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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-Q



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|  |  |                                                                                                                                     
|- |  | ------------------------------------------------------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2003

Or

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

| |  |                                  
| |  | ---------------------------------
| |  | For the transition period from to

Commission file number 0-21103



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ADVANCED DIGITAL INFORMATION CORPORATION

|                                                       |  |                                              
|------------------------------------------------------ |  | ---------------------------------------------
|Incorporated under the laws
of the State of Washington |  | I.R.S. Employer Identification
No. 91-1618616

11431 Willows Road N.E.
P.O. Box 97057
Redmond, Washington 98073-9757

(425) 881-8004

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes x No

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

Yes x No

The total shares of common stock without par value outstanding at the end
of the quarter reported is 62,801,220.



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TABLE OF CONTENTS



|                             |                                                                                               |  |  |  |  |  |  | 
|---------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I-FINANCIAL INFORMATION
|                             | Item 1. Financial Statements                                                                 
|                             | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                             | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                             | Item 4. Controls and Procedures                                                              
|PART II  OTHER INFORMATION 
|                             | Item 1. Legal Proceedings                                                                    
|                             | Item 2. Changes in Securities                                                                
|                             | Item 3. Defaults Upon Senior Securities                                                      
|                             | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                             | Item 5. Other Information                                                                    
|                             | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                  
|EXHIBIT 31.1                
|EXHIBIT 31.2                
|EXHIBIT 32.1                
|EXHIBIT 32.2                



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PART I-FINANCIAL INFORMATION




Item 1. Financial Statements

Advanced Digital Information Corporation
Consolidated Balance Sheets
(In thousands, except for share data)

|                                                                                                      |                                                                                                                   |                                      |                      |                            |        |             |         |          |      |         |         | 
|----------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | ------------------------------------ | -------------------- | -------------------------- | ------ | ----------- | ------- | -------- | ---- | ------- | ------- | 
|                                                                                                      |                                                                                                                   |                                      |                      |                            |        | October 31, |         | July 31,
|                                                                                                      |                                                                                                                   |                                      |                      |                            |        | 2002        |         | 2003    
|                                                                                                      |                                                                                                                   |                                      |                      |                            |        |             |         |         
|Assets                                                                                               
|Current assets:                                                                                       |                                                                                                                   |                                      |                      |                            |        |             |         |         
|                                                                                                      | Cash and cash equivalents                                                                                         |                                      | $                    | 150,741                    |        |             | $       | 181,679  |     
|                                                                                                      | Accounts receivable, net of allowances of $1,379 in 2002
and $1,655 in 2003                                       |                                      |                      | 71,383                     |        |             |         | 84,512   |     
|                                                                                                      | Inventories, net                                                                                                  |                                      |                      | 32,296                     |        |             |         | 43,625   |     
|                                                                                                      | Short-term marketable securities                                                                                  |                                      |                      | 24,878                     |        |             |         | 24,125   |     
|                                                                                                      | Prepaid expenses and other                                                                                        |                                      |                      | 2,245                      |        |             |         | 2,422    |     
|                                                                                                      | Income taxes receivable                                                                                           |                                      |                      | 6,305                      |        |             |         |         |     
|                                                                                                      | Deferred income taxes                                                                                             |                                      |                      | 13,250                     |        |             |         | 13,328   |     
|                                                                                                      |                                                                                                                   |                                      |                      |                            |        |             |         |         
|                                                                                                      |                                                                                                                   |                                      | Total current assets |                            |        | 301,098     |         |          |      | 349,691 |        
|Property, plant and equipment, net of accumulated depreciation of
$20,672 in 2002 and $32,927 in 2003 |                                                                                                                   |                                      | 48,722               |                            |        |             | 50,174  |         
|Service parts for maintenance, net of accumulated amortization
of $15,545 in 2002 and $21,340 in 2003 |                                                                                                                   |                                      | 22,936               |                            |        |             | 26,179  |         
|Deferred income taxes                                                                                 |                                                                                                                   |                                      | 3,347                |                            |        |             | 3,325   |         
|Long-term marketable securities                                                                       |                                                                                                                   |                                      | 7,221                |                            |        |             |        |         
|Investments                                                                                           |                                                                                                                   |                                      | 10,928               |                            |        |             | 3,590   |         
|Intangible and other assets, net of accumulated amortization of
$3,869 in 2002 and $4,346 in 2003     |                                                                                                                   |                                      | 4,885                |                            |        |             | 4,424   |         
|                                                                                                      |                                                                                                                   |                                      |                      |                            |        |             |         |         
|                                                                                                      |                                                                                                                   | $                                    | 399,137              |                            |        | $           | 437,383 |         
|                                                                                                      |                                                                                                                   |                                      |                      |                            |        |             |         |         
|Liabilities and Shareholders Equity                                                                 
|Current liabilities:                                                                                  |                                                                                                                   |                                      |                      |                            |        |             |         |         
|                                                                                                      | Accounts payable                                                                                                  |                                      | $                    | 35,126                     |        |             | $       | 48,568   |     
|                                                                                                      | Accrued liabilities                                                                                               |                                      |                      | 11,668                     |        |             |         | 19,079   |     
|                                                                                                      | Income taxes payable                                                                                              |                                      |                      |                           |        |             |         | 3,127    |     
|                                                                                                      | Deferred revenue                                                                                                  |                                      |                      | 20,343                     |        |             |         | 23,978   |     
|                                                                                                      | Bank lines of credit and current portion of long-term debt                                                        |                                      |                      | 2,282                      |        |             |         | 203      |     
|                                                                                                      |                                                                                                                   |                                      |                      |                            |        |             |         |         
|                                                                                                      |                                                                                                                   |                                      |                      | Total current liabilities  |        |             | 69,419  |          |      |         | 94,955  | 
|Long-term debt                                                                                        |                                                                                                                   |                                      | 984                  |                            |        |             | 988     |         
|Commitments                                                                                           |                                                                                                                   |                                      |                      |                            |        |             |         |         
|Shareholders equity:                                                                                 |                                                                                                                   |                                      |                      |                            |        |             |         |         
|                                                                                                      | Preferred stock, no par value; 4,000,000 shares authorized;
none issued and outstanding                           |                                      |                      |                           |        |             |         |         |     
|                                                                                                      | Common stock, no par value; 160,000,000 shares authorized,
62,801,220 issued and outstanding (61,874,990 in 2002) |                                      |                      | 222,687                    |        |             |         | 227,148  |     
|                                                                                                      | Retained earnings                                                                                                 |                                      |                      | 108,159                    |        |             |         | 114,899  |     
|                                                                                                      | Accumulated other comprehensive income (loss):                                                                    |                                      |                      |                            |        |             |         |          |     
|                                                                                                      |                                                                                                                   | Cumulative translation adjustment    |                      |                            | (1,887 | )           |         |          | (610 | )      
|                                                                                                      |                                                                                                                   | Unrealized investment gains (losses) |                      |                            | (225   | )           |         |          | 3    |        
|                                                                                                      |                                                                                                                   |                                      |                      |                            |        |             |         |         
|                                                                                                      |                                                                                                                   |                                      |                      | Total shareholders equity |        |             | 328,734 |          |      |         | 341,440 | 
|                                                                                                      |                                                                                                                   |                                      |                      |                            |        |             |         |         
|                                                                                                      |                                                                                                                   | $                                    | 399,137              |                            |        | $           | 437,383 |         
|                                                                                                      |                                                                                                                   |                                      |                      |                            |        |             |         |         

See the accompanying notes to these consolidated financial statements.

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Advanced Digital Information Corporation

Consolidated Statements of Operations

(In thousands, except for per share data)

|                                                          |                                                  |   |                    |        |                   |   |         |        |      |   |         |        |   |   |         |        |  
|--------------------------------------------------------- | ------------------------------------------------ | - | ------------------ | ------ | ----------------- | - | ------- | ------ | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                                          |                                                  |   | Three months ended |        | Nine months ended
|                                                          |                                                  |   | July 31,           |        | July 31,         
|                                                          |                                                  |   |                    |        |                  
|                                                          |                                                  |   | 2002               |        | 2003              |   | 2002    |        | 2003
|                                                          |                                                  |   |                    |        |                   |   |         |        |     
|Net sales                                                 |                                                  | $ | 75,999             |        |                   | $ | 108,259 |        |      | $ | 253,409 |        |   | $ | 305,997 |       
|Cost of sales                                             |                                                  |   | 53,789             |        |                   |   | 75,683  |        |      |   | 186,406 |        |   |   | 210,651 |       
|                                                          |                                                  |   |                    |        |                   |   |         |        |      |   |         |        |   |   |         |       
|                                                          | Gross profit                                     |   |                    | 22,210 |                   |   |         | 32,576 |      |   |         | 67,003 |   |   |         | 95,346 |  
|                                                          |                                                  |   |                    |        |                   |   |         |        |      |   |         |        |   |   |         |       
|Operating expenses:                                       |                                                  |   |                    |        |                   |   |         |        |      |   |         |        |   |   |         |       
|                                                          | Sales and marketing                              |   |                    | 13,206 |                   |   |         | 14,355 |      |   |         | 36,090 |   |   |         | 42,012 |  
|                                                          | General and administrative                       |   |                    | 6,015  |                   |   |         | 5,948  |      |   |         | 16,954 |   |   |         | 18,095 |  
|                                                          | Research and development                         |   |                    | 8,196  |                   |   |         | 9,986  |      |   |         | 22,266 |   |   |         | 30,257 |  
|                                                          | Acquisition expenses                             |   |                    |       |                   |   |         |       |      |   |         | 1,475  |   |   |         |       |  
|                                                          |                                                  |   |                    |        |                   |   |         |        |      |   |         |        |   |   |         |       
|                                                          |                                                  |   | 27,417             |        |                   |   | 30,289  |        |      |   | 76,785  |        |   |   | 90,364  |       
|                                                          |                                                  |   |                    |        |                   |   |         |        |      |   |         |        |   |   |         |       
|Operating profit (loss)                                   |                                                  |   | (5,207             | )      |                   |   | 2,287   |        |      |   | (9,782  | )      |   |   | 4,982   |       
|                                                          |                                                  |   |                    |        |                   |   |         |        |      |   |         |        |   |   |         |       
|Other income (expense):                                   |                                                  |   |                    |        |                   |   |         |        |      |   |         |        |   |   |         |       
|                                                          | Interest income                                  |   |                    | 777    |                   |   |         | 598    |      |   |         | 2,784  |   |   |         | 1,834  |  
|                                                          | Interest expense                                 |   |                    | (63    | )                 |   |         | (44    | )    |   |         | (182   | ) |   |         | (135   | )
|                                                          | Gain on securities transactions, net             |   |                    | 38     |                   |   |         | 976    |      |   |         | 8,217  |   |   |         | 2,388  |  
|                                                          | Foreign currency transaction gains (losses), net |   |                    | 835    |                   |   |         | (111   | )    |   |         | 916    |   |   |         | 1,060  |  
|                                                          | Other                                            |   |                    | (89    | )                 |   |         | (89    | )    |   |         | (28    | ) |   |         | (212   | )
|                                                          |                                                  |   |                    |        |                   |   |         |        |      |   |         |        |   |   |         |       
|                                                          |                                                  |   | 1,498              |        |                   |   | 1,330   |        |      |   | 11,707  |        |   |   | 4,935   |       
|                                                          |                                                  |   |                    |        |                   |   |         |        |      |   |         |        |   |   |         |       
|Income (loss) before provision (benefit) for
income taxes |                                                  |   | (3,709             | )      |                   |   | 3,617   |        |      |   | 1,925   |        |   |   | 9,917   |       
|Provision (benefit) for income taxes                      |                                                  |   | (1,594             | )      |                   |   | 982     |        |      |   | (849    | )      |   |   | 3,177   |       
|                                                          |                                                  |   |                    |        |                   |   |         |        |      |   |         |        |   |   |         |       
|Net income (loss)                                         |                                                  | $ | (2,115             | )      |                   | $ | 2,635   |        |      | $ | 2,774   |        |   | $ | 6,740   |       
|                                                          |                                                  |   |                    |        |                   |   |         |        |      |   |         |        |   |   |         |       
|Basic net income (loss) per share                         |                                                  | $ | (0.03              | )      |                   | $ | 0.04    |        |      | $ | 0.04    |        |   | $ | 0.11    |       
|                                                          |                                                  |   |                    |        |                   |   |         |        |      |   |         |        |   |   |         |       
|Diluted net income (loss) per share                       |                                                  | $ | (0.03              | )      |                   | $ | 0.04    |        |      | $ | 0.04    |        |   | $ | 0.11    |       
|                                                          |                                                  |   |                    |        |                   |   |         |        |      |   |         |        |   |   |         |       

See the accompanying notes to these consolidated financial statements.

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Advanced Digital Information Corporation
Consolidated Statements of Cash Flows
(In thousands)

|                                                     |                                                                                                  |                                              |         |                   |        |      |         |         |         |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------------------ | -------------------------------------------- | ------- | ----------------- | ------ | ---- | ------- | ------- | ------- | -
|                                                     |                                                                                                  |                                              |         | Nine months ended
|                                                     |                                                                                                  |                                              |         | July 31,         
|                                                     |                                                                                                  |                                              |         |                  
|                                                     |                                                                                                  |                                              |         | 2002              |        | 2003
|                                                     |                                                                                                  |                                              |         |                   |        |     
|Cash flows from operating activities:                |                                                                                                  |                                              |         |                   |        |      |         |        
|                                                     | Net income                                                                                       |                                              | $       | 2,774             |        |      | $       | 6,740   |        
|                                                     | Adjustments to reconcile net income to net cash
provided by operating activities:                |                                              |         |                   |        |      |         |         |        
|                                                     |                                                                                                  | Depreciation and amortization                |         |                   | 11,542 |      |         |         | 16,625  |  
|                                                     |                                                                                                  | Allowance for doubtful accounts receivable   |         |                   | 802    |      |         |         | 507     |  
|                                                     |                                                                                                  | Inventory obsolescence                       |         |                   | 2,907  |      |         |         | 4,298   |  
|                                                     |                                                                                                  | Gain on securities transactions              |         |                   | (8,217 | )    |         |         | (2,388  | )
|                                                     |                                                                                                  | Acquired in-process research and development |         |                   | 1,200  |      |         |         |        |  
|                                                     |                                                                                                  | Deferred income taxes                        |         |                   | (327   | )    |         |         | (144    | )
|                                                     |                                                                                                  | Tax benefit from exercise of stock options   |         |                   | 2,233  |      |         |         | 1,376   |  
|                                                     |                                                                                                  | Other                                        |         |                   | 3      |      |         |         | 40      |  
|                                                     | Change in assets and liabilities:                                                                |                                              |         |                   |        |      |         |         |        
|                                                     |                                                                                                  | Accounts receivable                          |         |                   | 10,800 |      |         |         | (14,038 | )
|                                                     |                                                                                                  | Inventories                                  |         |                   | 7,277  |      |         |         | (15,213 | )
|                                                     |                                                                                                  | Prepaid expenses and other assets            |         |                   | (576   | )    |         |         | (118    | )
|                                                     |                                                                                                  | Service parts for maintenance                |         |                   | (5,533 | )    |         |         | (7,437  | )
|                                                     |                                                                                                  | Accounts payable                             |         |                   | (4,705 | )    |         |         | 12,804  |  
|                                                     |                                                                                                  | Accrued liabilities                          |         |                   | (670   | )    |         |         | 6,721   |  
|                                                     |                                                                                                  | Income taxes                                 |         |                   | 1,816  |      |         |         | 9,457   |  
|                                                     |                                                                                                  | Deferred revenue                             |         |                   | 2,365  |      |         |         | 3,034   |  
|                                                     |                                                                                                  |                                              |         |                   |        |      |         |        
|Net cash provided by operating activities            |                                                                                                  |                                              | 23,691  |                   |        |      | 22,264  |        
|                                                     |                                                                                                  |                                              |         |                   |        |      |         |        
|Cash flows from investing activities:                |                                                                                                  |                                              |         |                   |        |      |         |        
|                                                     | Purchase of property, plant and equipment                                                        |                                              |         | (21,740           | )      |      |         | (11,219 | )      
|                                                     | Purchase of marketable securities                                                                |                                              |         | (43,727           | )      |      |         | (13,852 | )      
|                                                     | Proceeds from securities transactions                                                            |                                              |         | 20,726            |        |      |         | 32,266  |        
|                                                     | Purchase of other investments                                                                    |                                              |         | (2,934            | )      |      |         | (363    | )      
|                                                     |                                                                                                  |                                              |         |                   |        |      |         |        
|Net cash provided by (used in) investing activities  |                                                                                                  |                                              | (47,675 | )                 |        |      | 6,832   |        
|                                                     |                                                                                                  |                                              |         |                   |        |      |         |        
|Cash flows from financing activities:                |                                                                                                  |                                              |         |                   |        |      |         |        
|                                                     | Repayment of bank lines of credit and long-term debt                                             |                                              |         | (1,652            | )      |      |         | (3,265  | )      
|                                                     | Proceeds from short-term borrowings                                                              |                                              |         |                  |        |      |         | 781     |        
|                                                     | Repurchase of common stock                                                                       |                                              |         | (3,430            | )      |      |         | (697    | )      
|                                                     | Proceeds from issuance of common stock for stock
options, stock warrants and Stock Purchase Plan |                                              |         | 4,534             |        |      |         | 3,782   |        
|                                                     |                                                                                                  |                                              |         |                   |        |      |         |        
|Net cash provided by (used in) financing activities  |                                                                                                  |                                              | (548    | )                 |        |      | 601     |        
|                                                     |                                                                                                  |                                              |         |                   |        |      |         |        
|Effect of exchange rate changes on cash              |                                                                                                  |                                              | 707     |                   |        |      | 1,241   |        
|                                                     |                                                                                                  |                                              |         |                   |        |      |         |        
|Net increase (decrease) in cash and cash equivalents |                                                                                                  |                                              | (23,825 | )                 |        |      | 30,938  |        
|Cash and cash equivalents at beginning of period     |                                                                                                  |                                              | 155,274 |                   |        |      | 150,741 |        
|                                                     |                                                                                                  |                                              |         |                   |        |      |         |        
|Cash and cash equivalents at end of period           |                                                                                                  | $                                            | 131,449 |                   |        | $    | 181,679 |        
|                                                     |                                                                                                  |                                              |         |                   |        |      |         |        

See the accompanying notes to these consolidated financial statements.

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Advanced Digital Information Corporation

Consolidated Statements of Changes in Shareholders Equity

Nine months ended July 31, 2003

(In thousands)

|                                                           |                                                                       |                            |                                                                                             |   |              |   |          |   |               |   |               |       |       |   |        |       |             |     |         |   |       |   | 
|---------------------------------------------------------- | --------------------------------------------------------------------- | -------------------------- | ------------------------------------------------------------------------------------------- | - | ------------ | - | -------- | - | ------------- | - | ------------- | ----- | ----- | - | ------ | ----- | ----------- | --- | ------- | - | ----- | - | 
|                                                           |                                                                       |                            |                                                                                             |   |              |   |          |   |               |   |               |       |       |   |        |       | Accumulated |     |         |   |      
|                                                           |                                                                       |                            |                                                                                             |   |              |   |          |   |               |   |               |       |       |   |        |       | Other       |     |         |   |      
|                                                           |                                                                       |                            |                                                                                             |   | Common Stock |   | Retained |   | Comprehensive |   |               |       |      
|                                                           |                                                                       |                            |                                                                                             |   | Shares       |   | Amount   |   | Earnings      |   | Income (Loss) |       | Total
|                                                           |                                                                       |                            |                                                                                             |   |              |   |          |   |               |   |               |       |      
|Balance at October 31, 2002                                |                                                                       |                            | 61,875                                                                                      |   |              | $ | 222,687  |   |               | $ | 108,159       |       |       | $ | (2,112 | )     |             | $   | 328,734 |  
|Shares repurchased                                         |                                                                       |                            | (113                                                                                        | ) |              |   | (697     | ) |               |   |              |       |       |   |       |       |             |     | (697    | )
|Purchases under Stock Purchase Plan                        |                                                                       |                            | 240                                                                                         |   |              |   | 1,129    |   |               |   |              |       |       |   |       |       |             |     | 1,129   |  
|Exercise of stock options,
including tax benefit of $1,376 |                                                                       |                            | 799                                                                                         |   |              |   | 4,029    |   |               |   |              |       |       |   |       |       |             |     | 4,029   |  
|Comprehensive income:                                      |                                                                       |                            |                                                                                             |   |              |   |          |   |               |   |               |       |       |   |        |       |             |     |         |  
|                                                           | Net income                                                            |                            |                                                                                             |  |              |   |          |  |               |   |               | 6,740 |       |   |        |      |             |     |         |  |      
|                                                           | Change in unrealized
investment gains:                                |                            |                                                                                             |   |              |   |          |   |               |   |               |       |       |   |        |       |             |     |         |   |      
|                                                           |                                                                       |                            | Unrealized investment
gains, net of tax of $36                                              |   |              |  |          |   |               |  |               |       |       |  |        |       |             | 66  |         |   |       |  | 
|                                                           |                                                                       |                            | Reclassification adjustment
for investment losses
included in net income, net
of tax of $87 |   |              |  |          |   |               |  |               |       |       |  |        |       |             | 162 |         |   |       |  | 
|                                                           | Change in foreign currency
translation
adjustment, net of tax of $688 |                            |                                                                                             |  |              |   |          |  |               |   |               |      |       |   |        | 1,277 |             |     |         |  |      
|                                                           |                                                                       | Total comprehensive income |                                                                                             |   |             |   |          |   |              |   |               |       |      |   |        |       |            |     |         |   | 8,245 |  
|                                                           |                                                                       |                            |                                                                                             |   |              |   |          |   |               |   |               |       |       |   |        |       |             |     |         |  
|Balance at July 31, 2003                                   |                                                                       |                            | 62,801                                                                                      |   |              | $ | 227,148  |   |               | $ | 114,899       |       |       | $ | (607   | )     |             | $   | 341,440 |  
|                                                           |                                                                       |                            |                                                                                             |   |              |   |          |   |               |   |               |       |       |   |        |       |             |     |         |  

See the accompanying notes to these consolidated financial statements.

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Advanced Digital Information Corporation

Notes to Interim Consolidated Financial Statements

July 31, 2003

Note 1. Basis of presentation

The accompanying consolidated financial statements are unaudited and
include the accounts of the Company and its subsidiaries. All significant
intercompany transactions, balances and profits have been eliminated in
consolidation. Certain prior period balances have been adjusted or
reclassified to conform to current period presentation. These
reclassifications have no effect on net income (loss), shareholders equity or
cash flows as previously presented.

The accompanying unaudited consolidated financial statements should be
read in conjunction with the financial statements included in our Annual Report
on Form 10-K for the year ended October 31, 2002. The year-end balance sheet
data was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. In our
opinion all normal recurring adjustments which are necessary for the fair
presentation of the results for the interim periods are reflected herein.
Operating results for the three and nine month periods ended July 31, 2003 are
not necessarily indicative of results to be expected for a full year.

Note 2. Stock-based compensation plans

Stock-based compensation plans are accounted for using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees and related interpretations. No stock-based
compensation cost is reflected in net income (loss), as all stock options
granted under those plans had an exercise price equal to the market value of
the underlying common stock on the date of grant. Had compensation cost for
the plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the method of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, our
net income (loss) and basic and diluted net income (loss) per share would have
been reduced to the pro forma amounts indicated below:

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Advanced Digital Information Corporation

Notes to Interim Consolidated Financial Statements (Continued)

July 31, 2003

|                                                                                                                   |           |             |        |                    |       |                   |                                           |      |      |      |        |       |      |   |        |      |      | 
|------------------------------------------------------------------------------------------------------------------ | --------- | ----------- | ------ | ------------------ | ----- | ----------------- | ----------------------------------------- | ---- | ---- | ---- | ------ | ----- | ---- | - | ------ | ---- | ---- | 
|                                                                                                                   |           |             |        | Three months ended |       | Nine months ended
|                                                                                                                   |           |             |        | July 31,           |       | July 31,         
|                                                                                                                   |           |             |        |                    |       |                  
|                                                                                                                   |           |             |        | 2002               |       | 2003              |                                           | 2002 |      | 2003
|                                                                                                                   |           |             |        |                    |       |                   |                                           |      |      |     
|                                                                                                                   |           |             |        |                    |       |                   | (In thousands, except for per share data) |      |      |      |       
|Net income (loss), as reported                                                                                     |           | $           | (2,115 | )                  |       | $                 | 2,635                                     |      |      | $    | 2,774  |       |      | $ | 6,740  |     
|Deduct: total stock-based
compensation expense determined
under fair value based method for
all awards, net of tax |           |             | (2,279 | )                  |       |                   | (1,465                                    | )    |      |      | (7,539 | )     |      |   | (5,046 | )   
|                                                                                                                   |           |             |        |                    |       |                   |                                           |      |      |      |        |       |      |   |        |     
|Pro forma net income (loss)                                                                                        |           | $           | (4,394 | )                  |       | $                 | 1,170                                     |      |      | $    | (4,765 | )     |      | $ | 1,694  |     
|                                                                                                                   |           |             |        |                    |       |                   |                                           |      |      |      |        |       |      |   |        |     
|Basic net income (loss) per share:                                                                                 |           |             |        |                    |       |                   |                                           |      |      |      |        |       |      |   |        |     
|                                                                                                                   |           | As reported |        | $                  | (0.03 | )                 |                                           | $    | 0.04 |      |        | $     | 0.04 |   |        | $    | 0.11 | 
|                                                                                                                   |           |             |        |                    |       |                   |                                           |      |      |      |        |       |      |   |        |     
|                                                                                                                   | Pro forma |             | $      | (0.07              | )     |                   | $                                         | 0.02 |      |      | $      | (0.08 | )    |   | $      | 0.03 |     
|                                                                                                                   |           |             |        |                    |       |                   |                                           |      |      |      |        |       |      |   |        |     
|Diluted net income (loss) per share:                                                                               |           |             |        |                    |       |                   |                                           |      |      |      |        |       |      |   |        |     
|                                                                                                                   |           | As reported |        | $                  | (0.03 | )                 |                                           | $    | 0.04 |      |        | $     | 0.04 |   |        | $    | 0.11 | 
|                                                                                                                   |           |             |        |                    |       |                   |                                           |      |      |      |        |       |      |   |        |     
|                                                                                                                   | Pro forma |             | $      | (0.07              | )     |                   | $                                         | 0.02 |      |      | $      | (0.08 | )    |   | $      | 0.03 |     
|                                                                                                                   |           |             |        |                    |       |                   |                                           |      |      |      |        |       |      |   |        |     

The options granted during the nine months ended July 31, 2002 and 2003
expire after five and ten years, respectively. The value of each option grant
is estimated on the date of grant using the Black-Scholes option pricing model
using the following weighted average assumptions for options granted during the
periods presented:

|                                          |  |                    |      |                   |  |      |      |      |  |  |      |   |  |  |      |  
|----------------------------------------- |  | ------------------ | ---- | ----------------- |  | ---- | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                                          |  | Three months ended |      | Nine months ended
|                                          |  | July 31,           |      | July 31,         
|                                          |  |                    |      |                  
|                                          |  | 2002               |      | 2003              |  | 2002 |      | 2003
|                                          |  |                    |      |                   |  |      |      |     
|Weighted average risk free interest rates |  |                    | 4.15 | %                 |  |      | 2.80 | %    |  |  | 4.12 | % |  |  | 3.16 | %
|Expected dividend yield                   |  |                    | 0    | %                 |  |      | 0    | %    |  |  | 0    | % |  |  | 0    | %
|Expected volatility                       |  |                    | 84   | %                 |  |      | 79   | %    |  |  | 84   | % |  |  | 79   | %
|Expected lives (in years)                 |  |                    | 4.0  |                   |  |      | 6.0  |      |  |  | 4.0  |   |  |  | 6.0  |  

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Advanced Digital Information Corporation

Notes to Interim Consolidated Financial Statements (Continued)

July 31, 2003

Note 3. Earnings per share

The following table sets forth the computation of basic and diluted net
income (loss) per share for the three and nine months ended July 31, 2002 and
2003:

|                                    |                                                                                                               |   |                    |        |                   |   |                                           |        |      |   |      |        |  |   |      |        | 
|----------------------------------- | ------------------------------------------------------------------------------------------------------------- | - | ------------------ | ------ | ----------------- | - | ----------------------------------------- | ------ | ---- | - | ---- | ------ |  | - | ---- | ------ | 
|                                    |                                                                                                               |   | Three months ended |        | Nine months ended
|                                    |                                                                                                               |   | July 31,           |        | July 31,         
|                                    |                                                                                                               |   |                    |        |                  
|                                    |                                                                                                               |   | 2002               |        | 2003              |   | 2002                                      |        | 2003
|                                    |                                                                                                               |   |                    |        |                   |   |                                           |        |     
|                                    |                                                                                                               |   |                    |        |                   |   | (In thousands, except for per share data) |        |      |   |     
|Numerator:                          |                                                                                                               |   |                    |        |                   |   |                                           |        |      |   |      |        |  |   |      |       
|                                    | Net income (loss)                                                                                             |   | $                  | (2,115 | )                 |   | $                                         | 2,635  |      |   | $    | 2,774  |  |   | $    | 6,740  | 
|                                    |                                                                                                               |   |                    |        |                   |   |                                           |        |      |   |      |        |  |   |      |        | 
|Denominator:                        |                                                                                                               |   |                    |        |                   |   |                                           |        |      |   |      |        |  |   |      |       
|                                    | Denominator for basic net income (loss) per share-
weighted average shares                                    |   |                    | 62,546 |                   |   |                                           | 62,657 |      |   |      | 62,340 |  |   |      | 62,291 | 
|                                    | Dilutive potential common shares from Team
Member (employee) stock options and warrants                       |   |                    |       |                   |   |                                           | 1,024  |      |   |      | 1,414  |  |   |      | 857    | 
|                                    |                                                                                                               |   |                    |        |                   |   |                                           |        |      |   |      |        |  |   |      |        | 
|                                    | Denominator for diluted net income (loss) per share-
adjusted weighted average shares and assumed
conversions |   |                    | 62,546 |                   |   |                                           | 63,681 |      |   |      | 63,754 |  |   |      | 63,148 | 
|                                    |                                                                                                               |   |                    |        |                   |   |                                           |        |      |   |      |        |  |   |      |        | 
|Basic net income (loss) per share   |                                                                                                               | $ | (0.03              | )      |                   | $ | 0.04                                      |        |      | $ | 0.04 |        |  | $ | 0.11 |       
|                                    |                                                                                                               |   |                    |        |                   |   |                                           |        |      |   |      |        |  |   |      |        | 
|Diluted net income (loss) per share |                                                                                                               | $ | (0.03              | )      |                   | $ | 0.04                                      |        |      | $ | 0.04 |        |  | $ | 0.11 |       
|                                    |                                                                                                               |   |                    |        |                   |   |                                           |        |      |   |      |        |  |   |      |        | 

Note 4. Inventories

Inventories are comprised of the following:

|                                     |  |                  |         |               |  |   |         |  
|------------------------------------ |  | ---------------- | ------- | ------------- |  | - | ------- | -
|                                     |  | October 31, 2002 |         | July 31, 2003
|                                     |  |                  |         |              
|                                     |  | (In thousands)  
|Finished goods                       |  | $                | 26,225  |               |  | $ | 32,384  |  
|Work-in-process                      |  |                  | 140     |               |  |   | 473     |  
|Raw materials                        |  |                  | 16,644  |               |  |   | 25,045  |  
|                                     |  |                  |         |               |  |   |         |  
|                                     |  |                  | 43,009  |               |  |   | 57,902  |  
|Allowance for inventory obsolescence |  |                  | (10,713 | )             |  |   | (14,277 | )
|                                     |  |                  |         |               |  |   |         |  
|                                     |  | $                | 32,296  |               |  | $ | 43,625  |  
|                                     |  |                  |         |               |  |   |         |  

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Advanced Digital Information Corporation

Notes to Interim Consolidated Financial Statements (Continued)

July 31, 2003

Note 5. Investments in marketable securities and other investments

At July 31, 2003, the cost basis of the marketable securities we held was
$24,120,000 and the fair value was $24,125,000. The difference between the
cost basis and fair value of $5,000, net of taxes of $2,000 is recorded as an
unrealized investment gain. At July 31, 2003, the fair value of marketable
securities comprised equity securities of $138,000 and debt securities of
$23,987,000. The equity securities consist of stock in a U.S. company that
operates in an area within our strategic focus. The debt securities consist of
investment-grade government and commercial securities purchased in accordance
with our cash management policy to generate a higher yield than cash
equivalents. Consistent with our investment policy, investment maturities do
not exceed 24 months at the date of purchase. The objectives of our cash
management policy are safety and preservation of funds, liquidity sufficient to
meet cash flow requirements and attainment of a market rate of return. During
the three months ended July 31, 2003, we sold a portion of our marketable
securities and realized gains of $818,000. No marketable securities were sold
during the three months ended July 31, 2002. During the nine month periods
ended July 31, 2002 and 2003, sales of marketable securities resulted in gains
of $3,657,000 and $1,455,000, respectively.

From time to time, we make other strategic investments that are accounted
for under the cost method. In November 2002, one of these investments was
converted to cash and marketable equity securities with a combined value of
$8,351,000, and we recorded a gain on securities transactions of $651,000. In
December 2002 and May 2003, we received additional shares of marketable equity
securities under an earnout provision and recorded additional gains on
securities transactions of $124,000 and $158,000, respectively.

During the nine month period ended July 31, 2002 we received cash of
$287,000 related to the sale of derivative financial instruments on certain
marketable equity securities held by us. We recognized a gain on securities
transactions of $38,000 and $4,560,000, respectively, during the three and nine
month periods ended July 31, 2002 to reflect the change in the fair value of
the related liability during the period plus the cash received on sales of
derivatives during the period.

Note 6. Intangible and other assets

On November 1, 2002, we adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets which requires us to
discontinue amortization of goodwill. As required by SFAS 142, intangible
assets that do not meet the criteria for recognition apart from goodwill must
be reclassified. In applying these criteria, we transferred net assembled
workforce from intangible assets to goodwill in the first quarter of fiscal
2003. During the first quarter, we completed the assessment for impairment of
goodwill required upon implementation of SFAS 142 and concluded that goodwill
was not impaired. We are required to perform goodwill impairment tests on an
annual basis or when indicators of impairment exist. We performed our annual
goodwill impairment test in the third quarter of fiscal 2003 and concluded that
goodwill was not impaired. There can be no assurance that future goodwill
impairment tests will not result in a charge to earnings.

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Advanced Digital Information Corporation

Notes to Interim Consolidated Financial Statements (Continued)

July 31, 2003

The following table presents net income (loss) and net income (loss) per
share for the three and nine months ended July 31, 2002 and 2003 on a pro forma
basis as if SFAS 142 had been adopted on November 1, 2001:

|                                                                               |             |   |        |                    |   |                   |       |                                           |  |      |       |      |  |   |       |      |  | 
|------------------------------------------------------------------------------ | ----------- | - | ------ | ------------------ | - | ----------------- | ----- | ----------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | ---- |  | 
|                                                                               |             |   |        | Three months ended |   | Nine months ended
|                                                                               |             |   |        | July 31,           |   | July 31,         
|                                                                               |             |   |        |                    |   |                  
|                                                                               |             |   |        | 2002               |   | 2003              |       | 2002                                      |  | 2003
|                                                                               |             |   |        |                    |   |                   |       |                                           |  |     
|                                                                               |             |   |        |                    |   |                   |       | (In thousands, except for per share data) |  |      |       |     
|Net income (loss), as reported                                                 |             | $ | (2,115 | )                  |   | $                 | 2,635 |                                           |  | $    | 2,774 |      |  | $ | 6,740 |     
|Add back: amortization of goodwill
(including assembled workforce),
net of tax |             |   | 70     |                    |   |                   |      |                                           |  |      | 211   |      |  |   |      |     
|                                                                               |             |   |        |                    |   |                   |       |                                           |  |      |       |      |  |   |       |     
|Pro forma net income (loss)                                                    |             | $ | (2,045 | )                  |   | $                 | 2,635 |                                           |  | $    | 2,985 |      |  | $ | 6,740 |     
|                                                                               |             |   |        |                    |   |                   |       |                                           |  |      |       |      |  |   |       |     
|Basic net income (loss) per share:                                             |             |   |        |                    |   |                   |       |                                           |  |      |       |      |  |   |       |     
|                                                                               | As reported |   | $      | (0.03              | ) |                   | $     | 0.04                                      |  |      | $     | 0.04 |  |   | $     | 0.11 | 
|                                                                               |             |   |        |                    |   |                   |       |                                           |  |      |       |      |  |   |       |     
|                                                                               | Pro forma   |   | $      | (0.03              | ) |                   | $     | 0.04                                      |  |      | $     | 0.05 |  |   | $     | 0.11 | 
|                                                                               |             |   |        |                    |   |                   |       |                                           |  |      |       |      |  |   |       |     
|Diluted net income (loss) per share:                                           |             |   |        |                    |   |                   |       |                                           |  |      |       |      |  |   |       |     
|                                                                               | As reported |   | $      | (0.03              | ) |                   | $     | 0.04                                      |  |      | $     | 0.04 |  |   | $     | 0.11 | 
|                                                                               |             |   |        |                    |   |                   |       |                                           |  |      |       |      |  |   |       |     
|                                                                               | Pro forma   |   | $      | (0.03              | ) |                   | $     | 0.04                                      |  |      | $     | 0.05 |  |   | $     | 0.11 | 
|                                                                               |             |   |        |                    |   |                   |       |                                           |  |      |       |      |  |   |       |     

Intangible and other assets consists of the following:

|                       |  |                  |       |                |  |            |        |        |  |              |       |                |  |   |       |  |  |   |        |   |  |   |       | 
|---------------------- |  | ---------------- | ----- | -------------- |  | ---------- | ------ | ------ |  | ------------ | ----- | -------------- |  | - | ----- |  |  | - | ------ | - |  | - | ----- | 
|                       |  | October 31, 2002 |       | July 31, 2003 
|                       |  |                  |       |               
|                       |  | Gross            |       | Accumulated    |  |            |        |        |  | Gross        |       | Accumulated    |  |   |       | 
|                       |  | amount           |       | amortization   |  | Net amount |        | amount |  | amortization |       | Net amount    
|                       |  |                  |       |                |  |            |        |        |  |              |       |               
|                       |  |                  |       | (In thousands) |  |            |        |        |  |              |       | (In thousands) |  |   |       | 
|Developed technology   |  | $                | 980   |                |  | $          | (925   | )      |  | $            | 55    |                |  | $ | 980   |  |  | $ | (980   | ) |  | $ |      | 
|Core technology        |  |                  | 3,804 |                |  |            | (1,675 | )      |  |              | 2,129 |                |  |   | 3,804 |  |  |   | (2,083 | ) |  |   | 1,721 | 
|Assembled workforce    |  |                  | 147   |                |  |            | (139   | )      |  |              | 8     |                |  |   |      |  |  |   |       |   |  |   |      | 
|Non-compete agreements |  |                  | 50    |                |  |            | (12    | )      |  |              | 38    |                |  |   | 50    |  |  |   | (26    | ) |  |   | 24    | 
|Goodwill               |  |                  | 3,706 |                |  |            | (1,118 | )      |  |              | 2,588 |                |  |   | 3,853 |  |  |   | (1,257 | ) |  |   | 2,596 | 
|Other assets           |  |                  | 67    |                |  |            |       |        |  |              | 67    |                |  |   | 83    |  |  |   |       |   |  |   | 83    | 
|                       |  |                  |       |                |  |            |        |        |  |              |       |                |  |   |       |  |  |   |        |   |  |   |       | 
|                       |  | $                | 8,754 |                |  | $          | (3,869 | )      |  | $            | 4,885 |                |  | $ | 8,770 |  |  | $ | (4,346 | ) |  | $ | 4,424 | 
|                       |  |                  |       |                |  |            |        |        |  |              |       |                |  |   |       |  |  |   |        |   |  |   |       | 

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Advanced Digital Information Corporation

Notes to Interim Consolidated Financial Statements (Continued)

July 31, 2003

During the three and nine month periods ended July 31, 2003, we recorded
intangible amortization expense of $141,000 and $477,000, respectively. During
the comparable periods in fiscal 2002, intangible amortization expense was
$331,000 and $984,000, respectively. Total expected future amortization
related to intangible assets is provided in the following table:

|                                    |  |                |     | 
|----------------------------------- |  | -------------- | --- | 
|                                    |  | Amortization  
|                                    |  |               
|                                    |  | (In thousands)
|Three months ended October 31, 2003 |  | $              | 141 | 
|Fiscal year 2004                    |  | $              | 562 | 
|Fiscal year 2005                    |  | $              | 543 | 
|Fiscal year 2006                    |  | $              | 499 | 

Note 7. Guarantees

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires that a liability be
recorded in the guarantors balance sheet upon issuance of the guarantee. In
addition, FIN 45 requires disclosures about the guarantees that a company has
issued, including a rollforward of the companys product warranty liabilities.
We are required to apply the recognition provisions of FIN 45 prospectively to
any guarantees issued after December 31, 2002. The disclosure provisions of
FIN 45 were effective for us beginning in first quarter of fiscal 2003 and are
included below. The provisions of FIN 45 have not had a significant impact on
our financial position or results of operations.

For our products, parts and labor are covered under warranty for periods
between three months and three years. A provision for labor costs related to
warranty expense is recorded when revenue is recognized. We hold service parts
for maintenance that are used to service our warranties and extended service
contracts. The cost of these parts is amortized over their estimated useful
lives, which range from three to seven years. With respect to drives and tapes
used in our products but manufactured by a third party, we provide to the
customer a warranty on such drives and tapes that is substantially equivalent
to the warranty provided by the manufacturer.

Changes in our accrued warranty balance for the nine months ended July 31,
2003 are as follows:

|                               |  |   |        |  
|------------------------------ |  | - | ------ | -
|Balance at October 31, 2002    |  | $ | 4,225  |  
|Accruals for warranties issued |  |   | 4,807  |  
|Settlements during the period  |  |   | (3,617 | )
|                               |  |   |        |  
|Balance at July 31, 2003       |  | $ | 5,415  |  
|                               |  |   |        |  

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Advanced Digital Information Corporation

Notes to Interim Consolidated Financial Statements (Continued)

July 31, 2003

Note 8. Recent accounting pronouncements

In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure. SFAS 148 amends SFAS 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for an
entity that voluntarily changes to the fair value based method of accounting
for stock-based compensation. It also amends the disclosure provisions of that
statement. The disclosure provisions of this statement are effective for us
beginning in the second quarter of fiscal 2003, and the required disclosures
are included in Note 2. We do not currently have plans to change to the fair
value method of accounting for our stock-based compensation, but we will
reassess our plans during the fourth quarter of fiscal 2003 to determine
whether we will change to the fair value method during fiscal 2004.

In November 2002, the EITF reached a consensus on Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables. EITF 00-21 provides
guidance on how to account for arrangements that involve the delivery or
performance of multiple products, services or rights to use assets. The
provisions of EITF 00-21 will apply to revenue arrangements entered into in
interim periods beginning after June 15, 2003. This accounting pronouncement
is not expected to have a significant impact on our financial position or
results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities. FIN 46 provides guidance on how
to identify a variable interest entity (VIE) and determine when the assets,
liabilities and results of operations of a VIE need to be included in a
companys financial statements. FIN 46 also requires additional disclosures by
primary beneficiaries and other significant variable interest holders in a VIE.
The provisions of FIN 46 are effective immediately for all VIEs created after
January 31, 2003. For VIEs created before February 1, 2003, the provisions of
FIN 46 must be adopted at the beginning of the first interim period beginning
after June 15, 2003. This accounting pronouncement is not expected to have a
significant impact on our financial position or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity. SFAS 150 requires that certain financial
instruments that, under previous guidance, could be accounted for as equity,
now be classified as liabilities. These financial instruments include
mandatorily redeemable shares, instruments that require the issuer to buy back
some of its shares in exchange for cash or other assets and certain obligations
that can be settled with shares. SFAS 150 also requires additional disclosures
about alternative ways of settling these types of instruments and the capital
structure of entities. Most of the provisions of SFAS 150 are effective for
all financial instruments entered into or modified after May 31, 2003, and
otherwise are effective at the beginning of the first interim period beginning
after June 15, 2003. This accounting pronouncement is not expected to have a
significant impact on our financial position or results of operations.

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

The following discussion and analysis should be read in conjunction with
our financial statements and the information about our critical accounting
estimates included in our Annual Report on Form 10-K for the year ended October
31, 2002. This discussion contains certain forward-looking statements that
involve risks and uncertainties, such as statements of our plans, objectives,
expectations and intentions. Such risks are detailed in our Annual Report on
Form 10-K for the year ended October 31, 2002 and are incorporated herein by
reference. Our actual results could differ materially from those discussed
here. We undertake no obligation to publicly release any revisions to these
forward-looking statements that may be required to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

General

We provide hardware and software-based data storage solutions to the open
systems marketplace. Our storage solutions integrate into a wide range of
rapidly evolving network computing environments and are designed to enable
organizations to organize, protect and retrieve complex mission-critical data.
We design, manufacture, sell and support specialized data storage hardware and
software products and provide related services. Currently, we derive
substantially all of our revenue from the sale of storage libraries,
connectivity and management products and related services and support. We
distribute our products primarily through value-added resellers (VARs),
distributors and original equipment manufacturers (OEMs) and also sell directly
to certain end users.

Results of Operations

Net Sales.Net sales increased during the third quarter of fiscal 2003 to
$108.3 million, an increase of 42% from $76.0 million in the comparable quarter
of fiscal 2002. Net sales for the nine months ended July 31, 2003 were $306.0
million, an increase of 21% from $253.4 million during the nine months ended
July 31, 2002. The increase in both comparison periods is due to higher sales
to both OEM and branded customers. Revenue from OEM customers increased 79% in
the third quarter of fiscal 2003 from the comparable quarter of fiscal 2002,
and branded sales increased 19% between the comparable quarters. OEM sales
increased as a percentage of net sales to 49% during the third quarter of
fiscal 2003 compared to 39% in the third quarter of fiscal 2002. During the
nine months ended July 31, 2003, OEM revenue increased 26% over the comparative
period in fiscal 2002. Branded sales increased 16% during the nine months
ended July 31, 2003 compared to the same period ended July 31, 2002. The
growth in OEM sales is due to a combination of increasing penetration with
existing products and the addition of more products. Branded sales have
increased in all major geographical markets over the comparable fiscal periods
in 2002. Additionally, the Scalar® i2000 Tape Library was released during the
third quarter of fiscal 2003 and contributed to the increase in sales over the
same period in 2002.

Intelligent Storage Solutions (ISS), which include elements of our
software and connectivity technology and are sold through both branded and OEM
sales channels, represented 33% of sales in the third quarter of fiscal 2003
compared to 36% of sales during the third quarter of fiscal 2002. ISS related
sales comprised 37% and 28% of sales during the first nine months of fiscal
2003 and 2002, respectively. We believe that an increasing proportion of ISS
sales, whether sold on a branded or OEM basis, will generally result in the
likelihood of increasing gross margins as a percentage of sales, although this
expected correlation may be overshadowed in any particular period by the
specific mix of ISS products or other factors.

Gross Profit.Gross profit was $32.6 million or 30% of net sales for the
three months ended July 31, 2003 compared to $22.2 million or 29% of net sales
for the same period in fiscal 2002, an increase of

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47% on a net sales increase of 42%. For the nine months ended July 31,
2003, gross profit was $95.3 million or 31% of net sales compared to $67.0
million or 26% of net sales for the same period in fiscal 2002, an increase of
42% on a net sales increase of 21%. The increase in gross profit in fiscal
2003 over the comparable periods in fiscal 2002 is primarily a result of the
absolute dollar increase in branded sales, including revenue from software and
other higher-margin enterprise-level products. This increase was partially
offset by the increase in the proportion of OEM sales, which typically carry a
lower gross margin than branded sales.

Sales and Marketing Expenses.Sales and marketing expenses were $14.4
million or 13% of net sales for the three months ended July 31, 2003 compared
to $13.2 million or 17% of net sales for the same period in fiscal 2002. For
the nine month period ended July 31, 2003, sales and marketing expenses were
$42.0 million or 14% of net sales compared to $36.1 million or 14% of net sales
for the same period in fiscal 2002. Sales and marketing expenses have
increased in absolute dollars due to continued efforts to expand our sales and
services channels to support new product offerings and improve market
penetration with our more complex enterprise-level products. We expect very
modest sequential growth in sales and marketing expenditures during the balance
of fiscal 2003.

General and Administrative Expenses.General and administrative expenses
were $5.9 million or 5% of net sales for the three months ended July 31, 2003
compared to $6.0 million or 8% of net sales for the same period in fiscal 2002.
For the nine month period ended July 31, 2003, general and administrative
expenses were $18.1 million or 6% of net sales compared to $17.0 million or 7%
of net sales for the same period in fiscal 2002. The changes in general and
administrative expenses from the comparable periods in fiscal 2002 are the net
result of increased expenses due to continued investments in our
infrastructure, including our global information system, partially offset by
decreases in bad debt. We expect general and administrative expenses to
increase modestly during the remainder of fiscal 2003.

Research and Development Expenses.Research and development expenses were
$10.0 million or 9% of net sales for the third quarter of fiscal 2003 compared
to $8.2 million or 11% of net sales for the third quarter of fiscal 2002.
During the nine months ended July 31, 2003, we incurred research and
development expenses of $30.3 million or 10% of net sales compared to $22.3
million or 9% of net sales for the same period in fiscal 2002. These increases
reflect our strategy to maintain heavy investments in software and connectivity
product development and relate to added personnel resources and additional
spending related to new products. We believe that significant investments in
research and development are required to remain competitive and to solidify our
market position in intelligent storage solutions. We expect moderate growth in
research and development expenses during the remainder of fiscal 2003 as we
continue to invest in new product development.

Acquisition Expenses.Expenses related to our acquisition of V-Stor were
$1.5 million for the three and nine month periods ended July 31, 2002. These
one-time acquisition charges related to acquired in-process research and
development and compensation to V-Stor personnel.

Other Income.Other income primarily consists of net gain on securities
transactions, interest income and net foreign currency transaction gains
(losses). Other income was $1.3 million for the third quarter of fiscal 2003
compared to $1.5 million for the third quarter of fiscal 2002. For the nine
months ended July 31, 2003, other income was $4.9 million compared to $11.7
million for the same period in fiscal 2002. Other income during the three
months ended July 31, 2003 and 2002 included a gain on securities transactions
of $976,000 and $38,000, respectively. The gain on securities transactions
during the nine months ended July 31, 2003 and 2002 was $2.4 million and $8.2
million, respectively. The gains realized in fiscal 2003 primarily relate to
conversion of one of our investments in a private company to cash and
marketable equity securities and subsequent sale of a portion of those
securities. The gains realized in fiscal 2002 consisted of gains from the sale
of derivative financial instruments on securities

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held for investment as well as the sale of marketable securities.
Interest income was $598,000 and $777,000 during the third quarter of fiscal
2003 and 2002, respectively, and $1.8 million and $2.8 million during the first
nine months of fiscal 2003 and 2002, respectively. The decrease in interest
income is the result of lower returns on cash and investment balances. Foreign
currency transaction gains (losses) were a loss of $111,000 and a gain of
$835,000 during the third quarter of fiscal 2003 and 2002, respectively, and
gains of $1.1 million and $916,000 during the first nine months of fiscal 2003
and 2002, respectively. The gains are the result of the strengthening of the
Euro during the nine month periods, with the loss resulting from a stronger
dollar during the third quarter of fiscal 2003. Interest expense in all
periods primarily relates to interest on operating credit lines through two
German banks along with a loan payable to a German bank.

Provision (Benefit) for Income Taxes.For the three months ended July 31,
2003, income tax expense was $982,000 compared to income tax benefit of $1.6
million for the comparable period in fiscal 2002. Income tax expense was $3.2
million for the nine months ended July 31, 2003 compared to income tax benefit
of $849,000 for the nine months ended July 31, 2002. The effective income tax
rates for the three and nine months ended July 31, 2003 were 27% and 32%,
respectively. The effective tax rates for the comparable periods in fiscal
2002 were 43% and (44%), respectively. Our effective tax rate is based on
estimates and assumptions relating to future events. Actual results could
differ from those estimates. In fiscal 2003, effective income tax rates
reflect benefits recognized as a result of ongoing tax planning initiatives.
In fiscal 2002, taxes paid in various federal, state and international
jurisdictions were exceeded by the tax benefits of our credit for research and
development spending, our extraterritorial income exclusion and non-taxable
interest income. The effective tax rate includes tax expense for various
federal, state and international jurisdictions.

Liquidity and Capital Resources

Cash flows provided by operating activities were $22.3 million and $23.7
million for the nine months ended July 31, 2003 and 2002, respectively. During
the first nine months of fiscal 2003, operating cash was primarily provided by
net income, depreciation and amortization, increases in accounts payable and
accrued liabilities and a receipt of a tax refund, which were offset by
increases in accounts receivable, inventories and service parts for
maintenance. Accounts receivable increased primarily due to increased sales,
and inventories and service parts for maintenance increased as we launched both
new products and existing products into new channels. Accounts payable and
accrued liabilities increased primarily due to the timing of payments. During
the first nine months of fiscal 2002, operating cash was primarily provided by
net income, depreciation and amortization, decreases in accounts receivable and
inventories and increases in deferred revenue and was offset by an increase in
service parts for maintenance and a decrease in accounts payable. Inventories
decreased as we entered into certain vendor-managed inventory programs, under
which ownership transfers at the time we take possession of inventory in the
manufacturing process. Service parts for maintenance increased in order to
support new product offerings as well as maintain our increasing installed base
of existing solutions.

Cash flows provided by investing activities were $6.8 million for the
first nine months of fiscal 2003. In the comparable period of fiscal 2002,
cash flows used in investing activities were $47.7 million. Cash flows include
proceeds from certain securities transactions of $32.3 million and $20.7
million for first nine months of 2003 and 2002, respectively. These proceeds
were partially offset by purchases of marketable securities of $13.9 million
and $43.7 million and investments in non-marketable securities of $363,000 and
$2.9 million during the first nine months of fiscal 2003 and 2002,
respectively. Investments in property, plant and equipment were $11.2 million
and $21.7 million during the first nine months of fiscal 2003 and 2002,
respectively. Capital expenditures during the first nine months of fiscal 2003
and 2002 were comprised primarily of computer hardware and software for our
global information technology infrastructure and tooling and equipment related
to new product introductions. Capital

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expenditures during the first nine months of fiscal 2002 also included
leasehold improvements for our Englewood, Colorado facility.

Cash flows provided by financing activities were $601,000 for the first
nine months of fiscal 2003. In the comparable period of fiscal 2002, cash
flows used in financing activities were $548,000. We repurchased $697,000 and
$3.4 million of our common stock during the nine months ended July 31, 2003 and
2002, respectively. During the first nine months of fiscal 2003 and 2002, we
received proceeds from the issuance of common stock under our Stock Purchase
Plan and the exercise of stock options and warrants of $3.8 million and $4.5
million, respectively. Offsetting the above proceeds in both periods were
certain payments on bank lines of credit and long-term debt, which were $3.3
million and $1.7 million during the first nine months of fiscal 2003 and 2002,
respectively. During the first nine months of fiscal 2003, we borrowed an
additional $781,000 from two German banks.

At July 31, 2003, our cash and cash equivalents totaled $181.7 million, a
$31.0 million increase from $150.7 million at October 31, 2002. Our cash
equivalents and marketable securities totaled $205.8 million and $182.8 million
at July 31, 2003 and October 31, 2002, respectively. Our working capital, the
difference between current assets and current liabilities, was $254.7 million
and $231.7 million at July 31, 2003 and October 31, 2002, respectively. The
ratio of current assets to current liabilities was 3.7 to 1 and 4.3 to 1 at
July 31, 2003 and October 31, 2002, respectively.

We believe that our existing cash and cash equivalents, available bank
lines of credit, debt capacity and anticipated cash flow from our operating
activities will be sufficient to fund our working capital and capital
expenditure needs for at least the next 12 months. We will continue to
evaluate possible acquisitions of, or investments in businesses, products, or
technologies that we believe are strategic, which may require the use of cash.
In addition, we have made and expect to continue to make investments in
companies with whom we have identified potential synergies.

Recent Accounting Pronouncements

In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure. SFAS 148 amends SFAS 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for
stock-based compensation. It also amends the disclosure provisions of that
statement. The disclosure provisions of this statement are effective for us
beginning in the second quarter of fiscal 2003, and the required disclosures
are included in Note 2. We do not currently have plans to change to the fair
value method of accounting for our stock-based compensation, but we will
reassess our plans during the fourth quarter of fiscal 2003 to determine
whether we will change to the fair value method during fiscal 2004.

In November 2002, the EITF reached a consensus on Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables. EITF 00-21 provides
guidance on how to account for arrangements that involve the delivery or
performance of multiple products, services or rights to use assets. The
provisions of EITF 00-21 will apply to revenue arrangements entered into in
interim periods beginning after June 15, 2003. This accounting pronouncement
is not expected to have a significant impact on our financial position or
results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities. FIN 46 provides guidance on how
to identify a variable interest entity (VIE) and determine when the assets,
liabilities and results of operations of a VIE need to be included in a
companys financial statements. FIN 46 also requires additional disclosures by
primary beneficiaries and other significant variable interest holders in a VIE.
The provisions of FIN 46 are effective immediately

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for all VIEs created after January 31, 2003. For VIEs created before
February 1, 2003, the provisions of FIN 46 must be adopted at the beginning of
the first interim period beginning after June 15, 2003. This accounting
pronouncement is not expected to have a significant impact on our financial
position or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity. SFAS 150 requires that certain financial
instruments that, under previous guidance, could be accounted for as equity,
now be classified as liabilities. These financial instruments include
mandatorily redeemable shares, instruments that require the issuer to buy back
some of its shares in exchange for cash or other assets and certain obligations
that can be settled with shares. SFAS 150 also requires additional disclosures
about alternative ways of settling these types of instruments and the capital
structure of entities. Most of the provisions of SFAS 150 are effective for
all financial instruments entered into or modified after May 31, 2003, and
otherwise are effective at the beginning of the first interim period beginning
after June 15, 2003. This accounting pronouncement is not expected to have a
significant impact on our financial position or results of operations.

Critical Accounting Estimates

The preparation of our financial statements requires us to make estimates
and judgments. The critical accounting policies that affect our more
significant estimates and judgments are disclosed in our Annual Report on Form
10-K for the year ended October 31, 2002. New critical accounting policies are
disclosed below.

As a result of adopting Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets, on November 1, 2002, we
discontinued the amortization of goodwill. Instead, goodwill was reviewed for
impairment upon adoption of SFAS 142 and will be reviewed annually thereafter,
or more frequently when indicators of impairment are present. We did not
record an impairment charge based on this initial review or our annual review
performed during the third quarter of fiscal 2003. Other intangible assets are
carried and reported at acquisition cost, net of accumulated amortization
subsequent to acquisition. The acquisition cost is amortized over the estimated
useful lives of the assets, which range from two to ten years. Intangible
assets are reviewed for impairment whenever events or circumstances indicate
impairment might exist, or at least annually. The determination of the net
carrying value of goodwill and intangible assets and the extent to which, if
any, there is impairment are dependent on material estimates and judgments on
our part, including the useful life over which the intangible assets are to be
amortized, and the estimates of the value of future net cash flows, which are
based upon further estimates of future revenues, expenses and operating
margins.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various market risks, including changes in foreign
currency rates and interest rates. We may enter into various derivative
transactions to manage certain of these exposures.

The assets and liabilities of our non-U.S. subsidiaries have functional
currencies other than the U.S. dollar and are translated into U.S. dollars at
exchange rates in effect at the balance sheet date. Income and expense items
are translated at the average exchange rates prevailing during the period. A
10% appreciation in the U.S. dollar as of July 31, 2003 would have resulted in
an approximately $2.3 million decrease in income before provision for income
taxes during the first nine months of fiscal 2003. Such a change in income
would have resulted from applying a different exchange rate to translate and
revalue the financial statements of our non-U.S. subsidiaries.

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At July 31, 2003, we had fixed rate debt of $1.2 million provided by a
German bank. The fair value of such debt approximates the carrying amount on
the consolidated balance sheet at July 31, 2003. Interest on the fixed rate
debt is 4.4%.




Item 4. Controls and Procedures

We maintain a set of disclosure controls and procedures and internal
controls designed to ensure that information required to be disclosed in
filings pursuant to the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commissions rules and forms.

Our chief executive officer and our chief financial officer have evaluated
our disclosure controls and procedures as of the end of the period covered by
this quarterly report, and they have determined that our disclosure controls
and procedures are effective.

Subsequent to our evaluation, there were no significant changes in our
internal controls or other factors that could significantly affect internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.

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PART II  OTHER INFORMATION




Item 1. Legal Proceedings

No material pending litigation.




Item 2. Changes in Securities

None.




Item 3. Defaults Upon Senior Securities

None.




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

None.




Item 5. Other Information

None.




Item 6. Exhibits and Reports on Form 8-K



| |                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Exhibit 31.1  Certification of Peter H. van Oppen, Chairman and Chief
Executive Officer of Advanced Digital Information Corporation, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.       
|
| | Exhibit 31.2  Certification of Jon W. Gacek, Senior Vice President and
Chief Financial Officer of Advanced Digital Information Corporation, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
| | Exhibit 32.1  Certification of Peter H. van Oppen, Chairman and Chief
Executive Officer of Advanced Digital Information Corporation, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.                                                      
|
| | Exhibit 32.2  Certification of Jon W. Gacek, Senior Vice President and
Chief Financial Officer of Advanced Digital Information Corporation, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|
| | No reports on Form 8-K were filed during the quarter ended July 31, 2003.                                                                                                                                                                             

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                          |  |                                                                                                                           
|------------------------- |  | --------------------------------------------------------------------------------------------------------------------------
|Dated: September 12, 2003 |  | ADVANCED DIGITAL INFORMATION CORPORATION                                                                                  
|                          |  |                                                                                                                           
|                          |  | PETER H. VAN OPPEN

Peter H. van Oppen, Chairman
and Chief Executive Officer                                              
|                          |  |                                                                                                                           
|Dated: September 12, 2003 |  | JON W. GACEK

Jon W. Gacek, Senior Vice President
and Chief Financial Officer (Principal
Financial and Accounting Officer)

19