We accrued for legal, accounting and consulting costs of $0.2 million related to the restructuring.

In the first quarter of fiscal 2002, we recorded an additional $0.7 million charge to the fiscal 2001 restructuring provision. The adjustments included accrued lease costs of $0.5 million, and we also wrote down an additional $0.3 million of the estimated realizable value of certain manufacturing equipment identified in the fourth quarter of fiscal 2001 restructuring provision. These adjustments were offset by a decrease in severance and benefits of $0.1 million, as actual costs were lower than originally anticipated. In the third quarter of fiscal 2002, we recorded a net reduction to the fourth quarter of fiscal 2001 restructuring provision of $0.4 million. The third quarter adjustment included a $0.6 million reduction in the restructuring provision as actual severance and benefit costs were lower than originally anticipated as well as an additional $0.2 million charge for the estimated realizable value of certain manufacturing equipment.

Other Charges. Our other charges consisted of asset impairment charges. We hold minority investments in certain non-public companies. We regularly monitor these minority investments for impairment and record reductions in the carrying values when necessary. Circumstances that indicate an other than temporary decline include subsequent "down" financing rounds, decreases in quoted market prices and declines in operations of the issuer. In the first nine months of fiscal 2003, we recorded an impairment charge of $0.5 million related to a decline in the value of a minority investment deemed to be other than temporary. In the third quarter and first nine months of fiscal 2002, we recorded impairment charges of $4.5 million and $8.6 million, respectively, related to a decline in the values of minority investments deemed to be other than temporary.

Interest and Other Income. Interest and other income was $7.5 million for the third quarter of fiscal 2003 compared to $8.2 million for the third quarter of fiscal 2002. The decrease in interest and other income was due to lower yields earned on our marketable securities during the third quarter of fiscal 2003 as compared to the corresponding period of fiscal 2002. Interest and other income was $26.4 million for the first nine months of fiscal 2003 compared to $27.7 million for the first nine months of fiscal 2002. The decrease in interest and other income was primarily attributable to lower yields earned on our marketable securities during the first nine months of fiscal 2003 as compared to the corresponding period of fiscal 2002. The decrease was partially offset by gains of $3.3 million (net of unamortized debt issuance costs of $0.8 million) related to the repurchase of $120.4 million in principal amount of our 4³/4% Convertible Subordinated Notes for the first nine months of fiscal 2003. See Recent Accounting Pronouncements section below for a description of the impact of our adoption of SFAS No. 145 on interest and other income as a result of the repurchase of the 4³/4% Convertible Subordinated Notes.

Interest Expense. Interest expense was $3.7 million and $12.8 million for the third quarter and first nine months of fiscal 2003, respectively, compared to $3.4 million and $9.5 million for the corresponding periods of fiscal 2002. The increase in interest expense for the third quarter and first nine months of fiscal 2003 was attributable to interest incurred on the 3% Convertible Subordinated Notes issued in March 2002, partially offset by a decline in interest expense on our 4³/4% Convertible Subordinated Notes due to the repurchase of $120.4 million in principal amount in fiscal 2003.

Income Taxes. Our income tax provision was $0.1 million for the third quarter of fiscal 2003 compared to $2.7 million for the third quarter of fiscal 2002. Our income tax provision was $1.3 million for the first nine months of fiscal 2003 compared to $5.0 million for the first nine months of fiscal 2002. Income tax provisions for interim periods are based on our estimated annual effective income tax. The tax benefit derived from our effective income tax rate for the third quarter of 2003 is lower than the combined United States Federal and state statutory income tax rate of 40%, primarily due to amortization of acquisition-related intangible assets, excluding goodwill, that are not fully deductible for tax purposes.

Operating Activities: Net cash provided by operating activities for the first nine months of fiscal 2003 was $43.4 million. Operating cash primarily resulted from our net loss of $11.7 million, adjusted for non-cash items including depreciation, amortization, and deferred stock-based compensation of $42.9 million. Other sources of operating cash flow included an increase in accounts payable and a decrease in other long term assets, partially offset by an increase in accounts receivable.

Investing Activities: Net cash used for investing activities for the first nine months of fiscal 2003 was $117.8 million. During the nine-month period, we purchased marketable securities, net of sales and maturities, of $100.0 million. The marketable securities primarily consisted of corporate securities and United States. government bonds. In addition, we paid $10.6 million to former shareholders of Platys as partial payment of the General Holdback associated with our acquisition of Platys and purchased $6.2 million of property and equipment and invested $1.0 million in a minority investment.

Financing Activities: Net cash used for financing activities for the first nine months of fiscal 2003 was $112.3 million. During the nine-month period, we repurchased a portion of our 4³/4% Convertible Subordinated Notes with an aggregate price of $116.3 million. The cash used for repurchasing the 4³/4% Convertible Subordinated Notes was partially offset by proceeds received from the issuance of common stock in connection with the exercise of employee stock options.

Liquidity. As of December 31, 2002, we had $736.0 million of cash, cash equivalents and marketable securities, of which approximately $535.9 million was held by our Singapore subsidiary and $18.5 million represented restricted marketable securities. Although we do not have any current plans to repatriate cash from our Singapore subsidiary to our United States parent company, if we were to do so, additional income taxes at the combined United States Federal and state statutory rate of approximately 40% may be incurred from the repatriation. The restricted marketable securities are held as security for the next five scheduled interest payments on our 3% Convertible Subordinated Notes.

In May 2001 we obtained a revolving line of credit of $20.0 million that expires, as amended, in August 2003. As of December 31, 2002, we had no outstanding borrowings under this facility. We believe our existing working capital, together with expected cash flows from operations and available sources of bank, equity and equipment financing, will be sufficient to support our operations through fiscal 2003.

The following table summarizes our contractual obligations at December 31, 2002 and the effect these obligations are expected to have on our liquidity and cash flow in future periods.

At December 31, 2002 and 2001, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Accordingly, we are not exposed to the type of financing, liquidity, market or credit risk that could arise if we had such relationships.

On April 12, 2001, our Board of Directors formally approved a plan to spin off our Software segment, Roxio, into a fully independent and separate company. Roxio is a provider of digital media software solutions that enable individuals to create, manage and move music, photos, video and data onto recordable CDs. Our Board of Directors declared a dividend of Roxio common stock to our stockholders of record on April 30, 2001. The dividend was distributed after the close of business on May 11, 2001, in the amount of 0.1646 shares of Roxio's common stock for each outstanding share of our common stock. We distributed all of the shares of Roxio's common stock, except for 190,936 shares that are retained by us for issuance upon the potential exercise of the warrants held by Agilent, to purchase shares of our common stock that were issued in connection with our development and marketing agreement with them which has since been terminated. The distribution of the shares of Roxio's common stock was intended to be tax-free to us and to our stockholders. The distribution of the Roxio common stock dividend on May 11, 2001 resulted in the elimination of our net assets of discontinued operations and a $74.5 million reduction of our retained earnings. Of this amount, $33.2 million represents the initial long-term funding we contributed to Roxio at the date of distribution.

As a result of the spin-off, our historical consolidated financial statements have been restated to account for Roxio as discontinued operations for all periods presented in accordance with Accounting Principles Board, or APB, Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions."

Under the Master Transitional Services Agreement we entered into with Roxio, we agreed to provide Roxio certain corporate support services, including information technology systems, supply chain, human resources administration, product order administration, customer service, buildings and facilities, and legal, finance and accounting services. Our fees for providing these services were typically the cost of providing the services, plus five percent. These transitional service arrangements generally had a term of one year following the legal separation other than a five-year facility lease for Roxio's corporate headquarters. Effective May 2002, Roxio vacated the facilities leased to them pursuant to an

early termination right in the lease and occupancy license agreement. We no longer provide such transitional services to Roxio other than certain technical support functions.

In addition, we also entered into a Tax Sharing Agreement, or TSA, with Roxio for tax matters. The TSA provides for the allocation of income, losses, credits and other tax attributes prior to the distribution of the shares of Roxio common stock to our stockholders, and assigns certain responsibilities for administrative matters such as the filing of returns, payment of taxes due, retention of records and conducts of audits, examinations or similar proceedings. The TSA provides that we retain the risk of any modification of tax liabilities for periods prior to the distribution date. In addition, the TSA requires Roxio to indemnify us for certain taxes and similar obligations that we could incur if the distribution does not qualify for tax-free treatment due to certain events, such as an acquisition of a controlling interest in Roxio's common stock after the distribution, Roxio's failure to continue its business after the distribution or a repurchase of Roxio's common stock.

In December 2002, the Financial Accounting Standards Board, or FASB, issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of SFAS 123." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the methods of accounting for stock-based employee compensation and the effect of the method used on reported results. This statement is effective for fiscal years ending after December 15, 2002. We will adopt the disclosure provisions of SFAS No. 148 in the fourth quarter of fiscal 2003, however, we have not yet determined whether we will voluntarily adopt the fair value method of accounting for stock-based compensation. We have not yet determined the impact of SFAS No. 148 on our results of operations or financial position.

In November 2002, the FASB issued FASB Interpretation Number, or FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires additional disclosures to be made by a guarantor in its financial statements regarding its obligations under certain guarantees that it has issued, which includes a rollforward of our product warranty liabilities. FIN 45 also provides additional guidance for certain liabilities that the guarantor is required to recognize. The provisions related to the disclosure requirements are effective for financial statement periods ending after December 15, 2002. The provisions related to recognition and measurement of guarantees are effective for financial statement periods beginning after December 31, 2002, on a prospective basis. We adopted the disclosure provisions of FIN 45 in the third quarter of fiscal 2003. We adopted the provisions related to the recognition and measurement of guarantees as of January 1, 2003 and we do not believe such provisions will have a significant impact on our results of operations or financial position.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities." SFAS No. 146 addresses significant issues regarding the recognition, measurement and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the EITF has set forth in the EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 will be effective for exit and disposal activities initiated after December 31, 2002 and generally requires that liabilities for costs associated with exit and disposal activities be recognized when the liability is incurred, rather than when a commitment to the exit or disposal activity is made. Historically, we have implemented several restructuring plans and we may implement additional restructuring plans in the future. At this time, however, we cannot determine what, if any, impact SFAS No. 146 will have on our results of operations or financial position.

In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 eliminates Statement No. 4 (and Statement No. 64, as it amends Statement No. 4), which requires gains and losses from extinguishments of debt to be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. As a result, the criteria in APB Opinion No. 30 will now be used to classify those gains and losses. SFAS No. 145 amends FASB Statement No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. This amendment is consistent with the FASB's goal of requiring similar accounting treatment for transactions that have similar economic effects. In addition, SFAS No. 145 makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. This statement is effective for fiscal years beginning after May 15, 2002 for the provisions related to the rescission of Statements Nos. 4 and 64, and for all transactions entered into beginning May 15, 2002 for the provision related to the amendment of Statement No. 13 although early adoption is permitted. We elected to adopt SFAS No. 145 as of January 1, 2002, and as a result, we have included the gain on extinguishment of debt of $3.3 million (net of unamortized debt issuance costs of $0.8 million) in "Interest and Other Income" for the first nine months of fiscal 2003.

Our business faces significant risks. The risks described below may not be the only risks we face. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations. If any of the events or circumstances described in the following risks actually occur, our business, financial condition or results of operations could suffer, and the trading price of our common stock could decline.

Our future operating results are subject to fluctuation. Our operating results may fluctuate as a result of a wide variety of factors, including, but not limited to, the following:

Operating results for the first nine months of fiscal 2003 were materially affected by unusual charges, including deferred compensation in connection with our Platys Communications, Inc., or Platys, acquisition and restructuring charges.

Operating results for fiscal 2002 were materially affected by unusual charges, including the following:

Fluctuations in our operating results may adversely affect the trading price of our common stock.

Our sales have been negatively affected by the current economic slowdown, and if these conditions persist or deteriorate, they may continue to adversely affect our results of operations and financial position. Since the second half of fiscal 2001, our operating results have been significantly affected by the continuing slowdown in information technology investments and consumer spending. Many of our customers have announced workforce reductions and delayed capital spending in response to the economic slowdown. In addition, the international terrorist activities in September 2001 have further dampened the economic recovery. If current global economic and political conditions continue to persist or deteriorate, our customers will likely further postpone spending, which would continue to adversely affect our financial results.

If we do not meet our restructuring objectives or if the economic slowdown continues, we may have to implement additional plans in order to reduce our operating costs. As a result of the economic slowdown, in the first and fourth quarters of fiscal 2002 and the second quarter of fiscal 2003, we implemented restructuring plans to reduce our operating costs to match the current business environment. The plans included primarily the reduction of our workforce and the consolidation of our manufacturing operations in Singapore. The goals of the plans are to support future growth opportunities, focus on investments that grow revenues and increase operating margins. If we do not meet our restructuring objectives or if the economic slowdown continues, we may have to implement additional plans to reduce our operating costs, which could have an adverse effect on our financial results.

If demand in the server, network storage and desktop computer markets declines, our net revenues may decline. Historically, our growth has been supported by increasing demand for systems that support:

Our business or operating results would be adversely affected by a decline in demand for our products. For example, for the first time in several years, the demand in the server market declined slightly in fiscal 2002, which contributed to a decline in our net revenues. We cannot predict when and if server sales growth will increase. In addition, other technologies may replace the technologies used in our existing products and the acceptance of our products using new technologies in the market may not be widespread, which could adversely affect our net revenues.

We expect that the products we are developing for the network storage marketplace will be an important component of our future growth, and these products may not be accepted by the market or reach the market in a timely fashion. In August 2001, we acquired Platys, a development stage company with no

revenues, to enhance our technologies for this market. The marketplace for advanced storage products is highly competitive and our technology may never be broadly adopted. In addition, there are substantial risks that known and unknown challenges to successful deployment of our products, and of products incorporating our products, will cause delays in their reaching the market. We do not expect to begin shipping commercial quantities of our network storage products until the first half of fiscal 2004. If our network storage products, and our customers' products using our technology, do not achieve a broad level of market acceptance, or if we encounter substantial delays in entering the market, our growth will likely be impaired.

If demand for our customers' products declines or if our customers do not control their inventories effectively, our net revenues may be adversely affected. The volume and timing of orders received during a quarter are difficult to forecast. Our customers generally order based on their forecasts, and they frequently encounter uncertain and changing demand for their products. If demand falls below such forecasts or if our customers do not control their inventories effectively, they may cancel or reschedule shipments previously ordered from us. Our customers, from time to time in the past, have cancelled or rescheduled shipments previously ordered from us and we cannot assure you that they will not do so in the future. In addition, because our sales are made by means of standard purchase orders rather than long-term contracts, we cannot assure you that these customers will continue to purchase quantities of our products at current levels, or at all. Historically, backlog has not been a significant factor for us, and we have set our operating budget based on forecasts of future revenues. Because much of our operating budget is relatively fixed in the short-term, if revenues do not meet our expectations, then our financial results will be adversely affected.

If we do not provide adequate support during our customers' design and development stage, or if we are unable to provide such support in a timely manner, we may lose revenues to our competition. Certain of our products are designed to meet our customers' specifications and, to the extent we are not able to meet these expectations in a timely manner or provide adequate support during our customers' design and development stage, our customers may choose to buy similar products from another company. For example, we are currently in the design and development stage with potential customers for our products with Internet Protocol SCSI, or iSCSI, functionality. If we are unsuccessful in designing these products to meet our customers' needs, our financial results could be adversely affected.

Our reliance on industry standards and technological changes in the marketplace may cause our net revenues to fluctuate or decline. The computer industry is characterized by various, evolving standards and protocols. We design our products to conform to certain industry standards and protocols such as the following:

In particular, a majority of our revenues are currently derived from products based on the SCSI standards. If consumer acceptance of these standards declines, or if new standards emerge, and if we do not anticipate these changes and develop new products, these changes could adversely affect our business and financial results. For example, we believe that changes in consumers' perceptions of the relative merits of SCSI-based products and competing products incorporating lower cost solutions adversely affected our sales beginning in fiscal 1998 and are likely to affect our future sales.

Our dependence on new products may cause our net revenues to fluctuate or decline. Our future success significantly depends upon our completing and introducing new products at competitive prices and performance levels in a timely manner. The success of new product introductions depends on several factors, including the following:

Our product life cycles in each of our segments may be as brief as 12 to 24 months. As a result, we believe that we will continue to incur significant expenditures for research and development in the future. We may fail to identify new product opportunities and may not develop and bring new products to market in a timely manner. In addition, products or technologies developed by others may render our products or technologies obsolete or noncompetitive, or our targeted customers may not select our products for design or integration into their products. The failure of any of our new product development efforts could have an adverse effect on our business and financial results. For example, sale of our SCSI based products in our Desktop Storage Group, or DSG, segment have declined in recent periods due to the availability of lower cost desktop solutions. In addition, our Storage Networking Group, or SNG, segment is focused on developing 1 gigabit TCP/IP Offload Engine, or TOE, Network Accelerator Cards, which is expected to offer faster performance and result in a stronger return on investment for our customers. While we focus on TOE technology, we expect our SNG revenues from our 10/100 Network Interface Cards, or NICs, will continue to decline as Original Equipment Manufacturers, or OEMs transition their product lines to the 1 gigabit NIC products. And,

to the extent that our TOE technology is not selected for design or integration by OEMs, our business and financial results could be adversely affected.

As we transition from our Ultra 160 product line, which is the major product family of our Storage Solutions Group, or SSG, segment, to the Ultra 320 line of products, we face intense competition, both in retaining existing customers and securing new customers, in the Ultra 320 market, and we cannot assure you that our products will achieve the same level of market acceptance as our Ultra 160 line of products. If they do not, our revenue and profitability will, over time, be adversely affected as the market adapts to this new technology.

If we are unable to compete effectively, our net revenues could be adversely affected. The markets for all of our products are intensely competitive and are characterized by the following:

Consequently, we must continue to enhance our products on a timely basis to keep pace with market demands. If we do not do so, or if our competition is more effective in developing products that meet the needs of our existing and potential customers, we may lose market share and not participate in the future growth of our target markets. For example, we face intense competition in the transition from products employing Ultra 160 to solutions employing Ultra 320 technology. Further, we have recently introduced USB 2.0 hub products in our DSG segment, and we may face new competitors in the USB 2.0 market.

We believe that our future success will depend significantly on our ability to participate in the ongoing development of the network storage market. While we are focusing on solutions employing iSCSI technology for this market, many other companies are also focusing on network storage solutions based on identified technologies that include, but are not limited to, iSCSI. Even if iSCSI technology achieves broad market acceptance, our early technological advantage in this field may not afford us the advantages we had anticipated if such acceptance is delayed due to the continuing global slowdown in technology spending. If iSCSI technology is not accepted by the market, or if broad acceptance of iSCSI technology is delayed, our growth would be impaired. Other companies may have greater technical, marketing, manufacturing and financial resources than we do. We cannot assure you that we will have sufficient resources to accomplish any of the following:

Costs associated with acquisitions or strategic alliances may adversely affect our results of operations, which could be exacerbated if we are unable to integrate the acquired companies, products or technologies. In August 2001, we completed our acquisition of Platys, a developer of Internet Protocol, or IP, storage solutions. In December 1999, we acquired Distributed Processing Technology Corp., or DPT, to strengthen our position in the RAID market. In addition, we enter into strategic alliances from time to time with other companies. For example, we entered into a technology licensing agreement with International Business Machines, or IBM, in March 2002. As part of our overall strategy, we may continue to acquire or invest in complementary companies, products or technologies and enter into strategic alliances with other companies. In order to be successful in these activities, we must:

The benefits of acquisitions or strategic alliances may prove to be less than anticipated and may not outweigh the costs reported in our financial statements. Completing any potential future acquisitions or strategic alliances could cause significant diversions of management time and resources. If we acquire new businesses, products or technologies in the future, we may be required to assume contingent liabilities and amortize significant amounts of other intangible assets and, over time, recognize significant charges for impairment of goodwill. If we consummate any potential future acquisitions in which the consideration consists of stock or other securities, our existing stockholders' ownership may be significantly diluted. If we proceed with any potential future acquisitions in which the consideration is cash, we may be required to use a substantial portion of our available cash. We may not be successful in overcoming these risks or any other problems encountered in connection with these or other business combinations, investments or strategic alliances. These transactions may adversely affect our business, financial position and operating results.

If there is a shortage of components used in our customers' products, our sales may decline, which could adversely affect our results of operations and financial position. If our customers are unable to purchase certain components which are embedded into their products, their demand for our products may decline. For example, beginning in the fourth quarter of fiscal 2000, we experienced the impact of other companies' chip supply shortages, which reduced the demand for some of our SSG products. This negatively affected our net revenues in the first half of fiscal 2001. Similar shortages of components used in our customers' products could adversely affect our net revenues and financial results in future periods.

We depend on wafer suppliers whose failure to meet our manufacturing needs could negatively affect our operations. Independent foundries manufacture to our specifications all of the finished silicon wafers used for our products. We currently purchase all of our wafers through our agreements with TSMC. The manufacture of semiconductor devices is sensitive to a wide variety of factors, including the following:

While we have been satisfied with the quality, yield and timeliness of wafer deliveries to date, we cannot assure you that manufacturing problems may not occur in the future. A shortage of raw materials or production capacity could lead our wafer suppliers to allocate available capacity to other customers. Any prolonged inability to obtain wafers with competitive performance and cost attributes, adequate yields or timely deliveries would delay our production and our product shipments, and could have an adverse effect on our business and financial results. We expect that wafer suppliers will continually seek to convert their fabrication process arrangements to smaller wafer geometries and to more advanced process technologies. Such conversions entail inherent technological risks that can affect yields and delivery times.

If for any reason TSMC, or any other wafer supplier we may use, is unable or unwilling to satisfy our wafer needs, we will be required to identify and qualify additional foundries. Additional wafer foundries may be unavailable, may take significant amounts of time to qualify or may be unable to satisfy our requirements on a timely basis.

If our manufacturing demand for silicon wafers falls below our projections, we may not be able to fully utilize our prepayments to TSMC, which could adversely affect our results of operations and financial position. From time to time, we have entered into "take or pay" contracts that have committed us to purchase specific wafer quantities over extended periods based on our projected needs. In addition, we have made prepayments to TSMC in order to secure guaranteed wafer capacity. If our demand for wafer units falls below our projections, we may not be able to fully utilize our prepayments. The unused portion of the prepayments may be impaired and written off as an asset impairment charge, which would adversely affect our financial results.

We depend on subcontractors, and if they fail to meet our manufacturing needs, it could negatively affect our results of operations. We rely on subcontractors for the assembly and packaging of the integrated circuits included in our products. We have no long-term agreements with our assembly and packaging subcontractors. We have, from time to time, used board subcontractors to better balance production runs and capacity. We cannot assure that such subcontractors will continue to be able and willing to meet our requirements for such components or services. Any significant disruption in supplies from, or degradation in the quality of components or services supplied by, such subcontractors could delay shipments and result in the loss of customers or revenues, which could have an adverse effect on our financial results.

We depend on the efforts of our distributors, which if reduced, would negatively affect our business and our results of operations. We derive a material percentage of our net revenues from independent distributor and reseller channels. Our financial results could be adversely affected if our relationship with these distributors or resellers were to deteriorate or if the financial condition of these distributors or resellers were to decline. Given the current economic environment, the risk of distributors and resellers going out of business has increased significantly.

Our distributors generally offer a diverse array of products from several different manufacturers. Accordingly, we are at risk that these distributors may give higher priority to selling products from other suppliers. A reduction in sales efforts by our current distributors could adversely affect our business and financial results. Our distributors build inventories in anticipation of future sales and if such sales do not occur as rapidly as they anticipate, our distributors will decrease the size of their product orders, as was the case from the second half of fiscal 2001 through the first half of fiscal 2003. If we decrease our price protection or distributor-incentive programs, our distributors may also

decrease their orders from us. In addition, we have from time to time taken actions to reduce levels of products at distributors and may do so in the future. These actions may affect our net revenues and negatively affect our financial results.

Our operations depend on key personnel, the loss of whom could affect our business and reduce our future net revenues. In order to be successful, we must retain and motivate executives and other key employees, including those in managerial, technical, marketing and information technology support positions. In particular, our product generation efforts depend on hiring and retaining qualified engineers. The expansion of high technology companies in Silicon Valley where we operate our business has increased demand for experienced management, technical, marketing and support personnel and despite the economic slowdown, competition for their talents is intense. The loss of key employees could have a significant impact on our operations. We also must continue to motivate employees and keep them focused on our strategies and goals, which may be particularly difficult due to morale challenges posed by workforce reductions and general uncertainty.

Our international operations involve risks, and may negatively affect our net revenues and results of operations. Many of our subcontractors are primarily located in Asia and we have sales offices and customers located throughout Europe, Japan and other countries. Our international operations and sales are subject to political and economic risks, including political instability, currency controls, exchange rate fluctuations, and changes in import/export regulations, tariffs and freight rates. We may use forward exchange contracts to manage any exposure associated with certain foreign currency-denominated commitments. In addition, because our primary wafer supplier, TSMC, is located in Taiwan, we may be subject to certain risks resulting from political instability in Taiwan, including conflicts between Taiwan and the People's Republic of China. These and other international risks could result in the creation of political or other non-economic barriers to our being able to sell our products in certain countries, create local economic conditions that reduce demand for our products among our target market or expose us to potential disruption in the supply of necessary components or otherwise adversely affect our ability to generate revenue and operate effectively.

If the carrying value of our long-lived assets is not recoverable, an impairment loss must be recognized which could adversely affect our results of operations and financial position. Certain events or changes in circumstances would require us to assess the recoverability of the carrying amount of our long-lived assets. In the second quarter of fiscal 2003, we recorded an impairment charge of $0.5 million relating to the decline in value of a minority investment. In fiscal 2002 we recorded impairment charges of $77.6 million relating to technology acquired in a prior acquisition and the decline in value of certain minority investments. In addition, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS No. 142 in July 2001, whereby goodwill must be evaluated annually and whenever events or circumstances occur which indicate that goodwill might be impaired. For acquisitions consummated prior to July 1, 2001, we adopted SFAS No. 142 on April 1, 2002. We will continue to evaluate the recoverability of the carrying amount of our long-lived assets, and we may incur substantial impairment charges which could adversely affect our financial results.

If actual results or events differ materially from those contemplated by us in making estimates and assumptions, our reported financial condition and results of operation for future periods could be materially affected. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Note 1 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K/A for the year ended March 31, 2002 describes the significant accounting policies essential to preparing our consolidated financial statements. The preparation of these financial statements requires estimates and assumptions that affect the reported amounts and disclosures. Although we believe that our judgments and estimates are appropriate and

correct, actual future results may differ materially from our estimates. Also, see our Critical Accounting Policies in Item 7 of our Annual Report on Form 10-K/A for the year ended March 31, 2002.

If we are unable to protect and enforce our intellectual property rights, we may be unable to compete effectively. Although we actively maintain and defend our intellectual property rights, we may be unable to adequately protect our proprietary rights. In addition, the laws of certain territories in which our products are or may be developed, manufactured or sold, including Asia and Europe, may not protect our products and intellectual property rights to the same extent as the laws of the United States.

Despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property, which could harm our business and ability to compete effectively. We have from time to time discovered counterfeit copies of our products being manufactured or sold by others. Although we have programs to detect and deter the counterfeiting of our products, significant availability of counterfeit products could reduce our net revenues and damage our reputation and goodwill with customers.

Third parties may assert infringement claims against us, which may be expensive to defend and could adversely affect our business and results of operations. From time to time, third parties assert exclusive patent, copyright and other intellectual property rights to our key technologies, and we expect to continue to receive such claims in the future. For example, we entered into a patent cross-license agreement with IBM in May 2000. Under this agreement, which was amended in March 2002, we received a release from infringement claims prior to January 1, 2000 and received the right to use certain of IBM's patents through June 30, 2007. In consideration, we are paying, in annual installments, an aggregate patent fee of $13.3 million, and we granted IBM a license to use all of our patents for the same period. The risks of our receiving additional claims from third parties may be enhanced in periods such as the one that we are currently entering as we continue to offer product lines employing new technologies relative to our existing products.

We cannot assure you that third parties will not assert other infringement claims against us in the future, that assertions by third parties will not result in costly litigation or that we would prevail in such litigation or be able to license any valid and infringed patents from third parties on commercially reasonable terms. In addition to claims brought against us by third parties, we may also bring litigation against others to protect our rights. Intellectual property litigation, regardless of the outcome, could result in substantial costs to us and diversion of our resources, and could adversely affect our business and financial results.

We may be engaged in legal proceedings that could negatively affect our business operations or financial position. From time to time we are subject to litigation or claims that could negatively affect our business operations and financial position. For instance, a class action lawsuit was filed during 1998 in the United States District Court for the Northern District of California against us and certain of our current and former officers and directors. In March 2002, the plaintiffs voluntarily dismissed their claim without any recovery or settlement, and this case is now concluded. Such disputes could cause us to incur unforeseen expenses, could occupy a significant amount of our management's time and attention, and could negatively affect our business operations and financial position. Also see Item 1 "Legal Proceedings" contained in Part II of this report.

If we repatriate cash from our foreign subsidiaries, we may incur additional income taxes which would negatively affect our results of operations and financial condition. A significant portion of our cash, cash equivalents and marketable securities are held in our subsidiary in Singapore. From time to time we may need to repatriate our cash from Singapore to the United States. If we do so, we may incur additional income taxes at the combined United States Federal and state statutory rate of

approximately 40% from the repatriation, which would negatively affect our results of operations and financial condition.

We may be subject to a higher effective tax rate that could negatively affect our results of operations and financial position. Our effective tax rate is benefited by a Singapore tax holiday relating to certain of our products. The terms of the tax holiday provide that profits derived from certain products will be exempt from tax through fiscal 2005, subject to certain conditions. If we do not continue to meet the conditions and requirements of the tax holiday in Singapore, our effective tax rate will increase, which would adversely affect our financial results.

We may be required to pay additional Federal income taxes which could negatively affect our results of operations and financial position. On June 27, 2000, we received a statutory notice of deficiency from the Internal Revenue Service, or IRS, with respect to our Federal income tax returns for fiscal 1994 through 1996. In December 2001, our 1994 through 1996 tax audits were resolved and settlement agreements were filed with the United States Tax Court. On December 15, 2000, we received a statutory notice of deficiency from the IRS with respect to our Federal income tax return for fiscal 1997. We filed a Petition with the United States Tax Court on March 14, 2001 contesting the asserted deficiencies and settlement agreements have been filed with the United States Tax Court on all but one issue. In addition, the IRS is currently auditing our Federal income tax returns for fiscal 1998 and 1999. While we believe we have meritorious defenses against the asserted deficiencies and any proposed adjustments, and that sufficient taxes have been provided, we cannot predict the final outcome of these matters, and the final resolution could adversely affect our results of operations and financial position.

If our products do not operate effectively with other products, our net revenues could be negatively affected. We must design our products to operate effectively with a variety of hardware and software products supplied by other manufacturers, including the following:

We depend on significant cooperation with these manufacturers to achieve our design objectives and develop products that operate successfully with their products. We believe that we generally have good relationships with leading system, peripheral, and microprocessor suppliers; however, these suppliers may, from time to time, make it more difficult for us to design our products for successful operability with their products. For example, if one or more of these companies were to determine, as a result of competition or other factors, that our technology or products would not be broadly accepted by the markets we target, these companies may no longer work with us to plan for new products and new generations of our products, which would make it more difficult to introduce products on a timely basis, or at all. Further, some of these companies might decide not to continue to offer products that are compatible with our technology and our markets could contract. In addition, these suppliers may decide to compete with us. If any of these events were to occur, our revenues could be adversely affected.

We finance our capital expenditure needs from operating cash flows, bank financing and capital market financing. As of December 31, 2002, we had approximately $332.4 million in aggregate principal amount of convertible subordinated notes outstanding. While we believe that our current liquidity will be sufficient to support our operations over the next twelve months, we may need to seek additional equity or debt financing from time to time, including issuance of warrants, and cannot be certain that additional financing will be available on favorable terms. Moreover, any future equity or convertible debt financing will decrease the percentage of equity ownership of existing stockholders and may result in dilution, depending on the price at which the equity is sold or the debt is converted.

We are exposed to fluctuations in foreign currency exchange rates. We have international subsidiaries and distributors that operate and sell our products globally. Further, we purchase a substantial portion of our raw materials and manufacturing equipment from foreign suppliers, and incur labor and other operating costs in foreign currencies, particularly in our Singapore manufacturing facilities. As a result, we are exposed to the risk of changes in foreign currency exchange rates or declining economic conditions in these countries.

Failure to execute planned cost reductions successfully could result in total costs and expenses that are greater than expected. Historically, we have undertaken restructuring plans to bring operational expenses to appropriate levels for our business, while simultaneously implementing extensive new company-wide expense control programs. In addition to previously announced workforce reductions, we may have additional workforce reductions in the future. Significant risks associated with these actions that may impair our ability to achieve anticipated cost reductions or that may otherwise harm our business include delays in implementation of anticipated reductions in force in highly regulated locations outside of the United States, particularly in Europe and Asia, redundancies among restructuring programs, and the failure to meet operational targets due to the loss of employees or decrease in employee morale.

We hold minority interests in certain non-public companies, and if these companies face financial difficulties in their operations, our investments could be impaired. We continue to hold minority interests in certain privately held companies. These investments are inherently risky because these companies are still in the development stage and depend on third parties for financing to support their ongoing operations. In addition, the markets for their technologies or products are typically in the early stages and may never develop. If these companies do not have adequate cash funding to support their operations, or if they encounter difficulties developing their technologies or products, especially in the current economic downturn, our investments in these companies may be impaired, which could adversely affect our financial results. For example, we recorded impairment charges in the second quarter of fiscal 2003 and in the first and third quarters of fiscal 2002 related to a decline in the values of certain minority investments deemed to be other than temporary.

Our spin-off of Roxio may have potential subsequent tax liabilities that could negatively affect our results of operations. Pursuant to our distribution of the Roxio common stock, we have received an opinion from PricewaterhouseCoopers LLP, or PwC, regarding the tax-free nature of the transaction to us and to our stockholders under Section 355 of the Internal Revenue Code. IRS regulations provide that if another entity acquires a controlling interest in Roxio or our common stock within two years of the distribution, a presumption will arise that the acquisition was made in connection with the distribution, potentially causing the distribution to become taxable to us. The validity of the PwC opinion relating to the qualification of the distribution as a tax-free transaction is subject to factual representations and assumptions. We are not aware of any facts or circumstances that would cause such representations and assumptions to be untrue. In addition, the opinion of PwC is not binding on the IRS. If we or Roxio fail to conform to the requirements set forth in the IRS regulations, it could cause the distribution to be taxable to us and to our stockholders, and our financial results could be adversely affected.

We may have potential business conflicts of interest with Roxio with respect to our past and ongoing relationships, and we may not resolve these conflicts on terms favorable to us. Conflicts of interest may arise between Roxio and us in a number of areas relating to our past and ongoing relationship, including:

These and other business conflicts could adversely affect the growth of our business in the future.

Failure to improve our infrastructure may adversely affect our business. We need to continue to implement and maintain a variety of operational, financial and management information systems, procedures and controls. The enactment of the Sarbanes-Oxley Act of 2002 and final and anticipated Securities and Exchange Commission and Nasdaq National Market regulations in 2003 will require us to devote additional resources to our operational, financial and management information systems, procedures and controls to ensure our continued compliance with current and future laws and regulations. Failure to implement and maintain appropriate operational, financial and management information systems, procedures and controls could have a material adverse effect on our business, results of operations and financial condition.

We may encounter natural disasters, which may negatively affect our results of operations and financial position. Our worldwide operations could be subject to natural disasters and other business disruptions, which could seriously harm our revenues and financial condition and increase our costs and expenses. Our corporate headquarters are located in California, near major earthquake faults. Additionally, our primary wafer supplier, TSMC, is located in Taiwan, which has experienced significant earthquakes in the past. A severe earthquake could cause disruption to our employees or interrupt the manufacturing process, which could affect TSMC's ability to supply wafers to us, which could negatively affect our business and financial results. The ultimate impact on us and our general infrastructure of being located near major earthquake faults is unknown, but our net revenues and financial condition and our costs and expenses could be significantly impacted in the event of a major earthquake. In addition, some areas, including California, have experienced, and may continue to experience, ongoing power shortages, which have resulted in "rolling blackouts." These blackouts could cause disruptions to our operations or the operations of our suppliers, distributors and resellers, or customers. We are predominantly uninsured for losses and interruptions caused by earthquakes, power outages and other natural disasters.

Terrorist acts and acts of war may seriously harm our business and net revenues, costs and expenses and financial condition. Terrorist acts or acts of war (wherever located around the world) may cause damage or disruption to our employees, facilities, partners, suppliers, distributors, resellers, or customers, which could significantly impact our net revenues, costs and expenses and financial condition. The terrorist attacks that took place in the United States on September 11, 2001 were unprecedented events that have created many economic and political uncertainties, some of which may materially harm our business and results of operations. The long-term effects on our business from the September 11, 2001 attacks are unknown. The potential for future terrorist attacks, the national and international responses to terrorist attacks, and other acts of war or hostility have created many economic and political uncertainties, which could adversely affect our business and results of operations in ways that cannot presently be predicted. In addition, as a multi-national company with headquarters and significant operations located in the United States, we may be impacted by actions against the United States. We are predominantly uninsured for losses and interruptions caused by terrorist acts and acts of war.

The price of our securities may be subject to wide fluctuations. Our stock has experienced substantial price volatility, particularly as a result of quarterly variations in our operating results, the published expectations of analysts, and as a result of announcements by our competitors and us. In addition, the stock market has experienced price and volume fluctuations that have affected the market price of many technology companies, in particular, and that have often been unrelated to the operating performance of such companies. In addition, the price of our securities may also be affected by general

global, economic and market conditions, and the cost of operations in one or more of our product markets. While we cannot predict the individual effect that these factors may have on the price or our securities, these factors, either individually or in the aggregate, could result in significant variations in the price of our common stock during any given period of time. These fluctuations in our stock price also impact the price of our outstanding convertible securities and the likelihood of the convertible securities being converted into cash or equity.

For financial market risks related to changes in interest rates, equity price and foreign currency exchange rates, reference is made to "Quantitative and Qualitative Disclosures About Market Risk" in Part II, Item 7A, of our Annual Report on Form 10-K/A for the year ended March 31, 2002.

In December 1999, we purchased Distributed Processing Technology Corp. ("DPT"). As part of the purchase agreement, $18.5 million of the purchase price was held back, (the "Holdback Amount") from former DPT stockholders, for unknown liabilities that may have existed as of the acquisition date. For accounting purposes, the Holdback Amount was included as part of the acquisition purchase price. Subsequent to the date of purchase, we determined that certain representations and warranties made by the DPT stockholders were incomplete or inaccurate, which caused us to lose revenues and incur additional expenses. In addition, certain DPT products were found to be defective. In December 2000, we filed a claim against the DPT stockholders for the entire Holdback Amount of $18.5 million. In January 2001, the DPT stockholders notified us as to their objection to our claim. Under the terms of the purchase agreement, our claim was submitted to arbitration. The arbitration hearing was conducted during December 2002. While we believe that our claims are meritorious, we cannot predict with certainty the outcome of the arbitration proceeding.

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 hereunto duly authorized.

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

DELAWARE (State or other jurisdiction of incorporation or organization)	94-2748530 (I.R.S. Employer Identification No.)
691 S. MILPITAS BLVD., MILPITAS, CALIFORNIA (Address of principal executive offices)	95035 (Zip Code)
Registrant's telephone number, including area code (408) 945-8600
N/A (Former name, former address and former fiscal year, if changed since last report)

			Page
Part I.	Financial Information
	Item 1.	Financial Statements:
		Unaudited Condensed Consolidated Statements of Operations	3
		Unaudited Condensed Consolidated Balance Sheets	4
		Unaudited Condensed Consolidated Statements of Cash Flows	5
		Unaudited Notes to Condensed Consolidated Financial Statements	6
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
	Item 4.	Controls and Procedures	47
Part II.	Other Information
	Item 1.	Legal Proceedings	48
	Item 6.	Exhibits and Reports on Form 8-K	48
	Signatures		49
	Certification of Chief Executive Officer		50
	Certification of Chief Financial Officer		51

			Three Month Period Ended						Nine Month Period Ended
			December 31, 2002			December 31, 2001			December 31, 2002			December 31, 2001
			(in thousands, except per share amounts)
Net revenues			$	108,964		$	105,181		$	302,519		$	310,669
Cost of revenues				60,929			47,801			147,732			154,884

	Gross profit			48,035			57,380			154,787			155,785

Operating expenses:
	Research and development			28,542			41,927			89,161			92,138
	Selling, marketing and administrative			22,907			33,035			70,706			81,728
	Amortization of goodwill and acquisition-related intangible assets			3,742			14,910			11,229			42,513
	Write-off of acquired in-process technology			—			—			—			53,370
	Restructuring charges			—			(780	)		7,139			6,132
	Other charges			—			4,509			528			8,601

		Total operating expenses		55,191			93,601			178,763			284,482

Loss from operations				(7,156	)		(36,221	)		(23,976	)		(128,697	)
Interest and other income				7,464			8,214			26,440			27,651
Interest expense				(3,653	)		(3,379	)		(12,838	)		(9,450	)

Loss from continuing operations before provision for income taxes				(3,345	)		(31,386	)		(10,374	)		(110,496	)
Provision for income taxes				110			2,747			1,347			5,003

Net loss from continuing operations				(3,455	)		(34,133	)		(11,721	)		(115,499	)
Net income from discontinued operations, net of tax				—			—			—			495

Net loss			$	(3,455	)	$	(34,133	)	$	(11,721	)	$	(115,004	)

Net income (loss) per share:
	Basic and diluted:
		Continuing operations	$	(0.03	)	$	(0.33	)	$	(0.11	)	$	(1.13	)
		Discontinued operations	$	—		$	—		$	—		$	0.00
		Net loss	$	(0.03	)	$	(0.33	)	$	(0.11	)	$	(1.13	)
Shares used in computing net income (loss) per share:
	Basic and diluted			107,059			104,768			106,529			101,584

			December 31, 2002			March 31, 2002
			(in thousands)
Assets
Current assets:
	Cash and cash equivalents		$	144,589		$	331,324
	Marketable securities			572,920			472,335
	Restricted marketable securities			7,473			7,387
	Accounts receivable, net			54,955			44,790
	Inventories			25,955			30,172
	Deferred income taxes			25,431			26,442
	Prepaid expenses and other current assets			28,607			34,348

		Total current assets		859,930			946,798

Property and equipment, net				86,125			94,833
Restricted marketable securities, less current portion				10,984			13,825
Goodwill				53,854			45,684
Intangible assets				52,896			73,902
Other long-term assets				25,256			32,919

Total assets			$	1,089,045		$	1,207,961

Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable		$	24,122		$	18,458
	Accrued liabilities			129,426			134,947

		Total current liabilities		153,548			153,405

4³/4% Convertible Subordinated Notes				82,445			202,860
3% Convertible Subordinated Notes				250,000			250,000
Other long-term liabilities				2,675			4,765
Commitments and contingencies (Note 12)
Stockholders' equity:
	Common stock			107			106
	Additional paid-in capital			173,908			171,374
	Deferred stock-based compensation			(10,095	)		(21,131	)
	Accumulated other comprehensive income, net of tax			4,339			2,743
	Retained earnings			432,118			443,839

		Total stockholders' equity		600,377			596,931

Total liabilities and stockholders' equity			$	1,089,045		$	1,207,961

	Nine Month Period Ended
	December 31, 2002			December 31, 2001
	(in thousands)
Net Cash Provided by Operating Activities	$	43,381		$	25,296

Cash Flows From Investing Activities:
Payment of general holdback in connection with acquisition of Platys		(10,640	)		—
Purchases of certain net assets in connection with acquisition of Platys, net of cash acquired		—			(35,910	)
Purchases of other investments		(1,000	)		—
Purchases of property and equipment		(6,177	)		(13,417	)
Net proceeds from sales of properties		—			942
Purchases of marketable securities		(653,094	)		(372,541	)
Sales of marketable securities		444,155			257,434
Maturities of marketable securities		108,936			91,608

Net Cash Used for Investing Activities		(117,820	)		(71,884	)

Cash Flows From Financing Activities:
Proceeds from issuance of common stock		5,228			5,156
Installment payment on acquisition of software licenses		(1,211	)		—
Repurchases of long-term debt		(116,313	)		—

Net Cash Provided by (Used for) Financing Activities		(112,296	)		5,156

Net Cash Used for Discontinued Operations		—			(30,703	)

Net Decrease in Cash and Cash Equivalents		(186,735	)		(72,135	)
Cash and Cash Equivalents at Beginning of Period		331,324			207,644

Cash and Cash Equivalents at End of Period	$	144,589		$	135,509

			December 31, 2002					March 31, 2002
			Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
			(in thousands)
Acquisition-related intangible assets:
	Patents and core technology		$	53,654	$	(34,161	)	$	53,654	$	(24,099	)
	Covenants-not-to-compete			4,670		(2,075	)		4,670		(908	)
	Distribution network			—		—			8,849		(5,280	)
	Acquired employees			—		—			6,507		(3,882	)
	OEM relationships			—		—			4,943		(2,950	)

		Subtotal		58,324		(36,236	)		78,623		(37,119	)
Other intellectual property				43,892		(13,084	)		42,192		(9,794	)

Total			$	102,216	$	(49,320	)	$	120,815	$	(46,913	)

			Severance and Benefits			Asset Write-offs			Other Charges			Total
			(in thousands)
Restructuring provision:
	Severance and benefits		$	3,965		$	—		$	—		$	3,965
	Accrued lease costs			—			—			459			459
	Property and equipment write-off			—			1,681			—			1,681
	Other charges			—			—			50			50

		Total		3,965			1,681			509			6,155
Cash paid				(1,968	)		—			(58	)		(2,026	)
Non-cash charges				—			(1,681	)		—			(1,681	)

	Reserve balance at September 30, 2002			1,997			—			451			2,448
Cash paid				(1,422	)		—			(130	)		(1,552	)

	Reserve balance at December 31, 2002		$	575		$	—		$	321		$	896

		SSG			DSG			SNG			Other			Total
		(in thousands)
Three Month Period Ended December 31, 2002:
	Net revenues	$	94,448		$	12,909		$	1,607		$	—		$	108,964
	Segment income (loss)		11,360			(2,689	)		(16,162	)		4,146			(3,345	)
Three Month Period Ended December 31, 2001:
	Net revenues	$	85,048		$	16,456		$	3,677		$	—		$	105,181
	Segment income (loss)		1,288			1,622			(35,669	)		1,373			(31,386	)
Nine Month Period Ended December 31, 2002:
	Net revenues	$	253,161		$	41,335		$	8,023		$	—		$	302,519
	Segment income (loss)		36,054			(4,270	)		(49,329	)		7,171			(10,374	)
Nine Month Period Ended December 31, 2001:
	Net revenues	$	254,085		$	46,959		$	9,625		$	—		$	310,669
	Segment income (loss)		(10,854	)		2,956			(54,364	)		(48,234	)		(110,496	)

(a)	Exhibits:
	Exhibit 99.1	Certification of Chief Executive Officer and Chief Financial Officer 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:
	No reports on Form 8-K were filed during the quarter ended December 31, 2002.

ADAPTEC, INC.
By:	/s/ DAVID A. YOUNG David A. Young Vice President and Chief Financial Officer (principal financial officer)	Date: February 7, 2003
By:	/s/ KENNETH B. AROLA Kenneth B. Arola Vice President and Corporate Controller (principal accounting officer)	Date: February 7, 2003

		By:		/s/ ROBERT N. STEPHENS Robert N. Stephens Chief Executive Officer
Date: February 7, 2003

		By:		/s/ DAVID A. YOUNG David A. Young Chief Financial Officer
Date: February 7, 2003