##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-K

|                                                |  |                                                                                                 
|----------------------------------------------- |  | ------------------------------------------------------------------------------------------------
|(Mark one)                                      |  |                                                                                                 
|þ                                               |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|                                               
|For the fiscal year ended December 27,
    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: 0-14016



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Maxtor Corporation

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 77-0123732                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

500 McCarthy Blvd., Milpitas, California
95035

(Address of principal executive
offices)


Registrants telephone number, including
area code:

(408) 894-5000


Securities registered pursuant to
Section 12(b) of the Act:

Common Stock, par value $.01 per
share


Securities registered pursuant to
Section 12(g) of the Act:

5.75% Convertible Subordinated Debentures, due
March 1, 2012


Indicate by
checkmark 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 (the Act) 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 þ          No o

Indicate by
checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K.     o

Indicate by check
mark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the
Act).     Yes þ          No o

The aggregate
market value of the registrants common stock, $.01 par
value per share, held by non-affiliates of the registrant on
June 27, 2003, the last business day of the
registrants most recently completed second fiscal quarter,
was $1,162,475,773 (based on the closing sales price of the
registrants common stock on that date). Shares of the
registrants common stock held by each officer and director
and each person who owns more than 5% or more of the outstanding
common stock of the registrant have been excluded in that such
persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination
for other purposes. As of March 4, 2003, 247,142,618 shares
of the registrants common stock, $.01 par value per share,
were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the
Proxy Statement for the 2004 Annual Meeting of Stockholders (the
Proxy Statement), to be filed within 120 days
of the end of the fiscal year ended December 27, 2003, are
incorporated by reference in Part III hereof. Except with
respect to information specifically incorporated by reference in
this Form 10-K, the Proxy Statement is not deemed to be
filed as part hereof.



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TABLE OF CONTENTS



|                                           |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                    
|                                           | Item 1. Business                                                                             
|                                           | Item 2. Properties                                                                           
|                                           | Item 3. Legal Proceedings                                                                    
|                                           | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                   
|                                           | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|                                           | Item 6. Selected Consolidated Financial Information                                          
|                                           | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                           | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                                           | Item 8. Consolidated Financial Statements and Supplementary Data                             
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|                                           | Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 
|                                           | Item 9A. Controls and Procedures                                                             
|PART III                                  
|                                           | Item 10. Directors and Executive Officers of the Registrant                                  
|                                           | Item 11. Executive Compensation                                                              
|                                           | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                           | Item 13. Certain Relationships and Related Transactions                                      
|                                           | Item 14. Principal Accounting Fees and Services                                              
|PART IV                                   
|                                           | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|SIGNATURES                                
|INDEX TO EXHIBITS                         
|EXHIBIT 10.87                             
|EXHIBIT 10.88                             
|EXHIBIT 10.89                             
|EXHIBIT 12.1                              
|EXHIBIT 21.1                              
|EXHIBIT 23.1                              
|EXHIBIT 31.1                              
|EXHIBIT 31.2                              
|EXHIBIT 32.1                              
|EXHIBIT 32.2                              



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##### Table of Contents






PART I






Item 1.     Business


Overview

Maxtor Corporation (Maxtor or
the Company) is one of the worlds leading
suppliers of hard disk drives for consumer, industrial and
entertainment applications. We have an expansive line of storage
products for desktop computers, storage systems,
high-performance servers and consumer electronics.

We offer a broad line of hard disk drives for
desktop computers, mid-line and near-line storage sub-systems
and Intel-based servers. Our desktop products are marketed under
the DiamondMax, MaXLine and Fireball brand names and consist of
3.5-inch disk drives with storage capacities that range from 40
to 300 gigabytes. While these drives are used primarily in
desktop computers, there is an emerging market for these
products in a variety of consumer electronic applications,
including personal video recorders, set-top boxes and game
consoles, as well as personal storage applications. We also
provide a line of high-capacity ATA/ Serial ATA drives for use
in mid-line and near-line storage applications for the
enterprise market. Our MaXLine-branded drives, with 250 or
300 GB of capacity, are designed specifically for
high-reliability to meet the needs of enterprise customers who
need ready access to fixed content data files. Finally, we offer
a line of high-end 3.5-inch hard disk drives for use in
high-performance, storage-intensive applications such as
workstations, enterprise servers and storage subsystems. These
Intel-based server products are marketed under the Atlas brand
name and provide storage capacities of 18.4 to 147.1 gigabytes
at speeds of 10,000 RPM and 15,000 RPM.

Maxtor, DiamondMax and Atlas are registered
trademarks of Maxtor. MaXLine, Fireball, Maxtor Personal
Storage, Maxtor OneTouch, and Maxtor QuickVIEW are trademarks of
Maxtor. All other brand names and trademarks appearing in this
report are the property of their respective holders.

We are incorporated in the State of Delaware. Our
principal executive offices are located at 500 McCarthy Blvd.,
Milpitas, California 95035, and the telephone number at that
address is (408) 894-5000.

Company Background

We were founded in 1982 and completed an initial
public offering of common stock in 1986. We sold 40% of our
outstanding common stock to Hyundai Electronics Industries (now
Hynix Semiconductor, Inc.  HSI) and its
affiliates in 1994. In early 1996, Hyundai Electronics America
(now Hynix Semiconductor America Inc. 
Hynix) acquired all of the remaining publicly-held
shares of our common stock as well as all of our common stock
then held by Hynix Semiconductor, Inc. and its affiliates. In
July 1998, we completed a public offering of 49.7 million
shares of our common stock, receiving net proceeds of
approximately $328.8 million from the offering. In February
1999, we completed a public offering of 7.8 million shares
of common stock with net proceeds to us of approximately
$95.8 million.

In April 2001, we completed the acquisition of
Quantum Corporations Hard Disk Drive Group (Quantum
HDD). At the closing, each share of Quantum HDD common
stock was converted into 1.52 shares of our common stock. As a
result, we issued approximately 121.0 million shares of
common stock and assumed restricted stock and options to
purchase, in the aggregate, approximately 12.8 million
shares of common stock. With our acquisition of the Quantum HDD
business, we became one of the largest hard disk drive companies
in the world in terms of unit shipments and expanded our product
line to include disk drives for server products in addition to
disk drives for desktop computer systems and consumer
electronics applications.

In September 2001, we completed the acquisition
of MMC Technology, Inc. (MMC), a wholly-owned
subsidiary of Hynix. MMC, based in San Jose, California,
designs, develops and manufactures media for hard disk drives.
The primary reason for our acquisition of MMC was to provide us
with an assured source of supply of media. MMC provided us with
approximately 50% of our media needs for the year ended
December 27, 2003.

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In October 2001, Hynix sold approximately
23.3 million shares of Maxtor stock in a registered public
offering. In addition, at the same time and on the same terms as
Hynixs sale of Maxtors stock to the public, Maxtor
purchased an additional 5.0 million shares from Hynix. We
did not receive any of the proceeds from Hynixs sale of
Maxtor stock to the public. Following these transactions,
Hynixs ownership of our outstanding stock was 5.17%. In
February 2002, the remaining 12.5 million shares of Maxtor
stock owned by Hynix were distributed to holders of a DECS Trust
IV security that Hynix issued in February 1999 and which had
been secured by Maxtor stock. With this distribution, Hynix no
longer held any shares of our common stock.

In August 2002, we announced our decision to shut
down our Network Systems Group (NSG) and cease the
manufacturing and sale of our MaxAttachTM branded
network attached storage products. We worked with NSG customers
for an orderly wind down of the business. The network attached
storage market had fragmented since our entrance in 1999, with
one segment of the NAS market becoming more commoditized and the
other segment placing us in competition with some of our hard
disk drive customers. The shut down of the operations of our NSG
business allowed us to focus on our core hard disk drive market
and further reduce expenses.

In May 2003, we sold $230 million in
aggregate principal amount of 6.8% convertible senior notes due
in April 2010 to qualified institutional buyers pursuant to
Rule 144A under the Securities Act of 1933, as amended.

Industry Background

The Hard Disk Drive Market.We offer a broad line of hard disk
drives for desktop computers, mid-line and near-line storage
sub-systems and Intel-based servers. We generate the majority of
our unit shipments and revenue today from our desktop computer
business, although a growing portion of our total revenues is
from sales to the Intel-based hard disk drive server market. We
also see growing demand for hard disk drives in emerging
consumer electronics applications. In addition, there is an
emerging market for high capacity ATA/ Serial ATA drives in
enterprise near-line and mid-line storage applications.

Demand for hard disk drives is driven by a
variety of factors, including:



| |   |                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | continued improvements in desktop and enterprise
    computing price to performance ratios;                                                                        
|
| |  | the rapid accumulation of data resulting from the
    digitization of information previously stored in paper form;                                                 
|
| |  | larger file sizes created by multimedia-intensive
    applications;                                                                                                
|
| |  | the growth of non-branded desktop computers in
    emerging economies, specifically China and other parts of Asia,
    Russia, Eastern Europe, and Latin America;  
|
| |  | increased customer demand for emerging consumer
    electronics devices that include a hard disk drive, such as
    personal video recorders and set-top boxes; and
|
| |  | the need to store large amounts of data that are
    accessed infrequently, as in email archiving, medical images and
    videoclips.                              

Hard Disk Drive Technology.The basic operation of a hard disk
drive has not changed materially since its introduction in the
1950s. To improve the performance of hard disk drives,
hard disk drive manufacturers have concentrated their efforts on
optimizing the performance of the various components of the hard
disk drive.

The main components of the hard disk drive are
the head disk assembly and the printed circuit board. The head
disk assembly includes the head, media (disks), head positioning
mechanism (actuator) and spin motor. These components are
contained in a base plate assembly creating a contamination-free
environment. The printed circuit board includes custom
integrated circuits, an interface connector to the host computer
and a power connector.

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The head disk assembly consists of one or more
disks positioned around a spindle hub that rotates the disks by
a spin motor. Disks are made of a smooth substrate to which a
thin coating of magnetic materials is applied. Each disk has a
head suspended directly above or below it, which can read data
from or write data to the spinning disk. The actuator moves the
head to precise positions on the disk.

The integrated circuits on the printed circuit
board typically include a drive interface and a controller. The
drive interface receives instructions from the computer, while
the controller directs the flow of data to or from the disks,
and controls the heads. The location of data on each disk is
logically maintained in tracks, divided into sectors. The
computer sends instructions to read data or write data to the
disks based on track and sector locations. Industry standard
interfaces are utilized to allow the disk drive to communicate
with the computer.

A key performance metric in the hard disk drive
industry is areal density, which is the measure of
stored bits per square inch on the recording surface of a disk.
A higher areal density allows a hard disk drive provider to
increase the storage capacity for a particular drive, or to
reduce the number of heads and/or disks to achieve the same
capacity.

Hard disk drive providers are evaluating or
implementing a number of technological innovations designed to
further increase hard disk drive performance and reduce product
costs. In an attempt to simplify the electronic architecture,
some hard disk drive manufacturers are combining the traditional
servo-control functions of the digital signal processor-based
electronic architecture and the error recovery and interface
management functions of traditional hard drive microprocessors
on a single integrated circuit. Moreover, to achieve timely
introduction and rapid volume production of new products
consistently, some hard disk drive providers are striving to
simplify their product design processes. This effort includes
creating extendible core technology platforms, which utilize
common firmware and mechanical designs, and the re-use of
manufacturing tooling and application specific integrated
circuits across various product generations and product lines.

Our Solution

We have established ourselves as a leading
provider of high quality, high performance hard disk drives to
major desktop computer manufacturers, distributors and
retailers. Our management team has extensive hard disk drive
industry experience across all functional areas. As a result, we
have defined and implemented the key business processes
necessary to fulfill the needs of our customers. These processes
focus on the efficient, timely and cost-effective integration of
leading-edge technology to create highly manufacturable hard
disk drives. Moreover, our senior management team monitors these
processes in an effort to ensure consistent execution and prompt
response to customer demands. We intend to continue our
leadership in the desktop hard disk drive industry by
consistently executing these fundamental business processes.

The Intel-based server market has many of the
same characteristics for success as the desktop computer market.
We have applied the same fundamentals that have allowed us to be
successful in the desktop computer market to our growing server
business. These fundamentals include strong focus on meeting
customer demands through introduction of competitive products,
consistent execution and excellent service.

We believe there is an emerging and potentially
significant market for hard disk drives in consumer electronics
applications, including devices such as personal video recorders
and set-top boxes. We are currently supplying hard disk drives
to leading consumer electronics manufacturers, including Dish
Network, JVC, Panasonic, Pioneer Corporation, Scientific-Atlanta
Inc., TiVo Inc., and Toshiba Corporation for use in a variety of
consumer electronics devices that are being sold today. Sales
into consumer electronics applications, while still a small
percentage of our total revenue, have grown steadily. We believe
the market for consumer electronics devices using hard disk
drives is still in its early stages, and we expect that it will
expand over time as consumer acceptance and adoption of these
products grow. We intend to leverage our position as a high
quality, time-to-volume leader in hard disk drives and pursue
relationships with the leaders in consumer electronics to
capitalize on the opportunities presented by this new market.

We also believe there is an emerging market with
enterprise customers for high capacity, high reliability ATA/
Serial ATA hard disk drives. These hard disk drives are used in
near-line and mid-line storage

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applications where data is generated in large
volumes and retrieved occasionally, such as e-mail archiving,
engineering drawings, medical imaging, scientific data and video
images which typically require large storage capacity, but not
the speed that high transaction applications need. In this
environment, cost per gigabyte is a primary customer
requirement, and we can provide this with our high capacity,
high reliability MaXLine hard disk drives. We are currently
working with leading storage subsystem vendors, including EMC
Corporation, LSI Logic Corporation, Network Appliance, Inc. and
StorageTek, to provide hard disk drives for these new emerging
applications. We intend to build on these relationships as well
as seek out additional customers and applications for this
emerging market.


Our Strategy

We seek to be a major provider of hard disk
drives to leading computer and consumer electronics
manufacturers, distributors and retailers. Our strategy to
achieve this goal includes the following elements:

Maintain Significant Presence With Leading
Computer Manufacturers.We believe our
ability to achieve leading time-to-volume production of high
quality, high performance hard disk drives and to provide
excellent customer service will enable us to maintain a
significant presence with leading personal computer and server
manufacturers. According to International Data Corporation
(IDC), in 2003, Maxtors share of the hard disk
drive market was 21.2%, the desktop hard disk drive market was
27.9% and the Intel-based server market was 12.2%, based on
units shipped. Sales to our five largest desktop computer and
server OEM customers represented 38.9% of our total revenue in
2003. During 2003, we expanded our presence with Intel-based
server manufacturers, adding new customers and further
penetrating existing accounts with a broader product offering.
We intend to build on our relationships with personal computer
and Intel-based server manufacturers through continued emphasis
on quality products, time-to-volume leadership and excellent
customer service.

Strengthen Relationships with Distributors and
Retailers.We intend to further
strengthen our relationships with distributors and retailers. We
intend to expand our presence in the distribution channels
serving emerging economies in China and other parts of Asia,
Russia, Eastern Europe and Latin America. We intend to further
strengthen our presence in these markets through enhanced
service and support, targeted promotions, an expanded product
line, and where warranted, an in-country presence. We plan to
continue to invest in programs to generate sales through the
distribution and retail channels. We intend to continue to
introduce higher margin storage products, in addition to hard
disk drives, that appeal to distribution and retail channel
customers. In the distribution channel, these products include
our highest capacity, high reliability MaXLine family of hard
disk drives and the Maxtor OneTouch personal storage products.
In retail, these products would include personal storage
devices, such as the Maxtor OneTouch and Maxtor Personal Storage
product lines.

Pursue Opportunities in Growth Markets.We believe the demand for hard disk
drives in consumer applications will continue to grow. Today,
hard disk drive storage in consumer electronics applications has
been primarily incorporated into personal video records, set-top
boxes and game consoles. We are supplying Dish Network, JVC,
Panasonic, Pioneer Corporation, Toshiba Corporation,
Scientific-Atlanta Inc., and TiVo Inc., among others, with hard
disk drives for a variety of consumer electronic applications.
We intend to pursue this market by continuing to develop hard
disk drive products specific to these applications. Our Maxtor
QuickVIEW drives are designed specifically for digital
entertainment applications and today include acoustics features,
audio video streaming performance, thermal monitoring systems,
digital rights management and error correction code. In
addition, we intend to expand our relationships with leading
consumer electronics manufacturers throughout the world.
Finally, we also believe that the growing acceptance of the high
definition standard of television (HDTV) offers
significant opportunity for the industry and us. HDTV is
currently in the very early stages of adoption in the U.S. and
worldwide. It requires approximately five to eight times the
amount of storage capacity needed under the current standard.
For example, an hour of television under the current standard
requires approximately one gigabyte of storage capacity today,
but under HDTV, the same hour-long program needs five gigabytes.
Maxtor drives are currently incorporated into several HDTV PVR
devices and we intend to continue to pursue this opportunity.

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We also believe there is growth in the enterprise
market for high capacity, high reliability ATA drives in
near-line and mid-line storage applications, where data is
generated in large volumes and retrieved occasionally. Specific
applications include e-mail archiving, engineering drawings,
medical imaging, scientific data and video images. In these
environments, we believe high capacity, high reliability desktop
drives provide the optimal cost per gigabyte metric that
enterprise storage customers seek. We currently have
relationships with some of the leading storage subsystem
vendors, including EMC Corporation, LSI Logic Corporation,
Network Appliance, Inc. and StorageTek, to provide hard disk
drives for these applications and we intend to pursue additional
customers and applications for this new category of hard disk
drive applications.

Effectively Integrate New Technology.We augment our traditional product
development teams with an advanced technology group. The
advanced technology groups purpose is to monitor and
evaluate advancements in hard disk drive technology for possible
integration into our future products. This group also works
closely with our product development teams and strategic
component vendors to:



| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | obtain early access to the latest hard disk drive
    component technology;             
|
| |  | allow for flexibility in choosing
    state-of-the-art components; and                  
|
| |  | ensure viability of new product technologies and
    components prior to product design.

Through this process, we intend to continue to
integrate new technologies into our existing core technology
platform and to strengthen our ability to introduce high
quality, highly manufacturable, high performance hard disk drive
products with industry leading time-to-volume production on a
consistent basis.

Improve Manufacturing Efficiencies and
Optimize Supply Base to Achieve Cost Savings.In the third quarter of 2002, we
transitioned 100% of our desktop hard disk drive manufacturing
from Matsushita-Kotobuki Electronics Industries, Ltd.
(MKE) to Maxtor manufacturing facilities in
Singapore. We plan to transition 100% of our Atlas
10,000 RPM SCSI hard disk drives from MKE to our Singapore
facilities by the end of 2004.

In 2003, we expanded our internal media
production capacity by leasing a manufacturing facility in
Fremont, California, in close proximity to our MMC subsidiary
operation in San Jose, California. We anticipate that as the
media facility ramps, the percentage of our internal media
production will increase. We will also leverage our higher
volume commitments with our supply base to further reduce costs.

Pursue Low-Cost Manufacturing Capacity.We have begun construction of a
manufacturing facility in China that will provide us with a
low-cost facility to accommodate anticipated future growth. We
anticipate that the facility will become operational in the
second half of 2004. The China plant will produce desktop hard
disk drives, while Singapore will remain the center of our
manufacturing operations.

Product Development/ Technology

We enjoy strong customer relationships, which we
believe are due in large part to product quality, time-to-volume
production leadership and high performance. Contributing to
these strong relationships, we believe, is our product
development process. Our product development effort is separated
into two phases  the enabling technology development
phase and the product design phase.

Enabling Technology Development Phase.Our advanced technology group is
responsible for the enabling technology development phase, which
includes:



| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | working closely with our product design teams and
    strategic component suppliers to create a variety of
    state-of-the art technologies to be used in our future products;
|
| |  | developing early prototypes to ascertain the
    stability and manufacturability of our planned products; and                                                                  
|
| |  | analyzing the latest head, disk, channel, motor
    and application specific integrated circuit technologies and
    designs to broaden and strengthen our technology platform.

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This group also focuses on leveraging our current
proven technology platform by re-using as much electronic and
mechanical technology as possible in each successive product
generation. In an effort to deliver the highest product quality
possible, the advanced technology group begins its review of
emerging technologies as early as possible, normally 12 to
18 months before such technologies might be included in our
products.

Product Design Phase.Our product design group concentrates
on achieving required product specifications improving product
performance, robustness, manufacturability, quality and
materials costs. The product design group also is responsible,
in part, for executing our new product introduction process.
This process is a highly disciplined review procedure that is
designed to ensure that new product designs meet clearly
specified criteria in terms of yield, scrap, quality,
productivity and production ramp rates prior to release into
volume production.

Products

We currently offer a broad line of hard disk
drives for desktop computers and Intel-based servers. Our
desktop products are marketed under the Fireball, DiamondMax,
and MaXLine brand names and consist of 3.5-inch hard disk drives
with storage capacities that range from 40 to 300 gigabytes and
speeds of 5,400 RPM and 7,200 RPM. Our desktop drives
come in configurations ranging from 1 to 4 platters per
drive, allowing us to address a wide range of applications for
desktop computers, from entry level to mid-range to the
high-end. In addition, there is an emerging market for these
drives in a variety of consumer electronics applications,
including set-top boxes, PVRs and game consoles. All of these
hard disk drives have a number of features including high speed
interfaces for greater data throughput, a robust mechanical
design for improved reliability, giant magneto-resistive head
technology and a digital signal processor-based electronic
architecture.

Our high performance 3.5-inch hard disk drives
are for use in storage-intensive applications such as
workstations, enterprise servers and storage subsystems. These
products are marketed under the Atlas brand name and provide
storage capacities of 18.4 to 147.1 gigabytes and speeds of
10,000 RPM and 15,000 RPM.

The table below sets forth the key performance
characteristics of our hard disk drive products.

|                  |  |          |       |          |  |                   |               |              |       |  |        |                                                 |  |                                                   
|----------------- |  | -------- | ----- | -------- |  | ----------------- | ------------- | ------------ | ----- |  | ------ | ----------------------------------------------- |  | --------------------------------------------------
|                  |  | Capacity |       | Product  |  | Rotational        |               |             
|                  |  | Per Disk |       | Capacity |  | Speed             |               |             
|Products          |  | (GB*)    |       | (GB*)    |  | (RPM)             |               | Applications
|                  |  |          |       |          |  |                   |               |             
|Fireball 3        |  |          | 40    |          |  |                   | 40            |              |       |  | 5,400  |                                                 |  | Entry-level Desktop PCs & Consumer
    Electronics
|DiamondMax 16     |  |          | 60/80 |          |  |                   | 60/80/120/160 |              |       |  | 5,400  |                                                 |  | Mainstream Desktop PCs & Consumer
    Electronics 
|DiamondMax Plus 8 |  |          | 40    |          |  |                   | 40            |              |       |  | 7,200  |                                                 |  | High-performance Desktop PCs &
    Workstations   
|DiamondMax Plus 9 |  |          | 60/80 |          |  | 60/80/120/160/200 |               |              | 7,200 |  |        | High-performance Desktop PCs &
    Workstations
|MaXLine II        |  |          | 60/80 |          |  |                   | 250/300       |              |       |  | 5,400  |                                                 |  | Near-line & mid-line storage                      
|MaXLine Plus II   |  |          | 60/80 |          |  |                   | 250/300       |              |       |  | 7,200  |                                                 |  | Near-line & mid-line storage                      
|Atlas 10K IV      |  |          | 36.7  |          |  |                   | 36/73/147     |              |       |  | 10,000 |                                                 |  | Servers, Workstations & Storage
    Subsystems    
|Atlas 15K         |  |          | 18.4  |          |  |                   | 18/36/73      |              |       |  | 15,000 |                                                 |  | Servers, Workstations & Storage
    Subsystems    



---



|  |                                                                                                       
|- | ------------------------------------------------------------------------------------------------------
|* | GB = A gigabyte means 1 billion bytes. Total
    usable capacity may vary with operating environments.

We also offer a line of external storage products
that connect to personal computers through 1394 or USB ports and
offer up to 300 gigabytes of storage. During 2003, we introduced
the Maxtor OneTouch, which

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incorporates software and Maxtors OneTouch
button to provide backup and restore capability with the push of
a button. Our Maxtor Personal Storage external storage solutions
are targeted at a range of users from the budget conscious to
high-performance enthusiasts. The devices are hot swappable and
easy to use.


Manufacturing/ Quality

To be competitive, we must manufacture high
quality high-performance hard disk drives with industry leading
time-to-volume production at competitive costs, and we must be
able to respond quickly to changes in product delivery
schedules. Our hard disk drive manufacturing operations consist
primarily of the final assembly of high-level subassemblies
built to our specifications and testing of completed products.

Manufacturing.We
currently have two sources of production for our hard disk drive
products. Our Maxtor-owned Singapore manufacturing facilities
utilize a cell-based process, enabling us to dedicate
manufacturing cells to a particular product model. We combine
our cell-based approach with a sophisticated factory information
system that collects data on various product and quality
metrics. The cell-based approach provides us with the
flexibility to readily scale our production in response to
customer needs. The manufacturing of all of our desktop hard
disk drives and our 15,000 RPM server drives is done at our
Singapore facilities.

Our cell-based process enables us to:



| |   |                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | dedicate manufacturing cells to a particular
    product model, thereby allowing us to better monitor and control
    process trends, resulting in improved product quality, faster
    time-to-volume production and improved overall customer
    satisfaction;
|
| |  | simultaneously manufacture multiple product
    configurations;                                                                                                                                                                                                  
|
| |  | quickly reconfigure our manufacturing cells to
    respond to customer change requests and changes in product and
    customer mix;                                                                                                                              
|
| |  | effectively adapt our inventory management model
    to a build-to-order business model that many of our desktop
    computer manufacturer customers have adopted; and                                                                                           
|
| |  | add capacities in small increments as needed,
    allowing for better capacity utilization.                                                                                                                                                                      

This flexible cell-based process, when coupled
with our product design methodology, has enabled us to
significantly improve time-to-volume production.

We also manufacture media used in our products
through MMCs facilities in San Jose and Fremont,
California. In 2003, we expanded our capacity for internal media
production by leasing a facility in Fremont, California, in
close proximity to MMCs plant in San Jose. During the
year, we also added manufacturing capacity for desktop and
server products in our Singapore facility.

We also have a relationship with MKE for the
manufacture of our Atlas 10,000 RPM high-end hard disk drives
for Intel-based servers. MKEs manufacturing processes are
highly automated, employing integrated computer networks and
advanced control systems. We plan to transition the
manufacturing of the Atlas 10,000 RPM products to our
manufacturing facility in Singapore in the second half of 2004
and expect MKE to manufacture these products for us through
September 2004.

Maxtor has also begun construction of a
manufacturing facility in China that will provide us with a
low-cost option to accommodate anticipated future growth. We
anticipate that the facility will become operational in the
second half of 2004. The China plant will produce desktop hard
disk drives. Singapore will remain the center of our
manufacturing operations. To ensure we maximize our
manufacturing efficiency in China, we will implement the
flexible cell-based process that has been successful in
Singapore.

Materials and Supply Chain

We have developed and continue to develop
strategic relationships with leading suppliers of many of the
key components for our hard disk drive products. These
relationships enable us to actively manage our supply

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chain to improve our ability to choose
state-of-the-art components and to reduce component inventory
and overall product costs. In addition, our strategic suppliers
work closely with our advanced technology group, enabling us to
gain early access to leading edge hard disk drive technology and
to improve the overall efficiency of our product design process.
With respect to MKE, Maxtor oversees the qualification and
supply chain management of key components, including heads,
media, motors and all of the major electronics components.


We rely on a limited number of suppliers to
provide Maxtor specific components for our products. These
components include heads, media, custom electronics, motors and
mechanical parts. Maxtor will typically qualify two or three
sources for these key components for each product in order to
meet supply assurance requirements. With our acquisition of MMC
in 2001, we have an internal source of media supply, which
provided approximately 50% of our media needs for the year ended
December 27, 2003. Custom integrated circuits are sourced
from Texas Instruments, Agere Systems, Marvell Technology Group,
Ltd., and STMicroelectronics, where we have multiple
manufacturing locations qualified.

Customers and Sales Channels

We sell our products directly to leading
manufacturers of desktop computer and server systems and
consumer electronics devices, through key distributors and
through the retail channel. Leading OEM customers include Dell
Computer Corporation (Dell), Hewlett-Packard
Company, Hon-Hai Precision Industry Co., Ltd., Legend Computer
Systems Limited and Solectron. Leading distributors include Bell
Microproducts Inc., Esys Integrated Pty. Ltd., Ingram Micro
Inc., Toyo Chemicals Co., Ltd. and Xander International. Retail
chain stores that feature our products include Best Buy,
CompUSA, Frys Electronics, Office Depot and Staples.

Manufacturers.Revenue from our five largest OEM
customers, represented 25.1%, 23.0% and 24.5% in 2003, 2002 and
2001, respectively. Dell represented 11.0% of our sales in
fiscal 2003, 11.5% in fiscal 2002 and 11.3% in fiscal 2001. No
other customer represented over 10% of our sales during such
periods. We believe that our success depends on our ability to
maintain and further develop strong customer relationships with
desktop, storage and server computer system and consumer
electronics manufacturers and to provide products that fit their
specific needs.

Distributors.We use
a select group of distributors to sell our products
cost-effectively to the large number of geographically dispersed
customers, which tend to hold small market shares of the overall
desktop and server computer markets. These distributors service
value-added resellers, dealers, system integrators and small
desktop and server manufacturers. Distributors accounted for
41.8%, 47.2% and 39.3% of our revenue in 2003, 2002 and 2001,
respectively. Distributors generally enter into non-exclusive
agreements with us for the purchase and redistribution of
product. Purchase orders are placed and revised on a weekly
basis. We grant certain of our distributors price protection and
limited rights to return product on a rotation basis.

Retailers.To expand
awareness of the Maxtor brand, we sell our retail-packaged
products, including hard disk drives and external storage
devices, into the retail channel. We sell directly to major
retailers such as computer superstores, warehouse clubs and
computer electronics stores, and authorized sales through
distributors to smaller retailers. Retailers accounted for 7.7%,
4.9% and 5.3% of our revenue in 2003, 2002 and 2001,
respectively. We believe the retail channel complements other
sales channels. Retailers supply the after-market
upgrade sector in which end users purchase and
install hard disk drive products to upgrade their computers.
Retail distribution is also an important channel for the sale of
our external storage products which appeal to the end user
interested in emerging consumer applications that have extensive
storage requirements, such as digital photography, MP3 music
downloads, video-editing and data backup. We grant certain of
our retailers price protection and limited rights to return
product on a rotation basis.

We conduct our operations internationally, with
sales to both domestic as well as foreign customers. For further
information, see Managements Discussion and Analysis
of Financial Condition and Results of Operations and note
17 of the Notes to Consolidated Financial Statements.

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Sales and Marketing

We market and sell our products to leading
personal computer, Intel-based server, storage subsystem and
consumer electronics manufacturers, distributors and retailers.
Our representative offices are located throughout the U.S. and
in Australia, China, France, Germany, Great Britain, Hong Kong,
Japan, Korea, Russia, Singapore, Switzerland and Taiwan. We have
formed multi-disciplined, dedicated account and channel teams
focused on each current and targeted strategic personal
computer, Intel-based server, storage subsystem and consumer
electronics OEM, as well as regional distributor and retail
accounts. These teams generally are comprised of representatives
from our sales, marketing, engineering and quality
organizations. Our senior management also takes an active role
in our sales efforts. Dedicated field sales and technical
support personnel are located in close proximity to the
manufacturing facilities of each of our desktop computer
manufacturer customers.

Our marketing and public relations functions are
performed both internally and through outside firms. Public
relations, direct marketing, worldwide packaging and marketing
materials are focused and targeted to various end-user segments.
We utilize both consumer media and trade publications. We have
programs under which qualifying resellers are reimbursed for
certain advertising expenditures. We also have invested in
direct marketing and customer satisfaction programs. We maintain
ongoing contact with end users through primary and secondary
market research, focus groups, product registrations and
technical support databases.

Backlog

We generally sell standard products according to
standard agreements or purchase order terms. Delivery dates are
specified by purchase orders. Such orders may be subject to
change, cancellation or rescheduling by the customer without
significant penalties. The quantity actually purchased and
shipment schedules are frequently revised to reflect changes in
the customers needs. In addition, orders for our products
are filled for several large customers from just-in-time
inventory warehouses, and orders are not placed ahead of time on
our order entry backlog system. Instead, we receive a periodic
forecast of requirements from the customer. Upon shipment from
the just-in-time warehouse, the customer is invoiced. In light
of these factors, backlog reporting as of any particular date
may not be indicative of our actual revenue for any succeeding
period and, therefore, is not necessarily an accurate predictor
of our future revenue.

Competition

We compete primarily with manufacturers of
3.5-inch hard disk drives for desktop and server computers. Our
competitors in the hard disk drive market include Fujitsu,
Hitachi Global Storage, Samsung, Seagate Technology, and Western
Digital. In 2003, according to IDC, we were the second largest
provider of hard disk drives worldwide based on units shipped.

We believe that the most important competitive
factors in the hard disk drive market are breadth of product
lines, introduction of competitive products as measured by
storage capacity, performance, quality, price, time-to-market
introduction, time-to-volume production, desktop, storage and
server manufacturer product qualifications, reliability and
technical service and support. We believe we compete favorably
with respect to these factors.

The desktop computer market segment and the
overall hard disk drive market are intensely competitive even
during periods when demand is stable. Many of our competitors
historically have had a number of significant advantages,
including larger market shares, a broader array of product
lines, preferred vendor status with customers, extensive name
recognition and marketing power, and significantly greater
financial, technical and manufacturing resources. Some of our
competitors make many of their own components, which may provide
them with benefits including lower costs. Our competitors may
also:



| |   |                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | consolidate or establish strategic relationships
    among themselves to lower their product costs or to otherwise
    compete more effectively against us;
|
| |  | lower their product prices to gain market share;                                                                                                           

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| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | bundle their products with other products to
    increase demand for their products; or
|
| |  | develop new technology which would significantly
    reduce the cost of their products.

In addition, some of our competitors produce
complete computer systems that contain hard disk drives; these
competitors may price a system in a manner which results in
sales of hard disk drives at below cost. Some of our competitors
offer more products than we do and they can therefore enter into
agreements with customers to supply hard disk drives as part of
a larger supply agreement.

Increasing competition could reduce the demand
for our products and/or the prices of our products by
introducing technologically better and cheaper products, which
could reduce our revenues. In addition, new competitors could
emerge and rapidly capture market share. If we fail to compete
successfully against current or future competitors, our
business, financial condition and operating results will suffer.

Intellectual Property

The Company indemnifies certain customers,
distributors, suppliers, and subcontractors for attorney fees
and damages and costs awarded against these parties in certain
circumstances in which its products are alleged to infringe
third party intellectual property rights, including patents,
registered trademarks, or copyrights. The terms of its
indemnification obligations are generally perpetual from the
effective date of the agreement. In certain cases, there are
limits on and exceptions to its potential liability for
indemnification relating to intellectual property.

We have been granted, as of January 16,
2004, 749 U.S. and 148 foreign patents related to hard disk
drive products and technologies, and have additional patent
applications pending in the United States and certain foreign
countries. We have patent protection on certain aspects of our
technology and also rely on trade secret, copyright and
trademark laws, as well as contractual provisions to protect our
proprietary rights. There can be no assurance that our
protective measures will be adequate to protect our proprietary
rights; that others, including competitors with substantially
greater resources, have not developed or will not independently
develop or otherwise acquire equivalent or superior technology;
or that we will not be required to obtain licenses requiring us
to pay royalties to the extent that our products may use the
intellectual property of others, including, without limitation,
our products that may also be subject to patents owned or
licensed by others. There can be no assurance that any patents
will be issued pursuant to our current or future patent
applications, or that patents issued pursuant to such
applications or any patents we own or have license to use will
not be invalidated, circumvented or challenged. In the case of
products offered in rapidly emerging markets, such as consumer
electronics, our competitors may file patents more rapidly or in
greater numbers, resulting in the issuance of patents that may
result in unexpected infringement assertions against us.
Moreover, there can be no assurance that the rights granted
under any such patents will provide competitive advantages to us
or be adequate to safeguard and maintain our proprietary rights.

Litigation may be necessary to enforce patents
issued or licensed to us, to protect trade secrets or know-how
owned by us or to determine the enforceability, scope and
validity of our proprietary rights or those of others. We could
incur substantial costs in seeking enforcement of our issued or
licensed patents against infringement or the unauthorized use of
our trade secrets and proprietary know-how by others or in
defending ourselves against claims of infringement by others,
which could have a material adverse effect on our business,
financial condition and results of operations. In addition, the
laws of certain countries in which our products are manufactured
and sold, including various countries in Asia, may not protect
our products and intellectual property rights to the same extent
as the laws of the United States, and there can be no assurance
that such laws will be enforced in an effective manner. Any
failure by us to enforce and protect our intellectual property
rights could have a material adverse effect on our business,
financial condition and results of operations. We are subject to
existing claims relating to our intellectual property which are
costly to defend and may harm our business. For further
information, see Managements Discussion and Analysis
of Financial Condition and Results of Operations 
Certain Factors Affecting Future Performance.

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Employees

As of December 27, 2003, we had
13,554 employees worldwide, including 1,663 in engineering,
research and development; 334 in marketing, sales and customer
technical support; 10,834 in manufacturing; 385 in operational
support; and 338 in executive, general management and
administration. As of December 27, 2003, we had 9,751
employees at our manufacturing facilities in Singapore,
1,388 employees at our manufacturing facilities in
California and 179 employees at our foreign sales offices.
None of our U.S. employees are currently represented by a
labor organization. In May 1997, our Singapore subsidiary
recognized a labor union, the United Workers of Electronics and
Electrical Industries (UWEEI), and in November 1998,
signed a three-year collective bargaining agreement with that
union. Thereafter, in September 2001, our Singapore subsidiary
concluded negotiations with the UWEEI and entered into a three
year collective bargaining agreement. We believe that our
employee relations are positive.

Executive Officers

The following table lists the names, ages,
positions and offices held by, and a brief account of the
business experience of, each executive officer of the Company as
of March 5, 2004. There are no family relationships between
any director or executive officer of the Company. Executive
officers serve at the discretion of the Board of Directors.

|                            |  |     |    |                           |  |                                                                                       
|--------------------------- |  | --- | -- | ------------------------- |  | --------------------------------------------------------------------------------------
|Name                        |  | Age |    | Position with the Company
|                            |  |     |    |                          
|Paul J. Tufano              |  |     | 50 |                           |  | President, Chief Executive Officer                                                    
|Robert L. Edwards           |  |     | 48 |                           |  | Executive Vice President, Chief Financial Officer                                     
|Dr. Pantelis S. Alexopoulos |  |     | 54 |                           |  | Executive Vice President, Desktop Product
    Development and Chief Technology Officer
|Michael D. Cordano          |  |     | 39 |                           |  | Executive Vice President, Worldwide Sales and
    Marketing                           
|Phillip C. Duncan           |  |     | 53 |                           |  | Executive Vice President, Human Resources and
    Real Estate                         
|K. H. Teh                   |  |     | 50 |                           |  | Executive Vice President, Worldwide Manufacturing
    and Singapore Managing Director 
|Keyur Patel                 |  |     | 39 |                           |  | Executive Vice President, Business Development
    and Strategy                       
|Michael J. Wingert          |  |     | 43 |                           |  | Executive Vice President/ General Manager, Server
    Products Group                  
|David L. Beaver             |  |     | 50 |                           |  | Senior Vice President, Worldwide Materials and
    Chief Procurement Officer          
|Misha Rozenberg             |  |     | 42 |                           |  | Senior Vice President, Worldwide Quality and
    Chief Quality Officer                
|Glenn H. Stevens            |  |     | 53 |                           |  | Senior Vice President, General Counsel and
    Secretary                              

Paul J. Tufanohas
been our President and Chief Executive Officer and a member of
the Companys Board of Directors since February 2003.
Mr. Tufano had been appointed Acting President and Chief
Executive Officer in January 2003. Prior to that time, he served
as our Executive Vice President and Chief Operating Officer from
April 2001 and as Chief Financial Officer from July 1996. From
November 1998 until his appointment as Chief Operating Officer,
Mr. Tufano served as our Senior Vice President, Finance. From
July 1996 until his appointment as Senior Vice President,
Finance, Mr. Tufano served as our Vice President, Finance.
From 1979 to 1996, Mr. Tufano held a variety of management
positions at IBM, including Manager of Worldwide Logistics for
IBMs storage systems division, Manager of Plans and
Controls for IBMs Desktop and Mobile Storage products
business unit, and Controller for IBMs San Jose,
California facility.

Robert L. Edwardshas been our Executive Vice President
and Chief Financial Officer since September 2003. From 1998 to
August 2003, Mr. Edwards was the Senior Vice President,
Chief Financial Officer and

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Chief Administrative Officer of Imation Corp., a
data storage company. In addition, Mr. Edwards has more
than 20 years of experience, serving in a variety of
executive level positions in finance, business development and
human resources for Santa Fe Pacific Corporation and its
affiliates.


Dr. Pantelis S. Alexopoulosbecame the Executive Vice President,
Desktop Product Development in December 2002. He has been our
Chief Technology Officer since April 1997. He was also Executive
Vice President, Advanced Technology from November 2001 until
December 2002; and Vice President, Advanced Technology from
April 1997 until November 2001. Before joining us,
Dr. Alexopoulos was the Executive Director of Advanced
Concepts at Seagate Corporation, a hard disk drive company. He
also spent 14 years at IBM in the research division.

Michael D. Cordanohas been our Executive Vice President,
Worldwide Sales and Marketing since August 2001. From August
1999 until August 2001, Mr. Cordano served as our Vice
President, Worldwide Sales. From 1998 until August 1999, he held
the position of Vice President, Global Sales. Prior to joining
us in 1994, Mr. Cordano held various sales positions at
Conner Peripherals, Inc., a disk drive company.

Phillip C. Duncanhas been our Executive Vice President,
Human Resources and Real Estate since November 2001. From August
1996 until November 2001, Mr. Duncan served as our Vice
President, Human Resources. From 1994 to 1996, he was Vice
President, International Sales and Marketing and Human Resources
of Berkeley Systems, a software company. From 1992 to 1994, he
held senior human resources management positions at SyQuest, a
storage company and from 1990 to 1992; he held similar positions
at Cirrus Logic, a semiconductor company.

Keyur Patelhas been
our Executive Vice President, Business Development and Strategy
since August 2003. From May 2002 to January 2003 Mr. Patel
was with Inktomi Corporation, a software company, where he had
been the Senior Vice President and Chief Strategy Officer. From
February 2000 to June 2002 he was with Brience Incorporated
where he had been the Vice Chairman and Chief Strategy Officer.
From November 1997 to February 2000 he was with KPMG Consulting
Worldwide where he had been the Managing Partner and Chief
Strategy Officer.

K. H. Tehhas
been our Executive Vice President, Worldwide Manufacturing, and
Singapore Managing Director since November 2001. From May 1997
until November 2001, Mr. Teh served as our Vice President,
Worldwide Manufacturing and became Senior Vice President,
Manufacturing in April 2001. From 1996 to 1997, he was with
Iomega, a removable disk drive company, where he had been
Managing Director of its Malaysia manufacturing facility. From
1994 to 1996, he was the Managing Director of Digital Equipment
Malaysia, a hard disk drive manufacturer and subsequently
Quantum Peripherals Malaysia, a hard disk drive manufacturer.
Prior to 1994, Mr. Teh held various senior management
positions in multinational corporations in Singapore.

Michael J. Wingerthas been our Executive Vice President/
General Manager, Server Products Group since November 2001. From
November 1999 until November 2001, Mr. Wingert served as
our Vice President, Desktop Engineering and became Senior Vice
President, Engineering in April 2001. Before his promotion to
Vice President, Desktop Engineering, he was our Vice President,
Engineering for five years. Prior to joining us in 1994,
Mr. Wingert held various senior management positions in
product testing and development at IBM.

David L. Beaverhas
been our Senior Vice President, Worldwide Materials and Chief
Procurement Officer since November 2001. From May 1998 until
November 2001, Mr. Beaver served as our Vice President,
Worldwide Materials and became Senior Vice President, Worldwide
Materials in April 2001. From March 1997 to May 1998,
Mr. Beaver was Vice President of Far East Materials and
Logistics in our Singapore factory. From 1994 to 1997, he was
Director of Operations and Materials at EMASS, an E-systems data
storage company. From 1991 to 1994, he was Director of Corporate
Materials Procurement at SyQuest, a storage company. He has over
20 years high tech data storage business management
experience.

Misha Rozenberghas
been our Senior Vice President, and Chief Quality Officer since
November 2001. From March 1998 until November 2001,
Mr. Rozenberg served as our Vice President, Quality and
became Senior Vice President, Worldwide Quality in April 2001.
From 1996 to 1998, he served as our Vice President,

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Supplier Engineering. From 1994 to 1996,
Mr. Rozenberg was a Senior Director of Supplier Engineering
with Conner Peripherals, Inc. From 1990 to 1994, he was a
Manager at Apple Computer.


Glenn H. Stevenshas
been our Vice President, General Counsel and Secretary since
June 1994 and became a Senior Vice President in April 2001. From
1992 to 1994, Mr. Stevens had a private law practice. From
1979 to 1992, he held various positions within the legal
department of US West, Inc., a telecommunications products and
services provider, including Chief Counsel and Secretary for its
research and development organization and Chief Intellectual
Property Counsel for the family of US West companies.

Available Information

Our website address is http://www.maxtor.com. We
file reports with the Securities and Exchange Commission
(SEC), which we make available on our website free
of charge. These reports include annual reports on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to such reports, each of
which is provided on our website as soon as reasonably
practicable after we electronically file such materials with or
furnish them to the SEC. You can also read and copy any
materials we file with the SEC at the SECs Public
Reference Room at 450 Fifth Street, NW, Washington, DC 20549.
You can obtain additional information about the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains a website (http://www.sec.gov) that
contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the
SEC, including us.




Item 2.     Properties

Our corporate headquarters, sales, marketing and
advanced technology operations are located in a 806,000 square
foot facility we lease in Milpitas, California. Of the 806,000
square feet, 427,000 support our ongoing operations and 379,000
remain vacant. Our lease with respect to 31,000 square feet that
remains vacant will expire in March 2004. We lease a 221,000
square foot facility in San Jose, California and a 183,000
square foot facility in Fremont, California, which we use for
research and manufacturing of disk drive media.

We also lease 477,000 square feet of engineering
and pilot production operations as well as administrative,
marketing and materials facilities in Longmont, Colorado. The
Longmont facilities lease has a 15-year term and is renewable
for five years.

We occupy 672,000 square feet in Shrewsbury,
Massachusetts housing design and customer engineering, as well
as advanced technology. Maxtor owns the Shrewsbury facility and
a portion of that facility is currently subleased to tenants. We
also own and sublease an 180,000 square foot facility in
Louisville, Colorado. All of our other domestic facilities are
leased.

Operations outside of the United States primarily
consists of two manufacturing plants in Singapore that produce
subassemblies and final assemblies for the Companys hard
disk drive products. The manufacturing facilities are located in
two owned buildings in Singapore totaling approximately
802,000 square feet, which are located on two parcels of
leased land totaling approximately 560,000 square feet, with
leases terminating in 2016 and 2018, both with an option to
renew for 30 years. In March 2003, we began construction on
a new approximately 800,000 square feet manufacturing
facility in the Suzhou Industrial Park in Suzhou, China, which
is expected to be completed in the second half of 2004.

We also lease various sales and support
facilities in Australia, Canada, the Peoples Republic of
China, France, Germany, Hong Kong, Ireland, Japan, the Republic
of Korea, Russia, Scotland, Singapore, Switzerland, Taiwan,
United Kingdom and the United States. The aggregate rent under
all of our worldwide leases is currently $33.2 million per
annum. There can be no assurance that we will be able to obtain
additional space to accommodate our future needs or dispose of
excess space as required on reasonable terms.




Item 3.     Legal
Proceedings

Prior to our acquisition of the Quantum HDD
business, we, on the one hand, and Quantum and MKE, on the other
hand, were sued by Papst Licensing, GmbH, a German corporation,
for infringement of a number of

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patents that relate to hard disk drives.
Papsts complaint against Quantum and MKE was filed on
July 30, 1998, and Papsts complaint against Maxtor
was filed on March 18, 1999. Both lawsuits, filed in the
United States District Court for the Northern District of
California, were transferred by the Judicial Panel on
Multidistrict Litigation to the United States District Court for
the Eastern District of Louisiana for coordinated pre-trial
proceedings with other pending litigations involving the Papst
patents (the MDL Proceeding). The matters will be
transferred back to the District Court for the Northern District
of California for trial. Papsts infringement allegations
are based on spindle motors that Maxtor and Quantum purchased
from third party motor vendors, including MKE, and the use of
such spindle motors in hard disk drives. We purchased the
overwhelming majority of the spindle motors used in our hard
disk drives from vendors that were licensed under the Papst
patents. Quantum purchased many spindle motors used in its hard
disk drives from vendors that were not licensed under the Papst
patents, including MKE. As a result of our acquisition of the
Quantum HDD business, we assumed Quantums potential
liabilities to Papst arising from the patent infringement
allegations Papst asserted against Quantum. We filed a motion to
substitute the Company for Quantum in this litigation. The
motion was denied by the Court presiding over the MDL
Proceeding, without prejudice to being filed again in the future.


In February 2002, Papst and MKE entered into an
agreement to settle Papsts pending patent infringement
claims against MKE. That agreement includes a license of certain
Papst patents to MKE which might provide Quantum, and thus us,
with additional defenses to Papsts patent infringement
claims.

On April 15, 2002, the Judicial Panel on
Multidistrict Litigation ordered a separation of claims and
remand to the District of Columbia of certain claims between
Papst and another party involved in the MDL Proceeding. By order
entered June 4, 2002, the court stayed the MDL Proceeding
pending resolution by the District of Columbia court of the
remanded claims. These separated claims relating to the other
party are currently proceeding in the District Court for the
District of Columbia.

The results of any litigation are inherently
uncertain and Papst may assert other infringement claims
relating to current patents, pending patent applications, and/or
future patent applications or issued patents. Additionally, we
cannot assure you we will be able to successfully defend
ourselves against this or any other Papst lawsuit. Because the
Papst complaints assert claims to an unspecified dollar amount
of damages, and because we were at an early stage of discovery
when the litigation was stayed, we are unable to determine the
possible loss, if any, that we may incur as a result of an
adverse judgment or a negotiated settlement with respect to the
claims against us. We made an estimate of the potential
liabilities, which might arise from the Papst claims against
Quantum at the time of our acquisition of the Quantum HDD
business. Our estimate will be revised as additional information
becomes available. A favorable outcome for Papst in these
lawsuits could result in the issuance of an injunction against
us and our products and/or the payment of monetary damages equal
to a reasonable royalty. In the case of a finding of a willful
infringement, we also could be required to pay treble damages
and Papsts attorneys fees. The litigation could
result in significant diversion of time by our technical
personnel, as well as substantial expenditures for future legal
fees. Accordingly, although we cannot currently estimate whether
there will be a loss, or the size of any loss, a litigation
outcome favorable to Papst could have a material adverse effect
on our business, financial condition and operating results.
Management believes that it has valid defenses to the claims of
Papst and is defending this matter vigorously.

In addition to the Papst lawsuit, on
June 13, 2002, we filed suit against Koninklijke Philips
Electronics N.V. and several other Philips-related companies in
the Superior Court of California, County of Santa Clara. On
June 26, 2002, we filed a First Amended Complaint and on
January 6, 2003, we filed a Second Amended Complaint. The
lawsuit alleges that an integrated circuit chip supplied by
Philips was defective and caused significant levels of failure
of certain Quantum legacy products, which we acquired as part of
our acquisition of the Quantum HDD business. Philips
subsequent motions to dismiss were withdrawn or denied. Philips
answered the complaint on March 13, 2003. On April 25,
2003, the Philips-related companies brought cross-complaints
against a number of Sumitomo-related companies and a number of
Amkor-related companies. Discovery is ongoing. A trial date has
been set for May 3, 2004. In the lawsuit, we are claiming
damages of at least $77 million, however, the results of
litigation are inherently uncertain and we cannot assure you
that we will achieve a favorable outcome.

14



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##### Table of Contents



On December 30, 2003, an action was filed by
MKE against us and Quantum alleging, among other things,
MKEs ownership of certain intellectual property we
acquired in the acquisition of the Quantum HDD business. The
action was filed in the United States District Court for the
Northern District of California. On March 1, 2004, we filed
an answer denying all material allegations and a motion to
dismiss. MKE seeks damages, the return of the intellectual
property, a constructive trust relating to profits from the use
or license of the intellectual property, a declaratory judgment
and injunctive relief. The results of any litigation are
inherently uncertain. Although we cannot currently estimate
whether there will be a loss, or the size of any loss, a
litigation outcome unfavorable to us could have a material
adverse effect on our business, financial condition and
operating results. Management believes that the lawsuit is
without merit, that it has valid defenses to the claims of MKE,
and plans to defend the matter vigorously.




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

No matters were submitted to a vote of our
security holders during the fourth quarter of our fiscal year
ended December 27, 2003.




PART II




Item 5.     Market
for Registrants Common Equity and Related Stockholder
Matters

Our common stock is traded on the New York Stock
Exchange under the symbol MXO. The table below sets
forth the range of quarterly high and low sales prices for our
common stock as reported by the New York Stock Exchange. Our
fiscal year end is the last Saturday of December, conforming to
a 52/53-week year methodology.

|                                                      |  |      |       |     |  |   |      | 
|----------------------------------------------------- |  | ---- | ----- | --- |  | - | ---- | 
|                                                      |  | High |       | Low
|                                                      |  |      |       |    
|Fiscal 2004 First Quarter (through March 4,
    2004) |  | $    | 12.40 |     |  | $ | 8.81 | 
|Fiscal 2003 Fourth Quarter                            |  |      | 15.30 |     |  |   | 9.55 | 
|Fiscal 2003 Third Quarter                             |  |      | 13.19 |     |  |   | 7.51 | 
|Fiscal 2003 Second Quarter                            |  |      | 7.52  |     |  |   | 4.85 | 
|Fiscal 2003 First Quarter                             |  |      | 6.72  |     |  |   | 5.02 | 
|Fiscal 2002 Fourth Quarter                            |  |      | 6.16  |     |  |   | 1.77 | 
|Fiscal 2002 Third Quarter                             |  |      | 5.95  |     |  |   | 2.61 | 
|Fiscal 2002 Second Quarter                            |  |      | 7.58  |     |  |   | 3.95 | 
|Fiscal 2002 First Quarter                             |  |      | 7.90  |     |  |   | 5.75 | 

As of March 4, 2004, there were
approximately 1,291 stockholders of record of our common stock
including The Depository Trust Company, which holds shares of
Maxtor common stock on behalf of an indeterminate number of
beneficial owners.

Dividend Policy

We have never paid cash dividends on our stock
and do not anticipate paying cash dividends in the foreseeable
future.

15



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##### Table of Contents






Item 6.     Selected
Consolidated Financial Information

The following table presents the consolidated
financial information for the periods indicated:

|                                                                 |                                                          |                                                   |         |              |       |              |         |              |       |              |         |         |       |   |         |         |       |   |         |         |       | 
|---------------------------------------------------------------- | -------------------------------------------------------- | ------------------------------------------------- | ------- | ------------ | ----- | ------------ | ------- | ------------ | ----- | ------------ | ------- | ------- | ----- | - | ------- | ------- | ----- | - | ------- | ------- | ----- | 
|                                                                 |                                                          | Fiscal Year                                       |         | Fiscal Year  |       | Fiscal Year  |         | Fiscal Year  |       | Fiscal Year 
|                                                                 |                                                          | Ended                                             |         | Ended        |       | Ended        |         | Ended        |       | Ended       
|                                                                 |                                                          | January 1,                                        |         | December 30, |       | December 29, |         | December 28, |       | December 27,
|                                                                 |                                                          | 2000                                              |         | 2000         |       | 2001(1)      |         | 2002(2)      |       | 2003        
|                                                                 |                                                          |                                                   |         |              |       |              |         |              |       |             
|                                                                 |                                                          |                                                  
|                                                                 |                                                          | (In millions, except share and per share amounts)
|Consolidated Statement of Operations
    Data:                   |                                                          |                                                   |         |              |       |              |         |              |       |              |         |         |       |   |         |         |       |   |         |        
|Revenue                                                          |                                                          | $                                                 | 2,485.6 |              |       | $            | 2,690.9 |              |       | $            | 3,765.5 |         |       | $ | 3,779.5 |         |       | $ | 4,086.4 |        
|Cost of revenue                                                  |                                                          |                                                   | 2,286.7 |              |       |              | 2,317.7 |              |       |              | 3,403.0 |         |       |   | 3,382.1 |         |       |   | 3,385.4 |        
|                                                                 |                                                          |                                                   |         |              |       |              |         |              |       |              |         |         |       |   |         |         |       |   |         |        
|                                                                 | Gross profit                                             |                                                   |         | 198.9        |       |              |         | 373.2        |       |              |         | 362.5   |       |   |         | 397.4   |       |   |         | 701.0   |      
|                                                                 |                                                          |                                                   |         |              |       |              |         |              |       |              |         |         |       |   |         |         |       |   |         |        
|Operating expenses:                                              |                                                          |                                                   |         |              |       |              |         |              |       |              |         |         |       |   |         |         |       |   |         |        
|                                                                 | Research and development                                 |                                                   |         | 189.0        |       |              |         | 211.8        |       |              |         | 411.2   |       |   |         | 401.0   |       |   |         | 354.0   |      
|                                                                 | Selling, general and administrative                      |                                                   |         | 90.2         |       |              |         | 99.7         |       |              |         | 232.0   |       |   |         | 148.5   |       |   |         | 131.7   |      
|                                                                 | Amortization of goodwill and other intangible
    assets |                                                   |         |             |       |              |         |             |       |              |         | 207.8   |       |   |         | 82.2    |       |   |         | 85.3    |      
|                                                                 | Purchased in-process research and development            |                                                   |         |             |       |              |         |             |       |              |         | 95.2    |       |   |         |        |       |   |         |        |      
|                                                                 | Restructuring charge                                     |                                                   |         |             |       |              |         |             |       |              |         |        |       |   |         | 9.5     |       |   |         |        |      
|                                                                 |                                                          |                                                   |         |              |       |              |         |              |       |              |         |         |       |   |         |         |       |   |         |        
|                                                                 |                                                          | Total operating expenses                          |         |              | 279.2 |              |         |              | 311.5 |              |         |         | 946.2 |   |         |         | 641.2 |   |         |         | 571.0 | 
|                                                                 |                                                          |                                                   |         |              |       |              |         |              |       |              |         |         |       |   |         |         |       |   |         |        
|Income (loss) from operations                                    |                                                          |                                                   | (80.3   | )            |       |              | 61.7    |              |       |              | (583.7  | )       |       |   | (243.8  | )       |       |   | 130.0   |        
|Interest expense                                                 |                                                          |                                                   | (13.6   | )            |       |              | (13.7   | )            |       |              | (25.2   | )       |       |   | (27.0   | )       |       |   | (30.6   | )      
|Interest income                                                  |                                                          |                                                   | 14.1    |              |       |              | 19.8    |              |       |              | 20.3    |         |       |   | 8.0     |         |       |   | 5.2     |        
|Other gain (loss)                                                |                                                          |                                                   | 45.6    |              |       |              | 6.3     |              |       |              | (6.2    | )       |       |   | 4.4     |         |       |   | (0.6    | )      
|                                                                 |                                                          |                                                   |         |              |       |              |         |              |       |              |         |         |       |   |         |         |       |   |         |        
|Income (loss) from continuing operations before
    income taxes |                                                          |                                                   | (34.2   | )            |       |              | 74.1    |              |       |              | (594.8  | )       |       |   | (258.4  | )       |       |   | 104.0   |        
|Provision for income taxes                                       |                                                          |                                                   | 1.5     |              |       |              | 1.7     |              |       |              | 3.4     |         |       |   | 2.2     |         |       |   | 3.5     |        
|                                                                 |                                                          |                                                   |         |              |       |              |         |              |       |              |         |         |       |   |         |         |       |   |         |        
|Income (loss) from continuing operations                         |                                                          |                                                   | (35.7   | )            |       |              | 72.4    |              |       |              | (598.2  | )       |       |   | (260.6  | )       |       |   | 100.5   |        
|Income (loss) from discontinued operations                       |                                                          | $                                                 | (14.4   | )            |       | $            | (40.6   | )            |       | $            | (48.2   | )       |       | $ | (73.5   | )       |       | $ | 2.2     |        
|                                                                 |                                                          |                                                   |         |              |       |              |         |              |       |              |         |         |       |   |         |         |       |   |         |        
|Net income (loss)                                                |                                                          | $                                                 | (50.1   | )            |       | $            | 31.8    |              |       | $            | (646.4  | )       |       | $ | (334.1  | )       |       | $ | 102.7   |        
|                                                                 |                                                          |                                                   |         |              |       |              |         |              |       |              |         |         |       |   |         |         |       |   |         |        
|Net income (loss) per share  basic
    Continuing operations    |                                                          | $                                                 | (0.34   | )            |       | $            | 0.64    |              |       | $            | (2.89   | )       |       | $ | (1.09   | )       |       | $ | 0.41    |        
|Discontinued operations                                          |                                                          | $                                                 | (0.14   | )            |       | $            | (0.36   | )            |       | $            | (0.23   | )       |       | $ | (0.31   | )       |       | $ | 0.01    |        
|                                                                 |                                                          |                                                   |         |              |       |              |         |              |       |              |         |         |       |   |         |         |       |   |         |        
|Total                                                            |                                                          | $                                                 | (0.48   | )            |       | $            | 0.28    |              |       | $            | (3.12   | )       |       | $ | (1.40   | )       |       | $ | 0.42    |        
|                                                                 |                                                          |                                                   |         |              |       |              |         |              |       |              |         |         |       |   |         |         |       |   |         |        
|Net income (loss) per share  diluted                            |                                                          |                                                   |         |              |       |              |         |              |       |              |         |         |       |   |         |         |       |   |         |        
|Continuing operations                                            |                                                          | $                                                 | (0.34   | )            |       | $            | 0.61    |              |       | $            | (2.89   | )       |       | $ | (1.09   | )       |       | $ | 0.40    |        
|Discontinued operations                                          |                                                          | $                                                 | (0.14   | )            |       | $            | (0.34   | )            |       | $            | (0.23   | )       |       | $ | (0.31   | )       |       | $ | 0.01    |        
|                                                                 |                                                          |                                                   |         |              |       |              |         |              |       |              |         |         |       |   |         |         |       |   |         |        
|Total                                                            |                                                          | $                                                 | (0.48   | )            |       | $            | 0.27    |              |       | $            | (3.12   | )       |       | $ | (1.40   | )       |       | $ | 0.41    |        
|                                                                 |                                                          |                                                   |         |              |       |              |         |              |       |              |         |         |       |   |         |         |       |   |         |        
|Shares used in per share calculation (in
    thousands):         |                                                          |                                                   |         |              |       |              |         |              |       |              |         |         |       |   |         |         |       |   |         |        
|                                                                 | Basic                                                    |                                                   |         | 105,503      |       |              |         | 113,433      |       |              |         | 206,912 |       |   |         | 239,474 |       |   |         | 243,023 |      
|                                                                 |                                                          |                                                   |         |              |       |              |         |              |       |              |         |         |       |   |         |         |       |   |         |        
|                                                                 | Diluted                                                  |                                                   |         | 105,503      |       |              |         | 119,116      |       |              |         | 206,912 |       |   |         | 239,474 |       |   |         | 251,136 |      
|                                                                 |                                                          |                                                   |         |              |       |              |         |              |       |              |         |         |       |   |         |         |       |   |         |        
|Balance Sheet Data:                                              |                                                          |                                                   |         |              |       |              |         |              |       |              |         |         |       |   |         |         |       |   |         |        
|Total assets                                                     |                                                          | $                                                 | 906.3   |              |       | $            | 1,024.9 |              |       | $            | 2,715.5 |         |       | $ | 2,360.8 |         |       | $ | 2,722.2 |        
|Total current liabilities                                        |                                                          |                                                   | 537.2   |              |       |              | 628.9   |              |       |              | 1,169.8 |         |       |   | 1,166.6 |         |       |   | 1,263.0 |        
|Long-term debt                                                   |                                                          |                                                   | 113.8   |              |       |              | 92.3    |              |       |              | 244.5   |         |       |   | 206.3   |         |       |   | 355.8   |        
|Total stockholders equity                                       |                                                          |                                                   | 255.3   |              |       |              | 303.7   |              |       |              | 900.2   |         |       |   | 592.3   |         |       |   | 720.5   |        

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---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes operations of Quantum HDD since
    April 2, 2001 and of MMC since September 2, 2001. See
    note 12 of Notes to Consolidated Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(2) | Commencing in fiscal 2002, the Company adopted
    Statement of Financial Accounting Standards No. 142,
    Goodwill and Other Intangible Assets
    (SFAS 142). SFAS 142 requires, among other
    things, the discontinuance of goodwill amortization. In
    addition, the standard included provisions upon adoption for the
    reclassification of certain existing recognized intangibles as
    goodwill, reassessment of the useful lives of existing
    recognized intangibles, reclassification of certain intangibles
    out of previously reported goodwill and the testing for
    impairment of existing goodwill and other intangibles. As a
    result, the Company reclassified its existing acquired assembled
    workforce balance to goodwill, as it does not meet the separate
    recognition criterion according to SFAS 142. See
    note 5 of Notes to Consolidated Financial Statements.

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following discussion should be read in
conjunction with Item 1: Business, Item 6: Selected
Financial Information and Item 8: Consolidated Financial
Statements and Supplementary Data.

This report contains forward-looking
statements within the meaning of the U.S. federal securities
laws that involve risks and uncertainties. The statements
contained in this report that are not purely historical,
including, without limitation, statements regarding our
expectations, beliefs, intentions or strategies regarding the
future, are forward-looking statements. Examples of
forward-looking statements in this report include statements
regarding our expectations as to the market demand for our
products, future operating results, capital expenditures,
liquidity, completion of our manufacturing facility in China,
the effect of our planned transition of manufacturing server
products from MKE to our Singapore facility, our indemnification
obligations, the results of litigation, amortization of other
intangible assets and our relationships with vendors. In this
report, the words anticipates, believe,
expect, intend, may,
will, should, would,
plan, estimate, predict,
potential, future, continue,
or similar expressions also identify forward-looking statements.
These statements are only predictions. We make these
forward-looking statements based upon information available on
the date hereof, and we have no obligation (and expressly
disclaim any such obligation) to update or alter any such
forward-looking statements, whether as a result of new
information, future events, or otherwise. Our actual results
could differ materially from those anticipated in this report as
a result of certain factors including, but not limited to, those
set forth in the following section entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Certain Factors
Affecting Future Performance and elsewhere in this
report.

Background

Maxtor Corporation (Maxtor or the
Company) was founded in 1982 and completed an
initial public offering of common stock in 1986. In 1994, we
sold 40% of our outstanding common stock to Hyundai Electronics
Industries (now Hynix Semiconductors Inc. 
HSI) and its affiliates. In early 1996, Hyundai
Electronics America (now Hynix Semiconductor America
Inc.  Hynix) acquired all of the
remaining publicly held shares of our common stock as well as
all of our common stock then held by Hynix Semiconductor, Inc.
and its affiliates. In February 1999, we completed a public
offering of 7.8 million shares of our common stock with net
proceeds to us of approximately $95.8 million.

On April 2, 2001, we acquired Quantum
Corporations Hard Disk Drive Group (Quantum
HDD). The primary reason for our acquisition of Quantum
HDD was to create a stronger, more competitive company, with
enhanced prospects for continued viability in the storage
industry. For additional information regarding the Quantum HDD
acquisition, see note 12 of the Notes to Consolidated Financial
Statements.

On September 2, 2001, we completed the
acquisition of MMC Technology, Inc. (MMC), a
wholly-owned subsidiary of Hynix. MMC, based in San Jose,
California, designs, develops and manufactures media for hard
disk drives. Prior to the acquisition, sales to Maxtor comprised
95% of MMCs annual revenues. The primary reason for our
acquisition of MMC was to provide us with a reliable source of
supply of media. For additional information regarding the MMC
acquisition, see note 12 of the Notes to Consolidated Financial
Statements.

On October 9, 2001, Hynix sold 23,329,843
shares of Maxtor common stock in a registered public offering.
Maxtor did not receive any proceeds from Hynixs sale of
Maxtor stock to the public. In addition, at the same time and on
the same terms as Hynixs sale of Maxtor stock to the
public, we repurchased 5.0 million shares from Hynix for an
aggregate purchase price of $20.0 million. These
repurchased shares are being held as treasury shares.

On August 15, 2002, we announced our
decision to shut down our Network Systems Group
(NSG) and cease the manufacturing and sale of our
MaxAttachTM branded network attached storage
products. We worked with NSG customers for an orderly wind down
of the business. The network attached storage market had
fragmented since our entrance in 1999, with one segment of the
NAS market becoming more commoditized and the other segment
placing us in competition with some of our hard disk drive
customers.

18



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The shut down of the operations of our NSG
business allowed us to focus on our core hard disk drive market
and further reduce expenses. The NSG business was accounted for
as a discontinued operation and therefore, results of operations
and cash flows have been removed from our results of continuing
operations for all periods presented in this report. For
additional information regarding the NSG discontinued
operations, see note 13 of the Notes to Consolidated Financial
Statements.


On May 7, 2003, we sold $230 million in
aggregate principal amount of 6.8% convertible senior notes due
in April 2010 to qualified institutional buyers pursuant to
Rule 144A under the Securities Act of 1933, as amended. For
additional information regarding the convertible senior notes,
see the discussion below under the heading Liquidity and
Capital Resources.

Executive Overview

Revenue increased 8.1% in 2003 from 2002 as a
result of greater customer acceptance of our products, the
completion of the transition to the 80 GB per platter areal
density drives, increased demand across product lines and
geographies, and increased sales to OEMs and retailers,
partially offset by erosion of ASPs over the period. We
experienced growth in our sales of our server hard disk drive,
consumer electronics and personal storage products. Distribution
revenue decreased as a percentage of revenue as a result of the
competitive pricing environment experienced in the second half
of 2003.

Gross profit increased to 17.2% of 2003 revenue
compared to 10.5% of 2002 revenue primarily as a result of the
transition of manufacturing for a portion of our product line
from MKE to our Singapore facility, improved manufacturing
efficiencies, a more favorable product mix to higher margin
drives and decreased warranty costs.

Operating expenses decreased in both dollar
amount and as a percentage of revenue from 2002 to 2003. R&D
expenses decreased primarily due to more focused development
effort on fewer products. SG&A expense decreased primarily
due to reduced spending on facilities, advertising and services,
partially offset by increases in compensation and other expense.

Operating capital (defined as accounts
receivable, other receivables and inventories less accounts
payable) increased $168.7 million from December 28,
2002 to December 27, 2003, as a result of a larger
percentage of sales occurring in the last month of the year,
resulting in higher accounts receivable and days sales
outstanding at the end of the year, and an increase in
inventories due to a change in product mix and growth in our
server products, partially offset by increased accounts payable
associated with higher levels of inventory. Capital expenditures
are expected to be in the range of $200 million to
$250 million in 2004.

Critical Accounting Policies

Our discussion and analysis of the companys
financial condition and results of operations are based upon
Maxtors consolidated financial statements, which have been
prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these
financial statements requires management to make estimates and
judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we
evaluate our estimates. We base our estimates on historical
experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.

We believe the following critical accounting
policies represent our significant judgments and estimates used
in the preparation of the companys consolidated financial
statements:



| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | revenue recognition;                                                          
|
| |  | sales returns, other sales allowances and
    allowance for doubtful accounts;
|
| |  | valuation of intangibles, long-lived assets and
    goodwill;                 
|
| |  | warranty;                                                                     

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| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | inventory reserves;                                               
|
| |  | income taxes; and                                                 
|
| |  | restructuring liabilities, litigation and other
    contingencies.



| |                    
| | -------------------
| | Revenue Recognition

We derive our revenue from the sale of our
products. As described below, significant management judgments
and estimates must be made and used in connection with the
revenue recognized in any accounting period with respect to the
amount of reserves for sales returns, allowances and doubtful
accounts. Material differences may result in the amount and
timing of our revenue for any period if our management made
different judgments or utilized different estimates.

In recognizing revenue in any period, we apply
the provisions of Staff Accounting Bulletin 104,
Revenue Recognition.

We recognize revenue from the sale of our
products when persuasive evidence of an arrangement exists, the
product has been delivered, the fee is fixed and determinable
and collection of the resulting receivable is reasonably
assured; this generally occurs upon shipment.

For all sales we use either a binding purchase
order or signed purchase agreement as evidence of an
arrangement. Sales through our distributors are evidenced by a
master agreement governing the relationship together with
binding purchase orders on a transaction-by-transaction basis.
Our arrangements generally do not include acceptance clauses.

We assess collection based on a number of
factors, including past transaction history with the customer
and the credit-worthiness of the customer.

Delivery generally occurs when product is
delivered to a common carrier. Certain of our products are
delivered on an FOB destination basis. We defer our revenue
associated with these transactions until the delivery has
occurred to the customers premises.

Sales to original equipment manufacturers
(OEMs) are subject to agreements allowing limited
rights of return and sales incentive programs. Sales incentive
programs are typically related to an OEMs level of
purchases. Estimated reductions to revenue for sales incentive
programs are provided at the time the revenue is recorded.
Returns from OEMs have not been material in any period as the
Companys principal OEM customers have adopted
build-to-order manufacturing model or just-in-time inventory
management processes.

Sales to distributors and retailers
(resellers) are subject to agreements allowing
limited rights of return, price protection, sales incentive
programs and advertising. These programs are generally related
to a resellers level of sales, order size or point of sale
activity. We provide for these programs as deductions from
revenues at the time the revenue is recorded. These estimates
are based primarily on estimated returns, future price erosion,
customer sell-through levels and program participation. Such
estimates are adjusted periodically to reflect our actual and
anticipated experience.

Product returns are estimated in accordance with
SFAS No. 48, Revenue Recognition When Right of Return
Exists. Resellers have limited rights of return which
allow them to return a percentage of the prior quarters
purchases. Accordingly, revenue is not recognized with respect
to those shipments which management estimates will be returned.
We believe that these estimates are reasonably accurate due to
the short time period during which our resellers can return
products, the limitations placed on their right to make returns,
our long history of conducting business with resellers on a
sell-in basis, the nature of our historical relationships with
resellers and the weekly reporting procedures through which we
monitor inventory levels at resellers and sales to end-users.



| |                                                                              
| | -----------------------------------------------------------------------------
| | Sales Returns, Other Sales Allowances and
    Allowance for Doubtful Accounts

Our management must make estimates of potential
future product returns related to current period product
revenue. Management analyzes historical returns, current
economic trends, and changes in customer

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demand and acceptance of our products when
evaluating the adequacy of the sales returns and other
allowances. Significant management judgments and estimates must
be made and used in connection with establishing the sales
returns and other allowances in any accounting period.


We believe that these estimates are reasonably
accurate due to the short time period during which our resellers
can return products, the limitations placed on their right to
make returns, our long history of conducting business with
resellers on a sell-in basis, the nature of our historical
relationships with resellers and the weekly reporting procedures
through which we monitor inventory levels at resellers and sales
to end-users. Nonetheless, material differences may result in
the amount and timing of our revenue for any period if
management made different judgments or utilized different
estimates than our actual experience in the period. The
provision for sales returns and other allowances amounted to
$82.8 million as of December 27, 2003. Included in
this amount are reserves for anticipated revenue programs
required to sell through the channel inventory on hand at the
end of the period. In general, this reserve is based upon a
forecast of the anticipated pricing environment in the upcoming
quarter. If we increase or decrease the incentive there will be
an equivalent change in the reserve.

Similarly, our management must make estimates of
the collectibility of our accounts receivables. Management
analyzes specific accounts receivable and historical bad debts,
customer concentrations, customer credit-worthiness, current
economic trends and changes in our customer payment terms when
evaluating the adequacy of the allowance for doubtful accounts.
Our allowance for doubtful accounts was $11.2 million as of
December 27, 2003. If the actual outcome differs from our
estimate, we would be required to record an additional
allowance. Our allowance consists of specific and general
reserves. The general reserve is approximately 63% of the total
allowance. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowances would be required.



| |                                                             
| | ------------------------------------------------------------
| | Valuation of Intangibles, Long-Lived Assets
    and Goodwill

We assess the impairment of identifiable
intangibles, long-lived assets and goodwill annually and
whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Factors we consider
important which could trigger an impairment review include the
following:



| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | significant under-performance relative to
    expected historical or projected future operating results;         
|
| |  | significant changes in the manner of our use of
    the acquired assets or the strategy for our overall business;
|
| |  | significant negative industry or economic trends;                                                                
|
| |  | significant decline in our stock price for a
    sustained period; and                                           
|
| |  | our market capitalization relative to net book
    value.                                                        

When we determine that the carrying value of
intangibles and long-lived assets may not be recoverable based
upon the existence of one or more of the above indicators of
impairment, we measure the potential impairment based on a
projected cash flow method. We measure the carrying value of our
goodwill based on the market multiple method.

As required by SFAS 142, we completed our
impairment analysis as of January 1, 2002, upon our
adoption of SFAS 142, and our annual review as of
December 27, 2003. We found no instances of impairment of
our recorded goodwill on both dates and accordingly no
impairment was recorded.

Net intangible assets, long-lived assets, and
goodwill amounted to $1,232.2 million as of
December 27, 2003. Should an impairment be determined to
have occurred, a change in the recorded goodwill would be
required and this would have a material adverse effect on our
results of operations.



| |         
| | --------
| | Warranty

We provide for the estimated cost of product
warranties at the time revenue is recognized. We generally
warrant our products for a period of one to five years. While we
engage in extensive product quality programs

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and processes, including actively monitoring and
evaluating the quality of our component suppliers, our warranty
obligation is affected by product failure rates, material usage
and service delivery costs incurred in correcting a product
failure. We use proprietary statistical modeling software to
help estimate the future failure rates by product. As new
products are sold into the market, we must exercise considerable
judgment in estimating the expected failure rates. This
estimating process is based on historical experience of similar
products as well as various other assumptions, such as design or
assembly complexities, that are believed to be reasonable under
the circumstances. We also apply the same estimating techniques
to product warranty liabilities assumed from acquisitions.
Should actual product failure rates, material usage or service
delivery costs differ from our estimates, revisions to the
estimated warranty liability would be required and could have a
material adverse effect on our future results of operations.


From time to time, we may be subject to
additional costs related to warranty claims from our customers.
If and when this occurs, we generally must make significant
judgements and estimates in establishing the related warranty
liability. This estimating process is based on historical
experience, communication with our customers and various
assumptions that are believed to be reasonable under the
circumstances. This additional warranty reserve would be
recorded in the determination of net income in the period in
which the additional cost was identified.



| |                    
| | -------------------
| | Inventory Valuation

We establish the value of our inventory at the
lower of cost (computed on a first-in, first-out basis) or
market. We write down our inventory for estimated obsolescence
or unmarketable inventory equal to the difference between the
cost of inventory and the estimated market value based upon
assumptions about future demand. Inventory reserves were 3% and
7% of the gross inventory balances for the years ended 2003 and
2002, respectively. If actual market conditions are less
favorable than those projected by management, additional
inventory write-downs may be required which could have a
material adverse effect on our future results of operations.



| |             
| | ------------
| | Income Taxes

We account for income taxes in accordance with
Statement of Financial Accounting Standard No. 109
(SFAS 109), Accounting for Income Taxes.
As part of the process of preparing our consolidated financial
statements we are required to estimate our income taxes in each
of the jurisdictions in which we operate. This process involves
us estimating our actual current tax exposure together with
assessing temporary differences resulting from differing
treatment of items for tax and accounting purposes. These
differences result in deferred tax assets and liabilities, which
are included within our consolidated balance sheet. We must then
assess the likelihood that our deferred tax assets will be
recovered from future taxable income and to the extent we
believe that recovery is not likely, we must establish a
valuation allowance. To the extent we establish a valuation
allowance or increase this allowance in a period, we must
include an expense within the tax provision in the statement of
operations.

We have recorded approximately
$196.4 million of deferred tax liabilities in connection
with the acquisition of Quantum HDD. We recorded this amount
principally to reflect the taxes which would become payable upon
repatriation of the cash which was invested abroad for Quantum
HDD as of April 2, 2001.

Significant management judgment is required in
determining our provision for income taxes, our deferred tax
assets and liabilities and any valuation allowance recorded
against our net deferred tax assets. We have recorded a
valuation allowance of $377.8 million as of
December 27, 2003, due to uncertainties related to our
ability to utilize of our net deferred tax assets, primarily
consisting of certain net operating losses carried forward and
foreign tax credits, before they expire. The valuation allowance
is based on our estimates of taxable income by jurisdiction in
which we operate and the period over which our deferred tax
assets will be recoverable. In the event that actual results
differ from these estimates or we adjust these estimates in
future periods we may need to establish an additional valuation
allowance which could have a material adverse effect on our
financial position and results of operations.

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| |                                                                  
| | -----------------------------------------------------------------
| | Restructuring Liabilities, Litigation and
    Other Contingencies

We account for our restructuring liabilities in
connection with a business combination in accordance with
EITF 95-3 Recognition of Liabilities in Connection
with a Purchase Business Combination. EITF 95-3
requires that we record an estimated liability if the estimated
costs are not associated with or are not incurred to generate
revenues of the combined entity after the consummation date and
they meet certain criteria defined within EITF 95-3. We
will account for our restructuring liabilities initiated after
December 31, 2002 under SFAS 146, Accounting for
Costs Associated with Exist or Disposal Activities. As of
December 27, 2003, we have not recorded any restructuring
liabilities under SFAS 146. We accounted for restructuring
liabilities initiated in 2002 in accordance with EITF 94-3
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring), which requires us to
record the liability resulting from estimated costs that are not
associated with or do not benefit activities that will be
continued. We account for litigation and contingencies in
accordance with SFAS No. 5, Accounting for
Contingencies. SFAS No. 5 requires that we record an
estimated loss from a loss contingency when information
available prior to issuance of our financial statements
indicates that it is probable that an asset has been impaired or
a liability has been incurred at the date of the financial
statements and the amount of loss can be reasonably estimated.
While we believe that our accruals for these matters are
adequate, if the actual losses from loss contingencies or
restructuring liabilities are significantly different than the
estimated loss, our results of operations may be materially
affected.

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##### Table of Contents



Results of Operation

The following table sets forth consolidated
statement of operations data for the three years ended
December 29, 2001, December 28, 2002 and
December 27, 2003, respectively, and the percent of revenue
represented by the various items reported.

|                                                                 |                                                          |                          |         |              |       |              |         |       |       |   |         |       |       | 
|---------------------------------------------------------------- | -------------------------------------------------------- | ------------------------ | ------- | ------------ | ----- | ------------ | ------- | ----- | ----- | - | ------- | ----- | ----- | 
|                                                                 |                                                          |                         
|                                                                 |                                                          | Years Ended             
|                                                                 |                                                          |                         
|                                                                 |                                                          | December 29,             |         | December 28, |       | December 27,
|                                                                 |                                                          | 2001                     |         | 2002         |       | 2003        
|                                                                 |                                                          |                          |         |              |       |             
|                                                                 |                                                          |                         
|                                                                 |                                                          | (In millions)           
|Consolidated Statement of Operations
    Data:                   |                                                          |                          |         |              |       |              |         |       |       |   |         |      
|Revenue                                                          |                                                          | $                        | 3,765.5 |              |       | $            | 3,779.5 |       |       | $ | 4,086.4 |      
|Cost of revenue                                                  |                                                          |                          | 3,403.0 |              |       |              | 3,382.1 |       |       |   | 3,385.4 |      
|                                                                 |                                                          |                          |         |              |       |              |         |       |       |   |         |      
|                                                                 | Gross profit                                             |                          |         | 362.5        |       |              |         | 397.4 |       |   |         | 701.0 |      
|                                                                 |                                                          |                          |         |              |       |              |         |       |       |   |         |      
|Operating expenses:                                              |                                                          |                          |         |              |       |              |         |       |       |   |         |      
|                                                                 | Research and development                                 |                          |         | 411.2        |       |              |         | 401.0 |       |   |         | 354.0 |      
|                                                                 | Selling, general and administrative                      |                          |         | 232.0        |       |              |         | 148.5 |       |   |         | 131.7 |      
|                                                                 | Amortization of goodwill and other intangible
    assets |                          |         | 207.8        |       |              |         | 82.2  |       |   |         | 85.3  |      
|                                                                 | Purchased in-process research and development            |                          |         | 95.2         |       |              |         |      |       |   |         |      |      
|                                                                 | Restructuring charge                                     |                          |         |             |       |              |         | 9.5   |       |   |         |      |      
|                                                                 |                                                          |                          |         |              |       |              |         |       |       |   |         |      
|                                                                 |                                                          | Total operating expenses |         |              | 946.2 |              |         |       | 641.2 |   |         |       | 571.0 | 
|                                                                 |                                                          |                          |         |              |       |              |         |       |       |   |         |      
|Income (loss) from operations                                    |                                                          |                          | (583.7  | )            |       |              | (243.8  | )     |       |   | 130.0   |      
|Interest expense                                                 |                                                          |                          | (25.2   | )            |       |              | (27.0   | )     |       |   | (30.6   | )    
|Interest income                                                  |                                                          |                          | 20.3    |              |       |              | 8.0     |       |       |   | 5.2     |      
|Other gain (loss)                                                |                                                          |                          | (6.2    | )            |       |              | 4.4     |       |       |   | (0.6    | )    
|                                                                 |                                                          |                          |         |              |       |              |         |       |       |   |         |      
|Income (loss) from continuing operations
    before income taxes |                                                          |                          | (594.8  | )            |       |              | (258.4  | )     |       |   | 104.0   |      
|Provision for income taxes                                       |                                                          |                          | 3.4     |              |       |              | 2.2     |       |       |   | 3.5     |      
|                                                                 |                                                          |                          |         |              |       |              |         |       |       |   |         |      
|Income (loss) from continuing operations                         |                                                          |                          | (598.2  | )            |       |              | (260.6  | )     |       |   | 100.5   |      
|Income (loss) from discontinued operations                       |                                                          |                          | (48.2   | )            |       |              | (73.5   | )     |       |   | 2.2     |      
|                                                                 |                                                          |                          |         |              |       |              |         |       |       |   |         |      
|Net income (loss)                                                |                                                          | $                        | (646.4  | )            |       | $            | (334.1  | )     |       | $ | 102.7   |      
|                                                                 |                                                          |                          |         |              |       |              |         |       |       |   |         |      

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|                                                                 |                                                          |                          |       |              |      |              |       |      |      |  |       |      |      | 
|---------------------------------------------------------------- | -------------------------------------------------------- | ------------------------ | ----- | ------------ | ---- | ------------ | ----- | ---- | ---- |  | ----- | ---- | ---- | 
|                                                                 |                                                          | December 29,             |       | December 28, |      | December 27,
|                                                                 |                                                          | 2001                     |       | 2002         |      | 2003        
|                                                                 |                                                          |                          |       |              |      |             
|As a Percentage of Revenue:                                      |                                                          |                          |       |              |      |              |       |      |      |  |       |     
|Revenue                                                          |                                                          |                          | 100.0 | %            |      |              | 100.0 | %    |      |  | 100.0 | %   
|Cost of revenue                                                  |                                                          |                          | 90.4  |              |      |              | 89.5  |      |      |  | 82.8  |     
|                                                                 |                                                          |                          |       |              |      |              |       |      |      |  |       |     
|                                                                 | Gross profit                                             |                          |       | 9.6          |      |              |       | 10.5 |      |  |       | 17.2 |     
|                                                                 |                                                          |                          |       |              |      |              |       |      |      |  |       |     
|Operating expenses:                                              |                                                          |                          |       |              |      |              |       |      |      |  |       |     
|                                                                 | Research and development                                 |                          |       | 10.9         |      |              |       | 10.6 |      |  |       | 8.7  |     
|                                                                 | Selling, general and administrative                      |                          |       | 6.2          |      |              |       | 3.9  |      |  |       | 3.2  |     
|                                                                 | Amortization of goodwill and other intangible
    assets |                          |       | 5.5          |      |              |       | 2.2  |      |  |       | 2.1  |     
|                                                                 | Purchased in-process research and development            |                          |       | 2.5          |      |              |       |     |      |  |       |     |     
|                                                                 | Restructuring charge                                     |                          |       |             |      |              |       | 0.3  |      |  |       |     |     
|                                                                 |                                                          |                          |       |              |      |              |       |      |      |  |       |     
|                                                                 |                                                          | Total operating expenses |       |              | 25.1 |              |       |      | 17.0 |  |       |      | 14.0 | 
|Income (loss) from operations                                    |                                                          |                          | (15.5 | )            |      |              | (6.5  | )    |      |  | 3.2   |     
|Interest expense                                                 |                                                          |                          | (0.7  | )            |      |              | (0.7  | )    |      |  | (0.7  | )   
|Interest income                                                  |                                                          |                          | 0.5   |              |      |              | 0.2   |      |      |  | 0.1   |     
|Other gain (loss)                                                |                                                          |                          | (0.2  | )            |      |              | 0.1   |      |      |  | 0.0   |     
|                                                                 |                                                          |                          |       |              |      |              |       |      |      |  |       |     
|Income (loss) from continuing operations
    before income taxes |                                                          |                          | (15.8 | )            |      |              | (6.8  | )    |      |  | 2.5   |     
|Provision for income taxes                                       |                                                          |                          | 0.1   |              |      |              | 0.1   |      |      |  | 0.1   |     
|                                                                 |                                                          |                          |       |              |      |              |       |      |      |  |       |     
|Income (loss) from continuing operations                         |                                                          |                          | (15.9 | )            |      |              | (6.9  | )    |      |  | 2.5   |     
|Income (loss) from discontinued operations                       |                                                          |                          | (1.3  | )            |      |              | (1.9  | )    |      |  | 0.1   |     
|                                                                 |                                                          |                          |       |              |      |              |       |      |      |  |       |     
|Net income (loss)                                                |                                                          |                          | (17.2 | )%           |      |              | (8.8  | )%   |      |  | 2.5   | %   
|                                                                 |                                                          |                          |       |              |      |              |       |      |      |  |       |     



| |                                                    
| | ---------------------------------------------------
| | Fiscal Year 2003 Compared With Fiscal Year
    2002

Revenues.Revenue
for the twelve months ended December 27, 2003 was $4,086.4
million, which was $306.9 million, or 8.1% higher as
compared to the twelve months ended December 28, 2002.
Total shipments for the twelve months ended December 27,
2003 were 55.2 million units, which was 3.9 million
units or 7.6% higher as compared to the twelve months ended
December 28, 2002. Total shipments and revenue increased
during the twelve months ended December 27, 2003 as a
result of greater customer acceptance of our products, the
completion of our transition to the 80GB per platter areal
density hard disk drive and increased market demand for hard
disk drives, partially offset by erosion of average selling
prices over the period. We continued to increase our average
capacity shipped and to increase sales of our server hard disk
drive, consumer electronics and personal storage products.

Revenue from sales to original equipment
manufacturers (OEMs) represented 50.5% of revenue in
the twelve months ended December 27, 2003, compared to
48.0% of revenue in the corresponding period in fiscal year
2002. This increase was the result of greater customer
acceptance of our products, our transition to the 80GB per
platter areal density hard disk drive and continued growth in
sales of our server products.

Revenue from sales to the distribution channel
and retail customers in the twelve months ended
December 27, 2003 represented 49.5% of revenue compared to
52.0% of revenue in the corresponding period in fiscal 2002.
Sales to distribution customers decreased to 41.8% of revenue in
the twelve months ended December 27, 2003 from 47.2% for
the corresponding period in fiscal 2002. Distribution revenue
decreased as a percentage of revenue during the twelve months
ended December 27, 2003 primarily as a result of the
competitive pricing environment experienced in the second half
of 2003 and a shift in mix to server and consumer electronics
OEM channel sales. Sales to retail customers increased to 7.7%
in the twelve months ended December 27, 2003 compared to
4.9% for the corresponding period in fiscal 2002. The increase
was due

25



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to growth in the sales of our 80GB per platter
areal density hard disk drive and personal storage products
driven by sales of Maxtor OneTouch and the expansion of our
presence in Europe and Japan.


Domestic revenue in the twelve months ended
December 27, 2003 represented 36.0% of total sales compared
to 37.0% of total sales in the corresponding period in fiscal
year 2002. Domestic revenue decreased as a percentage of total
revenue in the twelve months ended December 27, 2003 as a
result of the increase in international revenue as a percentage
of total revenue. In absolute dollars, domestic revenue
increased 5.2%. This increase was driven by the continued growth
in the sales of our server and personal storage products.

International revenue in the twelve months ended
December 27, 2003 represented 64.0% of total sales compared
to 63.0% in the corresponding period in fiscal year 2002.
Domestic revenue consists of United States and Latin America
sales. In absolute dollars, international revenue increased
9.9%. The increase was driven by our transition to the
80 GB per platter areal density hard disk drive and
continued growth of our server and personal storage products.

Sales to Europe, Middle East and Africa in the
twelve months ended December 27, 2003 and December 28,
2002 represented 33.1% and 32.6% of total revenue, respectively.
In absolute dollars, Europe, Middle East and Africa sales in the
twelve months ended December 27, 2003 increased 10.0%
compared to the corresponding period in fiscal year 2002. The
increase in sales was the result of the growth of our retail and
distribution channels. The growth was driven by the success of
our personal storage and server products as well as increased
acceptance of our 80GB per platter areal density hard disk drive.

Sales to Asia Pacific and Japan in the twelve
months ended December 27, 2003 and December 28, 2002
represented 30.9 % and 30.4% of total revenue, respectively. In
absolute dollars, Asia Pacific and Japan sales in the twelve
months ended December 27, 2003 increased 9.8% compared to
the corresponding period in fiscal year 2002. The increase in
sales was the result of the growth of our retail and OEM
channels. The growth was driven by the success of our personal
storage and server products as well as increased acceptance of
our 80GB per platter areal density hard disk drive.

Sales to the top five customers represented 38.9%
and 31.8% of revenue in fiscal years 2003 and 2002,
respectively. Sales to one customer were 11.0% and 11.5% of
revenue in fiscal years 2003 and 2002; only one customer
represented more than 10% of our sales in those years.

Cost of Revenues; Gross Profit.Gross profit increased to
$701.1 million in the twelve months ended December 27,
2003, compared to $397.4 million for the corresponding
twelve months in fiscal year 2002. As a percentage of revenue,
gross profit increased to 17.2% in the twelve months ended
December 27, 2003 from 10.5% in the corresponding twelve
months of fiscal year 2002. The increase in gross profit, both
as a percentage of revenue and actual dollars during the twelve
months ended December 27, 2003, was due to the transition
of a portion of our product line from MKE to our Singapore
manufacturing facilities, improved manufacturing efficiencies on
the 80GB per platter areal density hard disk drive and decreased
warranty costs primarily due to warranty expirations. These
efficiencies resulted in reduced costs associated with drive
components, improved factory utilization and a more favorable
product mix to higher margin drives. Our cost of revenues
includes depreciation and amortization of property, plant and
equipment.

Operating Expenses

Research and Development Expense.Research and development
(R&D) expense in fiscal year 2003 was
$354.0 million, or 8.7% of revenue, compared to
$401.0 million, or 10.6% of revenue, in fiscal year 2002.
R&D expenses decreased by $47.0 million, or 11.7% for
fiscal year 2003 compared with fiscal 2002. The decrease in
R&D expenses was primarily due to a more focused development
effort on fewer products, that resulted in less expense for
development parts, services and related expenses of
$24.2 million, reduced compensation and related expenses of
$12.6 million associated with reductions in force in 2002
and other expenses of $10.2 million.

Selling, General and Administrative Expense.Selling, general and administrative
(SG&A) expense in fiscal year 2003 was
$131.7 million or 3.2% of revenue, compared to
$148.5 million, or 3.9% of revenue, in fiscal year 2002.
SG&A expensed decreased by $16.8 million, or 11.3% for
fiscal year 2003 compared to fiscal

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2002. The decrease in SG&A was primarily due
to reduced spending on facilities, advertising and services of
$13.6 million and other expenses of $7.1 million. The
decrease was offset by an increase of $3.9 million in
compensation and related expenses.


Restructuring
Charge

During the year ended December 28, 2002, we
recorded a restructuring charge of $9.5 million associated
with closure of one of our facilities located in California. The
amount comprised $8.9 million of future non-cancelable
lease payments, which are expected to be paid over several years
based on the underlying lease agreement and the write-off of
$0.6 million in leasehold improvements. The restructuring
accrual is included on the balance sheet within accrued and
other liabilities with the balance of $7.4 million after
cash payments of $1.5 million in fiscal year 2003.

Stock-based
Compensation

On April 2, 2001, as part of the acquisition
of Quantum HDD, we assumed the following options and restricted
stock:



| |   |                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | All Quantum HDD options and Quantum HDD
    restricted stock held by employees who accepted our offers of
    employment, or transferred employees, whether or not
    options or restricted stock had vested;                
|
| |  | Vested Quantum HDD options and vested Quantum HDD
    restricted stock held by Quantum Corporation
    (Quantum) employees whose employment was terminated
    prior to the separation, or former service
    providers; and
|
| |  | Vested Quantum HDD restricted stock held by any
    other individual.                                                                                                                                                           

In addition, we assumed vested Quantum HDD
options held by Quantum employees who continued to provide
services during a transitional period, or transitional
employees. We assumed the outstanding options to purchase
Quantum HDD common stock held by transferred employees and
vested options to purchase Quantum HDD common stock held by
former Quantum employees, consultants and transition employees
and these options converted into options to purchase Maxtor
common stock based on an exchange ratio of 1.52 shares of
Maxtor common stock for each share of Quantum HDD common stock.
Vested and unvested options for Quantum HDD common stock assumed
in the merger represented options for 7,650,965 shares and
4,655,236 shares of Maxtor common stock, respectively.

Included in cost of revenue, SG&A expense and
R&D expense are charges for amortization of stock-based
compensation resulting from both Maxtor options and options we
issued to Quantum employees who joined Maxtor in connection with
the merger on April 2, 2001. Stock-based compensation
charges were as follows:

|                                       |  |               |     |              |  |   |     | 
|-------------------------------------- |  | ------------- | --- | ------------ |  | - | --- | 
|                                       |  |              
|                                       |  | Years Ended  
|                                       |  |              
|                                       |  | December 28,  |     | December 27,
|                                       |  | 2002          |     | 2003        
|                                       |  |               |     |             
|                                       |  |              
|                                       |  | (In millions)
|Cost of revenue                        |  | $             | 0.3 |              |  | $ |    | 
|Research and development               |  |               | 2.4 |              |  |   | 0.7 | 
|Selling, general and administrative    |  |               | 1.5 |              |  |   | 0.2 | 
|                                       |  |               |     |              |  |   |     | 
|Total stock-based compensation expense |  | $             | 4.2 |              |  | $ | 0.9 | 
|                                       |  |               |     |              |  |   |     | 

In addition, Quantum Corporation issued
restricted Quantum DSS shares to Quantum employees who joined
Maxtor in connection with the merger in exchange for the fair
value of Quantum DSS options held by such employees. A portion
of the acquisition purchase price has been allocated to this
deferred compensation, recorded as prepaid expense, and is
amortized to expenses over the vesting period as the vesting of
the shares

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##### Table of Contents



are subject to continued employment with Maxtor.
Amortization for the years ended December 28, 2002 and
December 27, 2003 were as follows:


|                                                        |  |               |     |              |  |   |   | 
|------------------------------------------------------- |  | ------------- | --- | ------------ |  | - | - | 
|                                                        |  |              
|                                                        |  | Years Ended  
|                                                        |  |              
|                                                        |  | December 28,  |     | December 27,
|                                                        |  | 2002          |     | 2003        
|                                                        |  |               |     |             
|                                                        |  |              
|                                                        |  | (In millions)
|Cost of revenue                                         |  | $             | 0.3 |              |  | $ |  | 
|Research and development                                |  |               | 2.8 |              |  |   |  | 
|Selling, general and administrative                     |  |               | 1.0 |              |  |   |  | 
|                                                        |  |               |     |              |  |   |   | 
|Total amortization related to DSS restricted
    shares |  | $             | 4.1 |              |  | $ |  | 
|                                                        |  |               |     |              |  |   |   | 

Amortization of Goodwill and Other Intangible
Assets.Amortization of other
intangible assets represents the amortization of customer list
and other current products and technology, arising from our
acquisitions of the Quantum HDD business in April 2001 and MMC
in September 2001. The net book value of these intangibles at
December 27, 2003 was $61.6 million. Amortization of
other intangible assets was $85.3 million for the year
ended December 27, 2003, compared to $82.2 million in
the corresponding period in fiscal year 2002.

On December 30, 2001, the Company adopted
SFAS 142, which requires goodwill to be tested for impairment
under certain circumstances, written down when impaired, and
requires purchased intangible assets other than goodwill to be
amortized over their useful lives unless these lives are
determined to be indefinite. In compliance with SFAS 142,
we reclassified $31.1 million, net of accumulated
amortization, in workforce assets to goodwill and we ceased
amortizing the resulting net goodwill balance of
$846.0 million. Accordingly, there are no charges for the
amortization of goodwill in 2002 or thereafter. Subsequent to
the decision to shut down the manufacture and sales of NSG
products, the Company wrote off goodwill related to the NSG
operations of $32.3 million. As of December 27, 2003,
goodwill amounted to $814.0 million.

As required by SFAS 142, we completed our
impairment analysis as of January 1, 2002, upon our
adoption of SFAS 142, as of December 27, 2003 for the
purpose of the annual review. We found no instances of
impairment of our recorded goodwill on both dates and
accordingly no impairment was recorded.

The net book value of goodwill will be reviewed
for impairment annually and whenever there is indication that
the value of the goodwill may be impaired. Any resulting
impairment will be recorded in the income statement in the
period it is identified and quantified.

Amortization of other intangible assets is
computed over the estimated useful lives of the respective
assets, generally three to five years. The Company expects
amortization expense on intangible assets to be
$36.0 million in fiscal 2004, $20.2 million in fiscal
2005, and $5.4 million in fiscal 2006, at which time the
intangible assets will be fully amortized.

Interest Expense.Interest expense was
$30.6 million and $27.0 million in fiscal years 2003
and 2002, respectively, or an increase of 13.3%. The increase
was primarily due to the $230 million convertible notes
issued in May 2003. This increase was offset by the repayment of
the Quantum 7% convertible bond and the decrease of capital
lease balances.

As of December 27, 2003 and
December 28, 2002, short-term borrowings were
$77.0 million and $41.0 million, respectively, and
long-term indebtedness outstanding was $355.8 million and
$206.3 million, respectively.

Interest Income.Interest income was $5.2 million
and $8.0 million in fiscal years 2003 and 2002,
respectively. The decrease resulted primarily from reduced
interest income from our investment portfolios as a result of
lower short-term interest rates offset by the increase in our
cash and cash equivalent balance.

Other Gain (Loss).Other gain (loss) was
$(0.6) million in 2003 as compared to $4.4 million in
2002. The loss in 2003 was due to a $1.0 million loss on
redemption of the pro rata portion of Quantum Corporations
bonds offset by a $0.2 million gain in retirement of other
bonds, a gain of $0.1 million from

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investments and a $0.1 million in other
income. The gain in 2002 was due to the retirement of bonds and
sale of investments.


Provision for Income Taxes.During 2003 and 2002, we recorded
income tax provisions of $3.5 million and
$2.2 million, respectively. The provision for income taxes
consists primarily of state and foreign taxes. Due to our net
operating losses (NOL), NOL carry-forwards and
favorable tax status in Singapore and Switzerland, we have not
incurred any significant foreign, U.S. federal, state or local
income taxes for the current or prior fiscal periods. We have
not recorded a tax benefit associated with our loss
carry-forward because of the uncertainty of realization.

Pursuant to a Tax Sharing and Indemnity
Agreement entered into in connection with the
Companys acquisition of Quantum HDD, Maxtor, as successor
to Quantum HDD, and Quantum are allocated their share of
Quantums income tax liability for periods before the
Companys acquisition of Quantum HDD, consistent with past
practices and as if the Quantum HDD and Quantum DSS business
divisions had been separate and independent corporations. To the
extent that the income tax liability attributable to one
business division is reduced by using NOLs and other tax
attributes of the other business division, the business division
utilizing the attributes must pay the other for the use of those
attributes. We must also indemnify Quantum for additional taxes
related to the Quantum DSS business for all periods before
Quantums issuance of tracking stock and additional taxes
related to the Quantum HDD business for all periods before our
acquisition of Quantum HDD, limited in the aggregate to
$142.0 million plus 50% of any excess over
$142.0 million, excluding any required gross-up payment.
Although we expect to be required to make indemnification
payments in future periods, we are unable to determine
significantly in advance the amount and timing of such payments.
Management believes that, based on the facts available at this
time, the likelihood that our aggregate indemnification
obligations will exceed $142.0 million is remote. As of
December 27, 2003, the Company has reimbursed
$6.4 million to Quantum Corporation leaving a balance of
$135.6 million on the original indemnity, prior to any
sharing of tax liability with Quantum.

We purchased a $340 million insurance policy
covering the risk that the separation of Quantum HDD from
Quantum DSS could be determined to be subject to federal income
tax or state income or franchise tax. Under the Tax
Sharing and Indemnity Agreement, the Company agreed to
indemnify Quantum for the amount of any tax payable by Quantum
as a result of the separation of Quantum HDD from Quantum
Corporation to the extent such tax is not covered by such
insurance policy, unless imposition of the tax is the result of
Quantums actions, or acquisitions of Quantum stock, after
the transaction. The amount of the tax not covered by insurance
could be substantial. In addition, if it is determined that
Quantum owes federal or state tax as a result of the separation
of Quantum HDD from Quantum Corporation, in connection with the
Companys acquisition of Quantum HDD, and the circumstances
giving rise to the tax are covered by our indemnification
obligations, the Company will be required to pay Quantum the
amount of the tax at that time, whether or not reimbursement may
be allowed under our tax insurance policy.

We recorded approximately $196.4 million of
deferred tax liabilities in connection with our acquisition of
Quantum HDD in April 2001. The deferred taxes were recorded
principally to reflect the taxes which would become payable upon
the repatriation of the cash which was invested abroad by
Quantum HDD as of April 1, 2001.

Loss from Discontinued Operations.On August 15, 2002, we announced
our decision to shut down our Network Systems Group
(NSG) and cease the manufacturing and sale of our
MaxAttach branded network attached storage products
(NSG). The discontinuance of our NSG operations
represents the disposal of a component of an entity as defined
in Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. Accordingly, our financial statements have been
presented to reflect NSG as a discontinued operations for all
periods presented. Our liabilities (no remaining assets) have
been segregated from continuing operations in the accompanying
consolidated balance sheet as of December 28, 2002 and our
operating results have been segregated and reported as
discontinued operations in the accompanying consolidated
statement of operations.

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Operating results of the NSG discontinued
operations for years ended December 28, 2002 and
December 27, 2003 are as follows (in millions):

|                                         |  |              |       |              |  |   |     | 
|---------------------------------------- |  | ------------ | ----- | ------------ |  | - | --- | 
|                                         |  |             
|                                         |  | Years Ended 
|                                         |  |             
|                                         |  | December 28, |       | December 27,
|                                         |  | 2002         |       | 2003        
|                                         |  |              |       |             
|Revenue from discontinued operations     |  | $            | 20.4  |              |  | $ |    | 
|Gain (loss) from discontinued operations |  | $            | (73.5 | )            |  | $ | 2.2 | 

The loss in 2002 was due primarily to the
inclusion of the following charges upon the decision to shut
down the NSG operations (in millions):

|                                          |  |   |      | 
|----------------------------------------- |  | - | ---- | 
|Personnel related                         |  | $ | 13.0 | 
|Goodwill and other intangibles write-offs |  | $ | 32.5 | 
|Non-cancelable purchase commitments       |  | $ | 4.2  | 

Income from discontinued operations of
$2.2 million for the year ended December 27, 2003
reflects the net impact of the favorable resolution of
contingencies.

Fiscal Year
2002 Compared With Fiscal Year 2001

Revenues.In fiscal
year 2002, we generated revenue of $3,779.5 million
compared to $3,765.5 million in fiscal year 2001, an
increase of 0.4%. Total shipments in fiscal year 2002 were
51.3 million units compared to 45.1 million units in
fiscal year 2001, a 13.7% increase. The increase in unit volume
in fiscal year 2002 compared to fiscal year 2001 was primarily
due to the acquisition of the Quantum HDD business occurring in
April 2001, which resulted in fiscal 2001 having one less
quarter of contribution from the Quantum HDD business than
fiscal 2002. We also successfully introduced several next
generation products during fiscal year 2002, which contributed
to the overall increase in unit sales and the slight increase in
revenue. The positive effect of the Quantum HDD business on
fiscal 2002 unit volume was offset by the slowdown in demand for
PCs and servers and the resulting reduced demand for hard disk
drives and difficulties in ramping up production of next
generation products in the third quarter of 2002. The slight
increase in revenue was primarily due to the full year
contribution from the Quantum HDD business in 2002 compared to
nine months contribution in 2001. This increase was
offset by declining average selling prices in the PC and server
markets during the first three fiscal quarters of 2002 as a
result of the economic slowdown, and our difficulties in ramping
up production of our new products in the third quarter of 2002.

Revenue did not increase at the same rate
compared to unit shipments in 2002. This was primarily the
result of the decline in average selling prices in the first
three fiscal quarters of 2002 due to pricing pressures in the
desktop computer market. We have historically experienced
seasonal fluctuation in sales volume with a decline typically
occurring in the first half of the year.

Revenue on a proforma basis (that is, calculating
revenue as if we had acquired Quantum HDD on January 1,
2001) was $3,779.5 million in fiscal year 2002, compared to
$4,418.6 million in fiscal year 2001, representing a
decline of 14.5% on a proforma basis. Although this pro forma
presentation does not purport to be indicative of what would
have occurred, we believe the decline on a proforma basis was
primarily due to the overall slowdown in demand for hard disk
drives and the pricing pressures in the desktop computer market
in the first three fiscal quarters of 2002.

Sales to the top five customers represented 31.8%
and 34.1% of revenue in fiscal years 2002 and 2001,
respectively. Sales to one customer were 11.5% and 11.3% of
revenue in fiscal years 2002 and 2001; only one customer
represented more than 10% of our sales in those years.

Revenue from sales to computer equipment
manufacturers represented 48.0% and 55.4% of revenue in fiscal
years 2002 and 2001, respectively. The decrease in 2002 was
primarily due to increased sales to our distribution channel and
retail customers that represented 52.0% and 44.6% of revenue in
fiscal years 2002 and 2001, respectively. Revenue from sales to
computer equipment manufacturers decreased in absolute dollars
by 15.2% in fiscal year 2002 from fiscal year 2001, while
revenue from sales to distribution channel and retail

30



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customers increased by 17.3% in fiscal year 2002
from fiscal year 2001. The significant increase in revenue from
sales to the distribution channel is attributable primarily to
our Quantum HDD acquisition and the growth of non-branded PC
customers market share of the overall current desktop PC
market and our effort to accommodate this growth.


Domestic revenue represented 37.0% and 42.0% of
total sales in fiscal year 2002 and 2001, respectively. Domestic
revenue consists of United States and Latin America sales.
International revenue represented 63.0% and 58.0% of total sales
in fiscal year 2002 and 2001, respectively. Our revenue from
international sales increased primarily due to our acquisition
of the Quantum HDD business and the growth of non-branded PC
customers market share of overall current desktop PC
market and our effort to accommodate this growth. Sales to
Europe, Middle East and Africa represented 32.6% and 28.7% of
total revenue for fiscal years 2002 and 2001, respectively. In
absolute terms, Europe sales increased 13.8% compared to the
corresponding period in 2001. Sales to Asia Pacific and Japan
represented 30.4% and 24.3% of total revenue for fiscal years
2002 and 2001, respectively. Sales to Asia Pacific increased in
absolute dollars by 13.3% from fiscal year 2002 to fiscal year
2001. The increase in absolute dollars and as a percentage of
total revenue represented by sales in Europe and Asia Pacific
were primarily due to the growth in sales to non-branded PC
customers who are primarily located outside of the United States
and Canada.

Cost of Revenues; Gross Profit.Gross profit increased to
$397.4 million in fiscal year 2002 from $362.5 million
in fiscal year 2001. Gross profit as a percentage of revenue
increased to 10.5% in fiscal year 2002 from 9.6% in fiscal year
2001 as a result of the benefits from our manufacturing
transition of our desktop products to our Singapore facility by
the end of our third quarter of 2002 and improved yields on our
new higher density drives in the fourth quarter of 2002. Our
cost of revenues includes depreciation and amortization of
property, plant and equipment.

Operating Expenses

Research and Development Expense.Research and development
(R&D) expense in fiscal year 2002 was
$401.0 million, or 10.6% of revenue, compared to
$411.2 million, or 10.9% of revenue, in fiscal year 2001.
The decrease in R&D expense in fiscal year 2002 was
primarily due to merger-related costs, such as transitional
services and non-recurring merger-related expenses of $10.1
million, as well as amortization of stock-based compensation,
associated with our acquisition of the Quantum HDD business
incurred during the corresponding period in 2001 and lower
compensation expenses resulting from reduced headcount in 2002.
This decrease was offset by the inclusion of Quantum HDD and MMC
expenses and our on-going effort to maintain leadership products
to address the requirements of the PC desktop and Intel-based
server markets.

As a result of the Quantum HDD acquisition,
R&D expense includes stock compensation charges of
$1.8 million and $2.0 million in 2002 and 2001,
respectively, resulting from options we issued to Quantum
employees who joined Maxtor in connection with the merger on
April 2, 2001. Additionally, R&D expense in fiscal
years 2002 and 2001 includes $2.8 million and
$25.0 million, respectively of stock compensation
amortization for Quantum DSS shares issued to Quantum employees
who joined Maxtor in connection with the merger.

The following table summarizes the effect of
these merger-related charges:

|                                                                             |  |               |       |              |  |   |      |  
|---------------------------------------------------------------------------- |  | ------------- | ----- | ------------ |  | - | ---- | -
|                                                                             |  |              
|                                                                             |  | Years Ended  
|                                                                             |  |              
|                                                                             |  | December 29,  |       | December 28,
|                                                                             |  | 2001          |       | 2002        
|                                                                             |  |               |       |             
|                                                                             |  |              
|                                                                             |  | (In millions)
|Stock-based compensation expense                                             |  | $             | (2.0  | )            |  | $ | (1.8 | )
|Amortization related to DSS restricted shares                                |  | $             | (25.0 | )            |  | $ | (2.8 | )
|Costs of transitional services and non-recurring
    merger-related expenses |  | $             | (10.1 | )            |  | $ |     |  

Selling, General and Administrative Expense.Selling, general and administrative
(SG&A) expense as a percentage of revenue was
3.9% and 6.2% in fiscal years 2002 and 2001, respectively. The
absolute dollar

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level of SG&A expense decreased to
$148.5 million in fiscal year 2002 from $232.0 million
in fiscal year 2001. The decreases in SG&A expense were
primarily due to $69.8 million in payments associated with
the Quantum HDD business incurred subsequent to the acquisition
and reduced compensation expenses.


As a result of the Quantum HDD acquisition,
SG&A expense includes stock compensation charges of
$0.6 million and $0.7 million in fiscal years 2002 and
2001, respectively, resulting from options we issued to Quantum
employees who joined Maxtor in connection with the merger on
April 2, 2001. Additionally, SG&A expense in fiscal
year 2002 and 2001 includes $1.0 million and
$8.9 million, respectively, of stock compensation
amortization for Quantum DSS shares issued to Quantum employees
who joined Maxtor in connection with the merger.

The following table summarizes the effect of
these merger-related charges:

|                                                                             |  |               |       |              |  |   |      |  
|---------------------------------------------------------------------------- |  | ------------- | ----- | ------------ |  | - | ---- | -
|                                                                             |  |              
|                                                                             |  | Years Ended  
|                                                                             |  |              
|                                                                             |  | December 29,  |       | December 28,
|                                                                             |  | 2001          |       | 2002        
|                                                                             |  |               |       |             
|                                                                             |  |              
|                                                                             |  | (In millions)
|Stock compensation expense                                                   |  | $             | (0.7  | )            |  | $ | (0.6 | )
|Amortization related to DSS restricted shares                                |  | $             | (8.9  | )            |  | $ | (1.0 | )
|Costs of transitional services and non-recurring
    merger-related expenses |  | $             | (69.8 | )            |  | $ |     |  



| |                     
| | --------------------
| | Restructuring Charge

During the year ended December 28, 2002, we
recorded a restructuring charge of $9.5 million associated
with closure of one of our facilities located in California. The
amount comprised $8.9 million of future non-cancelable
lease payments which are expected to be paid over several years
based on the underlying lease agreement and the write-off of
$0.6 million in leasehold improvements.



| |                   
| | ------------------
| | Stock Compensation

On April 2, 2001, as part of the acquisition
of Quantum HDD, we assumed the following options and restricted
stock:



| |   |                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | All Quantum HDD options and Quantum HDD
    restricted stock held by employees who accepted our offers of
    employment, or transferred employees, whether or not
    options or restricted stock had vested;                
|
| |  | Vested Quantum HDD options and vested Quantum HDD
    restricted stock held by Quantum Corporation
    (Quantum) employees whose employment was terminated
    prior to the separation, or former service
    providers; and
|
| |  | Vested Quantum HDD restricted stock held by any
    other individual.                                                                                                                                                           

In addition, we assumed vested Quantum HDD
options held by Quantum employees who continued to provide
services during a transitional period, or transitional
employees. We assumed the outstanding options to purchase
Quantum HDD common stock held by transferred employees and
vested options to purchase Quantum HDD common stock held by
former Quantum employees, consultants and transition employees
and these options converted into options to purchase Maxtor
common stock based on an exchange ratio of 1.52 shares of
Maxtor common stock for each share of Quantum HDD common stock.
Vested and unvested options for Quantum HDD common stock assumed
in the merger represented options for 7,650,965 shares and
4,655,236 shares of Maxtor common stock, respectively.

Included in cost of revenue, SG&A expense and
R&D expense are charges for amortization of stock-based
compensation resulting from both Maxtor options and options we
issued to Quantum employees who

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joined Maxtor in connection with the merger on
April 2, 2001. Stock-based compensation charges were as
follows:


|                                       |  |               |     |              |  |   |     | 
|-------------------------------------- |  | ------------- | --- | ------------ |  | - | --- | 
|                                       |  |              
|                                       |  | Years Ended  
|                                       |  |              
|                                       |  | December 29,  |     | December 28,
|                                       |  | 2001          |     | 2002        
|                                       |  |               |     |             
|                                       |  |              
|                                       |  | (In millions)
|Cost of revenue                        |  | $             | 0.5 |              |  | $ | 0.3 | 
|Research and development               |  |               | 2.9 |              |  |   | 2.4 | 
|Selling, general and administrative    |  |               | 2.7 |              |  |   | 1.5 | 
|                                       |  |               |     |              |  |   |     | 
|Total stock-based compensation expense |  | $             | 6.1 |              |  | $ | 4.2 | 
|                                       |  |               |     |              |  |   |     | 

In addition, Quantum Corporation issued
restricted Quantum DSS shares to Quantum employees who joined
Maxtor in connection with the merger in exchange for the fair
value of Quantum DSS options held by such employees. A portion
of the acquisition purchase price has been allocated to this
deferred compensation, recorded as prepaid expense, and is
amortized to expenses over the vesting period as the vesting of
the shares are subject to continued employment with Maxtor.
Amortization as of December 29, 2001 and December 28,
2002 were as follows:

|                                                        |  |               |      |              |  |   |     | 
|------------------------------------------------------- |  | ------------- | ---- | ------------ |  | - | --- | 
|                                                        |  |              
|                                                        |  | Years Ended  
|                                                        |  |              
|                                                        |  | December 29,  |      | December 28,
|                                                        |  | 2001          |      | 2002        
|                                                        |  |               |      |             
|                                                        |  |              
|                                                        |  | (In millions)
|Cost of revenue                                         |  | $             | 3.0  |              |  | $ | 0.3 | 
|Research and development                                |  |               | 25.0 |              |  |   | 2.8 | 
|Selling, general and administrative                     |  |               | 8.9  |              |  |   | 1.0 | 
|                                                        |  |               |      |              |  |   |     | 
|Total amortization related to DSS restricted
    shares |  | $             | 36.9 |              |  | $ | 4.1 | 
|                                                        |  |               |      |              |  |   |     | 

Amortization of Goodwill and Other Intangible
Assets.Amortization of other
intangible assets represents the amortization of customer list
and other current products and technology, arising from our
acquisitions of the Quantum HDD business in April 2001 and MMC
in September 2001. The net book value of these intangibles at
December 28, 2002 was $146.9 million. Amortization of
other intangible assets was $82.2 million for the year
ended December 28, 2002, compared to $207.8 million in
the corresponding period in fiscal year 2001. The decrease was
due to the cessation of the amortization of goodwill and
workforce in 2002, as a consequence of adopting Statement of
Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS 142).

On December 30, 2001, the Company adopted
SFAS 142, which requires goodwill to be tested for
impairment under certain circumstances, written down when
impaired, and requires purchased intangible assets other than
goodwill to be amortized over their useful lives unless these
lives are determined to be indefinite. In compliance with SFAS
142, we reclassified $31.1 million, net of accumulated
amortization, in workforce assets to goodwill and we ceased
amortizing the resulting net goodwill balance of
$846.0 million. Accordingly, there are no charges for the
amortization of goodwill in 2002 or thereafter. Subsequent to
the decision to shut down the manufacture and sales of NSG
products, the Company wrote off goodwill related to the NSG
operations of $32.3 million. As of December 28, 2002,
goodwill amounted to $814.0 million.

As required by SFAS 142, we completed our
impairment analysis as of January 1, 2002, upon our
adoption of SFAS 142, and as of December 28, 2002 for
the purpose of the annual review. We found no instances of
impairment of our recorded goodwill on both dates and
accordingly no impairment was recorded.

The net book value of goodwill will be reviewed
for impairment annually and whenever there is indication that
the value of the goodwill may be impaired. Any resulting
impairment will be recorded in the income statement in the
period it is identified and quantified.

Amortization of other intangible assets is
computed over the estimated useful lives of the respective
assets, generally three to five years. The Company expects
amortization expense on intangible assets to be

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$36.0 million in fiscal 2004,
$20.2 million in fiscal 2005, and $5.4 million in
fiscal 2006, at which time the intangible assets will be fully
amortized.


The following tables present the impact of SFAS
142 on net loss and net loss per share had we ceased
amortization of goodwill beginning the year ended
December 29, 2001 (in thousands, except per share amounts):

|                                                                              |                                                                                                         |              |          |              |  |   |          |   | 
|----------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ------------ | -------- | ------------ |  | - | -------- | - | 
|                                                                              |                                                                                                         |             
|                                                                              |                                                                                                         | Years Ended 
|                                                                              |                                                                                                         |             
|                                                                              |                                                                                                         | December 29, |          | December 28,
|                                                                              |                                                                                                         | 2001         |          | 2002        
|                                                                              |                                                                                                         |              |          |             
|Loss from continuing operations  as
    reported                             |                                                                                                         | $            | (598,179 | )            |  | $ | (260,566 | )
|Adjustments:                                                                  |                                                                                                         |              |          |              |  |   |          |  
|                                                                              | Amortization of goodwill                                                                                |              |          | 134,042      |  |   |          |  | 
|                                                                              | Amortization of acquired workforce intangibles
    previously classified as purchased intangible assets |              |          | 12,472       |  |   |          |  | 
|                                                                              |                                                                                                         |              |          |              |  |   |          |  
|                                                                              | Net adjustments                                                                                         |              |          | 146,514      |  |   |          |  | 
|                                                                              |                                                                                                         |              |          |              |  |   |          |  
|Loss from continuing operations 
    adjusted                                |                                                                                                         | $            | (451,665 | )            |  | $ | (260,566 | )
|                                                                              |                                                                                                         |              |          |              |  |   |          |  
|Basic and diluted loss per share from continuing
    operations  as reported |                                                                                                         | $            | (2.89    | )            |  | $ | (1.09    | )
|Basic and diluted loss per share from continuing
    operations  adjusted    |                                                                                                         | $            | (2.18    | )            |  | $ | (1.09    | )

|                                                       |                                                                                                         |              |          |              |  |   |          |   | 
|------------------------------------------------------ | ------------------------------------------------------------------------------------------------------- | ------------ | -------- | ------------ |  | - | -------- | - | 
|                                                       |                                                                                                         |             
|                                                       |                                                                                                         | Years Ended 
|                                                       |                                                                                                         |             
|                                                       |                                                                                                         | December 29, |          | December 28,
|                                                       |                                                                                                         | 2001         |          | 2002        
|                                                       |                                                                                                         |              |          |             
|Net loss  as reported                                 |                                                                                                         | $            | (646,398 | )            |  | $ | (334,067 | )
|Adjustments:                                           |                                                                                                         |              |          |              |  |   |          |  
|                                                       | Amortization of goodwill                                                                                |              |          | 140,779      |  |   |          |  | 
|                                                       | Amortization of acquired workforce intangibles
    previously classified as purchased intangible assets |              |          | 12,616       |  |   |          |  | 
|                                                       |                                                                                                         |              |          |              |  |   |          |  
|Net adjustments                                        |                                                                                                         |              | 153,395  |              |  |   |         |  
|                                                       |                                                                                                         |              |          |              |  |   |          |  
|Net loss  adjusted                                    |                                                                                                         | $            | (493,003 | )            |  | $ | (334,067 | )
|                                                       |                                                                                                         |              |          |              |  |   |          |  
|Basic and diluted net loss per share 
    as reported |                                                                                                         | $            | (3.12    | )            |  | $ | (1.40    | )
|Basic and diluted net loss per share 
    adjusted    |                                                                                                         | $            | (2.38    | )            |  | $ | (1.40    | )

Purchased In-process Research and Development
(IPR&D).During fiscal
year 2001, we expensed IPR&D costs of $94.7 million as
a result of our acquisition of Quantum HDD. Additionally, in
connection with the acquisition of MMC in September 2001, we
expensed IPR&D costs of $0.5 million. We expensed these
amounts because the acquired technology had not yet reached
technological feasibility and had no future alternative uses.
For additional information regarding the Quantum HDD and MMC
acquisitions and the costs associated with purchased
in-processed research and development, see note 7 of the
Notes to Consolidated Financial Statements.

Interest Expense.Interest expense was
$27.0 million and $25.2 million in fiscal years 2002
and 2001, respectively, or an increase of 7.1%. The increase was
primarily due to the debt we assumed in conjunction with the
acquisitions of MMC and Quantum HDD and our obligation to
reimburse Quantum Corporation for interest due on the Quantum
HDD pro rata portion of Quantums convertible subordinated
notes in connection with the acquisition of Quantum HDD.

As of December 28, 2002 and
December 29, 2001, short-term borrowings were
$41.0 million and $44.2 million, respectively, and
long-term indebtedness outstanding was $206.3 million and
$244.5 million, respectively.

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Interest Income.Interest income was $8.0 million and $20.3 million in
fiscal years 2002 and 2001, respectively. The decrease is
primarily due to the decrease in investments.

Total cash and cash equivalents, restricted cash
and marketable securities were $450.7 million as of
December 28, 2002 compared to $645.8 million as of
December 29, 2001.

Other Gain (Loss).Other gain (loss) was $4.4 million in 2002 as compared to
($6.2) million in 2001. The gain in 2002 was primarily due to
the retirement of bonds of $2.8 million and
$2.3 million from investment portfolios offset by
$0.7 million in other income. During fiscal year 2001, in
accordance with our investment policy, we recorded a loss of
$(6.2) million on an investment, primarily due to a
$6.7 million write-off of a Quantum HDD acquired investment
in a high-tech start-up company; a net loss of $1.3 million
impairment charge in other fixed income portfolio investments;
offset by a gain on sale investments of $0.5 million and
retirement of bonds of $1.3 million.

Provision for Income Taxes.During 2002 and 2001, we recorded
income tax provisions of $2.2 million and
$3.4 million, respectively. The provision for income taxes
consists primarily of state and foreign taxes. Due to our net
operating losses (NOL), NOL carryforwards and
favorable tax status in Singapore and Switzerland, we have not
incurred any significant foreign, U.S. federal, state or local
income taxes for the current or prior fiscal periods. We have
not recorded a tax benefit associated with our loss
carry-forward because of the uncertainty of realization.

Pursuant to a Tax Sharing and Indemnity
Agreement entered into in connection with the
Companys acquisition of Quantum HDD, Maxtor, as successor
to Quantum HDD, and Quantum are allocated their share of
Quantums income tax liability for periods before the
split-off, consistent with past practices and as if the Quantum
HDD and Quantum DSS business divisions had been separate and
independent corporations. To the extent that the income tax
liability attributable to one business division is reduced by
using NOLs and other tax attributes of the other business
division, the business division utilizing the attributes must
pay the other for the use of those attributes. We must also
indemnify Quantum for additional taxes related to the Quantum
DSS business for all periods before Quantums issuance of
tracking stock and additional taxes related to the Quantum HDD
business for all periods before the split-off, limited in the
aggregate to $142.0 million plus 50% of any excess over
$142.0 million, excluding any required gross-up payment.
Management has determined that, based on the facts available at
this time, the likelihood that the payment will exceed
$142.0 million is remote. As of December 28, 2002, the
Company had reimbursed $3.5 million to Quantum Corporation
leaving a balance of $138.5 million on the original
indemnity, prior to any sharing of tax liability with Quantum.

We purchased a $340 million insurance policy
covering the risk that the split-off of Quantum HDD from Quantum
DSS could be determined to be subject to federal income tax or
state income or franchise tax. Under the Tax Sharing and
Indemnity Agreement, the Company agreed to indemnify
Quantum for the amount of any tax payable by Quantum as a result
of the split-off to the extent such tax is not covered by such
insurance policy, unless imposition of the tax is the result of
Quantums actions, or acquisitions of Quantum stock, after
the split-off. The amount of the tax not covered by insurance
could be substantial. In addition, if it is determined that
Quantum owes federal or state tax as a result of the split-off
and the circumstances giving rise to the tax are covered by our
indemnification obligations, the Company will be required to pay
Quantum the amount of the tax at that time, whether or not
reimbursement may be allowed under our tax insurance policy.

We recorded approximately $196.4 million of
deferred tax liabilities in connection with the acquisition of
Quantum HDD in April 2001. The deferred taxes were recorded
principally to reflect the taxes which would become payable upon
the repatriation of the cash which was invested abroad by
Quantum HDD as of April 1, 2001.

Loss from Discontinued Operations.On August 15, 2002, we announced
our decision to shut down the manufacturing and sales of our
MaxAttachTM branded network attached storage products
(NSG). The discontinuance of our NSG operations
represents the disposal of a component of an entity as defined
in Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-

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Lived Assets. Accordingly, our financial
statements have been presented to reflect NSG as a discontinued
operations for all periods presented. Our liabilities (no
remaining assets) have been segregated from continuing
operations in the accompanying consolidated balance sheet as of
December 28, 2002 and our operating results have been
segregated and reported as discontinued operations in the
accompanying consolidated statement of operations.


Operating results of the NSG discontinued
operations for years ended December 29, 2001 and
December 28, 2002 are as follows (in millions):

|                                     |  |              |       |              |  |   |       |  
|------------------------------------ |  | ------------ | ----- | ------------ |  | - | ----- | -
|                                     |  | December 29, |       | December 28,
|                                     |  | 2001         |       | 2002        
|                                     |  |              |       |             
|Revenue from discontinued operations |  | $            | 31.5  |              |  | $ | 20.4  |  
|Loss from discontinued operations    |  | $            | (48.2 | )            |  | $ | (73.5 | )

The increase in loss in 2002 was due to the
inclusion of the following charges upon the decision to shut
down the NSG operations (in millions):

|                                          |  |   |      | 
|----------------------------------------- |  | - | ---- | 
|Personnel related                         |  | $ | 13.0 | 
|Goodwill and other intangibles write-offs |  | $ | 32.5 | 
|Non-cancelable purchase commitments       |  | $ | 4.2  | 



| |                                    
| | -----------------------------------
| | Liquidity and Capital
    Resources

At December 27, 2003, we had
$530.8 million in cash and cash equivalents,
$37.2 million in restricted cash $44.6 million in
marketable securities and $42.3 million in restricted
marketable securities for a combined total of
$654.9 million. In comparison, at December 28, 2002,
we had $306.4 million in cash and cash equivalents,
$56.7 million in restricted cash and $87.5 million in
marketable securities, for a combined total of
$450.7 million. The restricted cash and restricted
marketable securities balance amounts are pledged as collateral
for certain stand-by letters of credit issued by commercial
banks.

Cash provided by operating activities was
$152.1 million in the twelve months ended December 27,
2003. This comprised $347.3 million in net income net of
non-cash items, offset by an increase in operating capital
(defined as accounts receivables, other receivables and
inventories less accounts payables) of $168.7 million, a
decrease in other assets and liabilities of $18.6 million
and cash used in discontinued operations of $7.9 million.

The increase in operating capital during the
twelve months ended December 27, 2003 was a result of the
following factors: a larger percentage of sales occurring in the
last month of fourth quarter 2003 as compared to the fourth
quarter 2002, resulting in higher accounts receivable and days
sales outstanding at the end of 2003 compared to 2002, and an
increase in inventories principally from the change in product
mix to higher margin drives and growth in our server products,
partially offset by increases in accounts payable associated
with the higher level of inventory.

Cash used in investing activities was
$112.9 million for the twelve months ended
December 27, 2003, primarily reflecting investments in
property, plant and equipment (net of proceeds) of
$131.5 million and purchases (net of sales) of marketable
securities of $1.0 million, partially offset by a decrease
in restricted cash of $19.6 million.

Cash provided by financing activities was
$185.1 million for the twelve months ended
December 27, 2003. This increase in cash is primarily due
to net proceeds of $259.4 million from the issuance of
$223.8 million of 6.8% convertible senior notes due 2010,
$20.6 million from the funding of the second Economic
Development Board of Singapore loan in September 2003
$15.0 million related to and the funding of the Suzhou,
China manufacturing facility loan in October 2003, a
$47.8 million increase in short-term debt from our
receivable-backed borrowing arrangement and net proceeds of
$61.1 million from the issuance of common stock through the
Companys employee stock purchase plan and stock option
exercises, partially offset by a repurchase of common stock of
$44.9 million associated with the issuance of the 6.8%
convertible senior notes due 2010,

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$95.8 million reimbursement for the Quantum
7.0% convertible bond and amortization of our equipment loans
and capital lease obligations of $42.5 million.


We believe that our existing cash and cash
equivalents, short-term investment and capital resources,
together with cash generated from operations and available
borrowing capacity will be sufficient to fund our operations
through at least the next twelve months. We have availability of
$118 million with the Bank of China to fund our expansion
into China as of December 27, 2003. We require substantial
working capital to fund our business, particularly to finance
accounts receivable and inventory, and to invest in property,
plant and equipment. During 2004, capital expenditures are
expected to be in the range of $200 million to
$250 million, primarily used for manufacturing expansion
and upgrades, product development, and updating our information
technology systems. If we need additional capital, there can be
no assurance that such additional financing can be obtained, or
that it will be available on satisfactory terms. See discussion
below under the heading Certain Factors Affecting Future
Performance. Our ability to generate cash will depend on,
among other things, demand in the hard disk drive market and
pricing conditions. We have a net deferred tax liability
amounting to $196.4 million, which could become payable
upon repatriation of the earnings invested abroad.

Contractual Obligations

Payments due under known contractual obligations
as of December 27, 2003 are reflected in the following
table (in thousands):

|                                                                                       |  |       |           |           |  |           |         |           |  |           |         |  |  |   |        |  |  |   |         | 
|-------------------------------------------------------------------------------------- |  | ----- | --------- | --------- |  | --------- | ------- | --------- |  | --------- | ------- |  |  | - | ------ |  |  | - | ------- | 
|                                                                                       |  |       |           |           |  |           |         |           |  | More than
|                                                                                       |  |       |           | Less than |  |           |         | 3-5 Years |  | 5 Years  
|                                                                                       |  | Total |           | 1 Year    |  | 1-3 Years |         | (1)(3)    |  | (1)(2)(3)
|                                                                                       |  |       |           |           |  |           |         |           |  |          
|Long-term Debt                                                                         |  | $     | 412,654   |           |  | $         | 62,915  |           |  | $         | 54,451  |  |  | $ | 21,561 |  |  | $ | 273,727 | 
|Capital Lease Obligations                                                              |  |       | 20,192    |           |  |           | 14,122  |           |  |           | 6,070   |  |  |   |       |  |  |   |        | 
|Operating Leases(4)                                                                    |  |       | 308,825   |           |  |           | 35,550  |           |  |           | 63,431  |  |  |   | 61,948 |  |  |   | 147,896 | 
|Purchase Obligations(5)                                                                |  |       | 723,223   |           |  |           | 699,778 |           |  |           | 11,323  |  |  |   | 12,122 |  |  |   |        | 
|Other Long-term Liabilities Reflected on the
    Companys Balance Sheet under GAAP(6) |  |       | 390       |           |  |           | 340     |           |  |           | 50      |  |  |   |       |  |  |   |        | 
|Total                                                                                  |  | $     | 1,465,284 |           |  | $         | 812,705 |           |  | $         | 135,325 |  |  | $ | 95,631 |  |  | $ | 421,623 | 
|                                                                                       |  |       |           |           |  |           |         |           |  |           |         |  |  |   |        |  |  |   |         | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Does not include $103 million which may be
    borrowed under a facility in a U.S.-dollar-denominated loan, to
    be secured by our facilities in Suzhou, China, drawable until
    April 2007, and repayable in eight semi-annual installments
    commencing October 2007; the borrowings under this facility will
    bear interest at LIBOR plus 50 basis points (subject to
    adjustment to 60 basis points).
|   
|(2) | Includes $15 million of the $30 million
    which may be borrowed under a facility in a
    U.S.-dollar-denominated loan to be secured by our facilities in
    Suzhou, China, drawable until April 2007, and repayable in April
    2013; the borrowing under this facility will bear interest at
    LIBOR plus 50 basis points (subject to adjustment to 60 basis
    points).                                    
|   
|(3) | Does not include $67 million which we are
    obligated to contribute to our China subsidiary to allow
    drawdowns under the facilities described under
    footnotes (1) and (2).                                                                                                                                                                                                                                 
|   
|(4) | Includes future minimum annual rental
    commitments, including amounts accrued as restructuring
    liabilities as of December 27, 2003.                                                                                                                                                                                                                                                                           

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | Purchase obligations are defined as contractual
    obligations for purchase of goods or services, which are
    enforceable and legally binding on the Company and that specify
    all significant terms, including fixed or minimum quantities to
    be purchased, fixed, minimum or variable price provisions and
    the approximate timing of the transaction. The expected timing
    of payment of the obligations set forth above is estimated based
    on current information. Timing of payments and actual amounts
    paid may be different depending on the time of receipt of goods
    or services or changes to agreed-upon amounts for some
    obligations.
|   
|(6) | Excludes operating leases accrued as
    restructuring liabilities as of December 27, 2003. We have
    also excluded $135.6 million relating to our tax sharing
    indemnification agreement with Quantum Corporation as the time
    period within which the obligations may become due and owing is
    not specified.                                                                                                                                                                                                                                                                                                                                                      

We have agreed to invest $200 million over
the next five years to establish a manufacturing facility in
Suzhou, China, and we have secured credit lines with the Bank of
China for up to $133 million to be used for the
construction and working capital requirements of this operation.
The remainder of our commitment will be satisfied primarily with
the transfer of manufacturing assets from Singapore or from our
other manufacturing sites. In October 2003, Maxtor Technology
Suzhou (MTS) drew down $15 million on this
line. MTS is required to maintain a liability to assets ratio as
detailed in the line of credit agreement starting in fiscal 2004.

On May 7, 2003, we sold $230 million in
aggregate principal amount of 6.8% convertible senior notes due
2010 to qualified institutional buyers pursuant to
Rule 144A under the Securities Act of 1933, as amended. The
notes bear interest at a rate of 6.8% per annum and are
convertible into our common stock at a conversion rate of
81.5494 shares per $1,000 principal amount of the notes, or an
aggregate of 18,756,362 shares, subject to adjustment in certain
circumstances (equal to an initial conversion price of $12.2625
per share). The initial conversion price represents a 125%
premium over the closing price of our common stock on
May 1, 2003, which was $5.45 per share. The notes have been
registered with the SEC.

We may not redeem the notes prior to May 5,
2008. Thereafter, we may redeem the notes at 100% of their
principal amount, plus accrued and unpaid interest, if the
closing price of our common stock for 20 trading days within a
period of 30 consecutive trading days ending on the trading day
before the date of our mailing of the redemption notice exceeds
130% of the conversion price on such trading day. If, at any
time, substantially all of our common stock is exchanged or
acquired for consideration that does not consist entirely of
common stock that is listed on a United States national
securities exchange or approved for quotation on the Nasdaq
National Market or similar system, the holders of the notes have
the right to require us to repurchase all or any portion of the
notes at their face value plus accrued interest.

In connection with our sale of the notes, on
May 7, 2003, we also repurchased from an affiliate of one
of the initial purchasers of the notes 8,245,738 shares of
our common stock for an aggregate purchase price of
$44.9 million, or $5.45 per share, the closing price
of our common stock on May 1, 2003, plus commissions. We
will use the balance of the net proceeds of the offering for
repayment of indebtedness, investments, acquisitions, general
corporate purposes and working capital.

In connection with our acquisition of the Quantum
HDD business, we agreed to indemnify Quantum for the Quantum HDD
pro rata portion of Quantums outstanding
$287.5 million 7.0% convertible subordinated notes due
August 1, 2004, and the principal amount of
$95.8 million had been included in our long-term debt. On
August 21, 2003, Quantum redeemed these notes at a
redemption price equal to 101% of the face amount plus accrued
interest and we reimbursed $97.2 million to Quantum
Corporation as payment in full for our obligations related to
the $95.8 million representing Quantum HDDs pro rata
portion of such notes. Accordingly, we recognized a
$1.0 million loss as a result of the early redemption of
the notes which is included in other gain (loss) caption of the
income statement.

On May 9, 2003, we entered into a two-year
receivable-backed borrowing arrangement of up to
$100 million with certain financial institutions. In the
arrangement we use a special purpose subsidiary to purchase and
hold all of our U.S. and Canadian accounts receivable. This
special purpose subsidiary may borrow up to $100 million
collateralized by the U.S. and Canadian accounts receivable. The
special purpose subsidiary is consolidated for financial
reporting purposes. The transactions under the arrangement are
accounted for as secured borrowing and accounts receivables, and
the related short-term borrowings remain on

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our consolidated balance sheet. As of
December 27, 2003, we had borrowed $50.0 million under
the arrangement, which had been reported as short-term
borrowings in our consolidated financial statements. The average
interest rate of the loans outstanding under this agreement is
6.0%. As of December 27, 2003, $245.9 million of U.S.
and Canadian receivables were pledged under the Companys
receivable-backed borrowing arrangement. The arrangement
requires the Company to comply with operational and financial
covenants, including a liquidity covenant and a test of
operating income (loss) before depreciation and amortization to
long-term debt, and certain tests relating to the quality and
nature of the receivables, including a dilution to liquidation
ratio, comparing reductions to the invoiced amounts of
receivables to actual collections in a designated period, and to
maintain a shadow rating for the arrangement from a credit
rating agency. As of December 27, 2003, the Company was in
compliance with these requirements; however, as of March 9,
2004 the dilution to liquidation ratio for this facility
exceeded the agreed upon threshhold. The lenders under the
facility have agreed to forbear from exercising remedies for
noncompliance with this ratio until March 31, 2004 and in
return, we have agreed to apply all collections of receivables
to the repayment of the outstanding facility until repaid in
full, which we expect will occur by the same date. During this
period we will continue to transfer our receivables to the
special purpose subsidiary, but will not have access to
collections on those receivables until the facility is repaid in
full. We do not expect any material adverse impact on our
liquidity as a result of the unavailability of the facility. We
currently expect to replace the facility on substantially
similar terms, but we do not expect any material adverse impact
on our liquidity if such a facility is unavailable on terms
acceptable to us. We do not believe that the fact that we
exceeded the agreed upon threshhold for the dilution to
liquidation ratio is indicative of any negative trend regarding
our business.


In September 2003, Maxtor Peripherals (S) Pte
Ltd. entered into a second four-year 52 million Singapore
dollar loan agreement with the Economic Development Board of
Singapore (the Board) which is amortized in seven
equal semi-annual installments ending December 2007. As of
December 27, 2003, the balance was 35.5 million
Singapore dollars, equivalent to $20.8 million. The Board
charges interest at 4.25%. This loan is supported by a guaranty
from a bank. Cash is currently provided as collateral for this
guaranty; however, we may at our option substitute other assets
as security.



| |                         
| | ------------------------
| | New Accounting Standards

In January 2003, the Financial Accounting
Standards Board (FASB) issued Interpretation
No. 46 (FIN 46) Consolidation of
Variable Interest Entities. Until this interpretation, a
company generally included another entity in its consolidated
financial statements only if it controlled the entity through
voting interests. FIN 46 requires a variable interest
entity, as defined, to be consolidated by a company if that
company is subject to a majority of the risk of loss from the
variable interest entitys activities or entitled to
receive a majority of the entitys residual returns.
Certain provisions of FIN 46 were deferred until the period
ending after March 15, 2004. The adoption of FIN 46
for provisions effective during 2003 did not have a material
impact on the Companys financial position, cash flows or
results of operations.

In November 2002, the EITF reached a consensus on
EITF 00-21, Accounting for Revenue Arrangements with
Multiple Deliverables. EITF 00-21 establishes
criteria for whether revenue on a deliverable can be recognized
separately from other deliverables in a multiple deliverable
arrangement. The criteria consider whether the delivered item
has stand-alone value to the customer, whether the fair value of
the delivered item can be reliably determined and the rights of
returns for the delivered item. EITF 00-21 is effective for
revenue agreements entered into in fiscal years beginning after
June 15, 2003 with early adoption permitted. The Company
believes that the adoption of this standard will have no
material impact on its financial statements.

In April 2003, the FASB issued SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and
Hedging Activities (SFAS 149), which amends
SFAS 133 for certain decisions made by the FASB Derivatives
Implementation Group. In particular, SFAS 149:
(1) clarifies under what circumstances a contract with an
initial net investment meets the characteristic of a derivative,
(2) clarifies when a derivative contains a financing
component, (3) amends the definition of an underlying to
conform it to language used in FASB Interpretation No. 45
Guarantors Accounting and Disclosure Requirements for

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Guarantees, Including Indirect Guarantees of
Indebtedness of Others, and (4) amends certain other
existing pronouncements. This Statement is effective for
contracts entered into or modified after June 30, 2003, and
for hedging relationships designated after June 30, 2003.
In addition, most provisions of SFAS 149 are to be applied
prospectively. The adoption of SFAS 149 did not have a material
impact on the Companys financial position, cash flows or
results of operations.


In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity (SFAS
150). SFAS 150 changes the accounting for certain
financial instruments that under previous guidance issuers could
account for as equity. It requires that those instruments be
classified as liabilities in balance sheets. The guidance in
SFAS 150 is generally effective for all financial instruments
entered into or modified after May 31, 2003, and otherwise
is effective on July 1, 2003. The adoption of SFAS 150 did
not have a material impact on the Companys financial
position, cash flows or results of operations.

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SUPPLEMENTAL FINANCIAL INFORMATION

Unaudited Quarterly Results of
Operations

|                                                                    |                         |                                                    |           |             |   |               |          |              |   |           |          |             |   |               |           |              |  |   |         |             |  |   |         |             |  |   |           |             |  |   |           |             | 
|------------------------------------------------------------------- | ----------------------- | -------------------------------------------------- | --------- | ----------- | - | ------------- | -------- | ------------ | - | --------- | -------- | ----------- | - | ------------- | --------- | ------------ |  | - | ------- | ----------- |  | - | ------- | ----------- |  | - | --------- | ----------- |  | - | --------- | ----------- | 
|                                                                    |                         |                                                   
|                                                                    |                         | Three Months Ended                                
|                                                                    |                         |                                                   
|                                                                    |                         | March 30,                                          |           | June 29,    |   | September 28, |          | December 28, |   | March 29, |          | June 28,    |   | September 27, |           | December 27,
|                                                                    |                         | 2002                                               |           | 2002        |   | 2002          |          | 2002         |   | 2003      |          | 2003        |   | 2003          |           | 2003        
|                                                                    |                         |                                                    |           |             |   |               |          |              |   |           |          |             |   |               |           |             
|                                                                    |                         |                                                   
|                                                                    |                         | (In thousands, except share and per share amounts)
|Revenue                                                             |                         | $                                                  | 1,036,100 |             |   | $             | 885,350  |              |   | $         | 819,716  |             |   | $             | 1,038,348 |              |  | $ | 938,889 |             |  | $ | 910,903 |             |  | $ | 1,065,531 |             |  | $ | 1,171,120 |            
|Gross profit                                                        |                         |                                                    | 113,766   |             |   |               | 59,390   |              |   |           | 57,529   |             |   |               | 166,730   |              |  |   | 171,847 |             |  |   | 149,246 |             |  |   | 182,425   |             |  |   | 197,535   |            
|Income (loss) from continuing operations                            |                         |                                                    | (55,377   | )           |   |               | (103,303 | )            |   |           | (105,470 | )           |   |               | 3,584     |              |  |   | 27,408  |             |  |   | 6,196   |             |  |   | 29,887    |             |  |   | 36,969    |            
|Income (loss) from discontinued operations                          |                         |                                                    | (9,661    | )           |   |               | (5,699   | )            |   |           | (58,141  | )           |   |               |          |              |  |   |        |             |  |   |        |             |  |   |          |             |  |   | 2,211     |            
|                                                                    |                         |                                                    |           |             |   |               |          |              |   |           |          |             |   |               |           |              |  |   |         |             |  |   |         |             |  |   |           |             |  |   |           |            
|Net income (loss)                                                   |                         | $                                                  | (65,038   | )           |   | $             | (109,002 | )            |   | $         | (163,611 | )           |   | $             | 3,584     |              |  | $ | 27,408  |             |  | $ | 6,196   |             |  | $ | 29,887    |             |  | $ | 39,180    |            
|                                                                    |                         |                                                    |           |             |   |               |          |              |   |           |          |             |   |               |           |              |  |   |         |             |  |   |         |             |  |   |           |             |  |   |           |            
|Net income (loss) per share 
    basic
    Continuing operations   |                         | $                                                  | (0.23     | )           |   | $             | (0.43    | )            |   | $         | (0.44    | )           |   | $             | 0.01      |              |  | $ | 0.11    |             |  | $ | 0.03    |             |  | $ | 0.12      |             |  | $ | 0.15      |            
|                                                                    | Discontinued operations |                                                    |           | (0.04       | ) |               |          | (0.03        | ) |           |          | (0.24       | ) |               |           |             |  |   |         |            |  |   |         |            |  |   |           |            |  |   |           | 0.01        | 
|                                                                    |                         |                                                    |           |             |   |               |          |              |   |           |          |             |   |               |           |              |  |   |         |             |  |   |         |             |  |   |           |             |  |   |           |            
|                                                                    | Total                   |                                                    | $         | (0.27       | ) |               | $        | (0.46        | ) |           | $        | (0.68       | ) |               | $         | 0.01         |  |   | $       | 0.11        |  |   | $       | 0.03        |  |   | $         | 0.12        |  |   | $         | 0.16        | 
|                                                                    |                         |                                                    |           |             |   |               |          |              |   |           |          |             |   |               |           |              |  |   |         |             |  |   |         |             |  |   |           |             |  |   |           |            
|Net income (loss) per share 
    diluted
    Continuing operations |                         | $                                                  | (0.23     | )           |   | $             | (0.43    | )            |   | $         | (0.44    | )           |   | $             | 0.01      |              |  | $ | 0.11    |             |  | $ | 0.03    |             |  | $ | 0.12      |             |  | $ | 0.14      |            
|                                                                    | Discontinued operations |                                                    |           | (0.04       | ) |               |          | (0.03        | ) |           |          | (0.24       | ) |               |           |             |  |   |         |            |  |   |         |            |  |   |           |            |  |   |           | 0.01        | 
|                                                                    |                         |                                                    |           |             |   |               |          |              |   |           |          |             |   |               |           |              |  |   |         |             |  |   |         |             |  |   |           |             |  |   |           |            
|                                                                    | Total                   |                                                    | $         | (0.27       | ) |               | $        | (0.46        | ) |           | $        | (0.68       | ) |               | $         | 0.01         |  |   | $       | 0.11        |  |   | $       | 0.03        |  |   | $         | 0.12        |  |   | $         | 0.15        | 
|                                                                    |                         |                                                    |           |             |   |               |          |              |   |           |          |             |   |               |           |              |  |   |         |             |  |   |         |             |  |   |           |             |  |   |           |            
|Shares used in per share calculation:                               |                         |                                                    |           |             |   |               |          |              |   |           |          |             |   |               |           |              |  |   |         |             |  |   |         |             |  |   |           |             |  |   |           |            
|                                                                    | Basic                   |                                                    |           | 236,956,653 |   |               |          | 238,803,423  |   |           |          | 240,177,574 |   |               |           | 241,344,157  |  |   |         | 243,634,139 |  |   |         | 241,120,075 |  |   |           | 241,618,320 |  |   |           | 245,439,935 | 
|                                                                    | Diluted                 |                                                    |           | 236,956,653 |   |               |          | 238,803,423  |   |           |          | 240,177,574 |   |               |           | 243,166,368  |  |   |         | 246,866,117 |  |   |         | 245,259,831 |  |   |           | 252,343,682 |  |   |           | 256,714,105 | 

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CERTAIN FACTORS AFFECTING FUTURE
PERFORMANCE

We have a history of losses and may not
maintain profitability.

We have a history of significant losses and may
not maintain profitability. In the last five fiscal years, we
were profitable in only fiscal years 2000 and 2003. For the year
ended December 27, 2003, our net income was
$102.7 million, which included $85.3 million for the
amortization of intangible assets, charges of $0.8 million
for stock-based compensation and income from discontinued
operations of $2.2 million. As of December 27, 2003,
we had an accumulated deficit of $1,637.9 million. Although
we were profitable in the fiscal year 2003, we have a history of
losses and may not maintain profitability.

The decline of average selling prices in the
hard disk drive industry could cause our operating results to
suffer and make it difficult for us to achieve or maintain
profitability.

It is very difficult to achieve and maintain
profitability and revenue growth in the hard disk drive industry
because the average selling price of a hard disk drive rapidly
declines over its commercial life as a result of technological
enhancement, productivity improvement and increases in supply.
End-user demand for the computer systems that contain our hard
disk drives has historically been subject to rapid and
unpredictable fluctuations. In addition, intense price
competition among personal computer manufacturers and
Intel-based server manufacturers may cause the price of hard
disk drives to decline. As a result, the hard disk drive market
tends to experience periods of excess capacity and intense price
competition. Competitors attempts to liquidate excess
inventories, restructure, or gain market share also tend to
cause average selling prices to decline. This excess capacity
and intense price competition may cause us in future quarters to
lower prices, which will have the effect of reducing margins,
causing operating results to suffer and making it difficult for
us to achieve or maintain profitability. If we are unable to
lower the cost of producing our hard disk drives to be
consistent with any decline of average selling prices, we will
not be able to compete effectively and our operating results
will suffer.

Intense competition in the hard disk drive
market could reduce the demand for our products or the prices of
our products, which could adversely affect our operating
results.

The desktop computer market segment and the
overall hard disk drive market are intensely competitive even
during periods when demand is stable. We compete primarily with
manufacturers of 3.5 inch hard disk drives, including Fujitsu,
Hitachi Global Storage, Samsung, Seagate Technology, and Western
Digital. Many of our competitors historically have had a number
of significant advantages, including larger market shares, a
broader product line, preferred vendor status with customers,
extensive name recognition and marketing power, and
significantly greater financial, technical and manufacturing
resources. Some of our competitors make many of their own
components, which may provide them with benefits including lower
costs. Our competitors may also:



| |   |                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | consolidate or establish strategic relationships
    to lower their product costs or to otherwise compete more
    effectively against us;                
|
| |  | lower their product prices to gain market share;                                                                                                          
|
| |  | sell their products with other products to
    increase demand for their products;                                                                        
|
| |  | develop new technology which would significantly
    reduce the cost of their products; or                                                                
|
| |  | offer more products than we do and therefore
    enter into agreements with customers to supply hard disk drives
    as part of a larger supply agreement.

Increasing competition could reduce the demand
for our products and/or the prices of our products as a result
of the introduction of technologically better and cheaper
products, which could reduce our revenues. In addition, new
competitors could emerge and rapidly capture market share. If we
fail to compete successfully against current or future
competitors, our business, financial condition and operating
results will suffer.

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Our quarterly operating results have
fluctuated significantly in the past and are likely to fluctuate
in the future.

Our quarterly operating results have fluctuated
significantly in the past and may fluctuate significantly in the
future. Our future performance will depend on many factors,
including:



| |   |                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the average selling price of our products;                                                                                                                                                                           
|
| |  | fluctuations in the demand for our products as a
    result of the seasonal nature of the desktop computer industry
    and the markets for our customers products, as well as the
    overall economic environment;
|
| |  | market acceptance of our products;                                                                                                                                                                                   
|
| |  | our ability to qualify our products successfully
    with our customers;                                                                                                                                             
|
| |  | changes in purchases by our primary customers,
    including the cancellation, rescheduling or deferment of orders;                                                                                                  
|
| |  | changes in product and customer mix;                                                                                                                                                                                 
|
| |  | actions by our competitors, including
    announcements of new products or technological innovations;                                                                                                                
|
| |  | our ability to execute future product development
    and production ramps effectively;                                                                                                                              
|
| |  | the availability, and efficient use, of
    manufacturing capacity;                                                                                                                                                  
|
| |  | our inability to reduce a significant portion of
    our fixed costs due, in part, to our ongoing capital expenditure
    requirements; and                                                                          
|
| |  | our ability to procure and purchase critical
    components at competitive prices.                                                                                                                                   

Many of our expenses are relatively fixed and
difficult to reduce or modify. The fixed nature of our operating
expenses will magnify any adverse effect of a decrease in
revenue on our operating results. Because of these and other
factors, period to period comparisons of our historical results
of operations are not a good predictor of our future
performance. If our future operating results are below the
expectations of stock market analysts, our stock price may
decline. Our ability to predict demand for our products and our
financial results for current and future periods may be affected
by economic conditions. This may adversely affect both our
ability to adjust production volumes and expenses and our
ability to provide the financial markets with forward-looking
information.

If we fail to qualify as a supplier to
computer manufacturers or their subcontractors for a future
generation of hard disk drives, then these manufacturers or
subcontractors may not purchase any units of an entire product
line, which will have a significant adverse impact on our
sales.

A significant portion of our products is sold to
desktop computer and Intel-based server manufacturers or to
their subcontractors. These manufacturers select or qualify
their hard disk drive suppliers, either directly or through
their subcontractors, based on quality, storage capacity,
performance and price. Manufacturers typically seek to qualify
two or more suppliers for each hard disk drive product
generation. To qualify consistently, and thus succeed in the
desktop and Intel-based server hard disk drive industry, we must
consistently be among the first-to-market introduction and
first-to-volume production at leading storage capacities per
disk, offering competitive prices and high quality. Once a
manufacturer or subcontractor has chosen its hard disk drive
suppliers for a given desktop computer or Intel-based server
product, it often will purchase hard disk drives from those
suppliers for the commercial lifetime of that product line. It
is, however, possible to fail to maintain a qualification due to
quality or yield issues. If we miss a qualification opportunity
or cease to be qualified due to yield or quality issues, we may
not have another opportunity to do business with that
manufacturer or subcontractor until it introduces its next
generation of products. The effect of missing a product
qualification opportunity is magnified by the limited number of
high-volume manufacturers of personal computers and Intel-based
servers. If we do not reach the market or deliver volume
production in a timely manner, we may lose opportunities to
qualify our products and may need to deliver lower margin, older

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products than required in order to meet our
customers demands. In such case, our business, financial
condition and operating results would be adversely affected.


Because we are substantially dependent on
desktop computer drive sales, a decrease in the demand for
desktop computers could reduce demand for our
products.

Our revenue growth and profitability depend
significantly on the overall demand for desktop computers and
related products and services. Because we sell a significant
portion of our products to the desktop segment of the personal
computer industry, we will be affected more by changes in market
conditions for desktop computers than a company with a broader
range of products. Any decrease in the demand for desktop
computers could reduce the demand for our products, harming our
business, financial condition and operating results.

The loss of one or more significant customers
or a decrease in their orders of products would cause our
revenues to decline.

We sell most of our products to a limited number
of customers. For the fiscal year ended December 27, 2003,
one customer, Dell Computer Corporation, accounted for
approximately 11% of our total revenue, and our top five
customers accounted for approximately 38.9% of our revenue. We
expect that a relatively small number of customers will continue
to account for a significant portion of our revenue, and the
proportion of our revenue from these customers could continue to
increase in the future. These customers have a wide variety of
suppliers to choose from and therefore can make substantial
demands on us. Even if we successfully qualify a product for a
given customer, the customer generally will not be obligated to
purchase any minimum volume of product from us and generally
will be able to terminate its relationship with us at any time.
Our ability to maintain strong relationships with our principal
customers is essential to our future performance. If we lose a
key customer or if any of our key customers reduce their orders
of our products or require us to reduce our prices before we are
able to reduce costs, our business, financial condition and
operating results could suffer. Mergers, acquisitions,
consolidations or other significant transactions involving our
significant customers may adversely affect our business and
operating results.

If we fail to develop and maintain
relationships with our key distributors, if we experience
problems associated with distribution channels, or if our key
distributors favor our competitors products over ours, our
operating results could suffer.

We sell a significant amount of our hard disk
drive products through a limited number of key distributors. If
we fail to develop, cultivate and maintain relationships with
our key distributors, or if these distributors are not
successful in their sales efforts, sales of our products may
decrease and our operating results could suffer. As our sales
through these distribution channels continue to increase, we may
experience problems typically associated with these distribution
channels such as unstable pricing, increased return rates and
other logistical difficulties. Our distributors also sell
products manufactured by our competitors. If our distributors
favor our competitors products over our products for any
reason, they may fail to market our products effectively or
continue to devote the resources necessary to provide us with
effective sales and, as a result, our operating results could
suffer.

If we do not expand into new hard drive market
segments, and maintain our presence in the hard disk drive
market, our revenues will suffer.

To remain a significant supplier of hard disk
drives to major manufacturers of personal computers and
Intel-based servers, we will need to offer a broad range of hard
disk drive products to our customers. Although almost all of our
current products are designed for the desktop computer and the
Intel-based server markets, demand in these segments may shift
to products we do not offer or volume demand may shift to other
segments. Such segments may include the laptop computer or
handheld consumer product segments, which none of our products
currently serves. Products using alternative technologies, such
as optical storage, semiconductor memory and other storage
technologies, may also compete with our hard disk drive
products. While we continually develop new products, the success
of our new product introductions is dependent on a

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number of factors, including market acceptance,
our ability to manage the risks associated with product
transitions, the effective management of inventory levels in
line with product demand, and the risk that our new products
will have quality problems or other defects in the early stages
of introduction that were not anticipated in the design of those
products. We will need to successfully develop and manufacture
new products that address additional hard disk drive market
segments or competitors technology or feature development
to remain competitive in the hard disk drive industry. We cannot
assure you that we will successfully or timely develop and
market any new hard disk drives in response to technological
changes or evolving industry standards. We also cannot assure
you that we will avoid technical or other difficulties that
could delay or prevent the successful development, introduction
or marketing of new hard disk drives. Any failure to
successfully develop and introduce new products for our existing
customers or to address additional market segments could result
in loss of customer business or require us to deliver product
not targeted effectively to customer requirements, which in turn
could adversely affect our business, financial condition and
operating results.


Our customers have adopted a subcontractor
model that increases our credit risk and could result in an
increase in our operating costs.

Our significant OEM customers have adopted a
subcontractor model that requires us to contract directly with
companies that provide manufacturing services for personal
computer manufacturers. This exposes us to increased credit risk
because these subcontractors are generally not as well
capitalized as personal computer manufacturers, and our
agreements with our customers may not permit us to increase our
prices to compensate for this increased credit risk. Any credit
losses would increase our operating costs, which could cause our
operating results to suffer.

If we fail to match production with product
demand or to manage inventory, our operating results could
suffer.

We base our inventory purchases and commitments
on forecasts from our customers, who are not obligated to
purchase the forecast amounts. If actual orders do not match our
forecasts, or if any products become obsolete between order and
delivery time, we may have excess or inadequate inventory of our
products. In addition, our significant OEM customers have
adopted build-to-order manufacturing models or just-in-time
inventory management processes that require component suppliers
to maintain inventory at or near the customers production
facility. These policies, combined with continued compression of
product life cycles, have complicated inventory management
strategies that make it more difficult to match manufacturing
plans with projected customer demand and cause us to carry
inventory for more time and to incur additional costs to manage
inventory which could cause our operating results to suffer. If
we fail to manage inventory of older products as we or our
competitors introduce new products with higher areal density, we
may have excess inventory. Excess inventory could materially
adversely affect our operating results and cause our operating
results to suffer.

Because we purchase a significant portion of
our parts from a limited number of third party suppliers, we are
subject to the risk that we may be unable to acquire quality
components in a timely manner, or effectively integrate parts
from different suppliers, and these component shortages or
integration problems could result in delays of product shipments
and damage our business and operating results.

Unlike some of our competitors, we do not
manufacture any of the parts used in our products, other than
media as a result of our acquisition of MMC Technologies Inc.,
or MMC. Instead, our products incorporate parts and components
designed by and purchased from third party suppliers. Both we
and Matsushita-Kotobuki Electronics Industries, Ltd., or MKE,
depend on a limited number of qualified suppliers for components
and subassemblies, including recording heads, media and
integrated circuits. Currently, we purchase recording heads from
two sources, digital signal processors/controllers from one
source and spin/servo integrated circuits from two sources. We
recently entered into agreements with our two recording head
suppliers, TDK/SAE and ALPS Electric Co., Ltd., pursuant to
which these suppliers will each be collaborating with Maxtor on
the development of future head technologies, efficiencies, and
in the case of

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TDK/SAE, manufacturing and manufacturing
strategies. TDK/SAE will be supplying recording heads to Maxtor
on a priority customer basis, subject to
qualification and pricing conditions. Although our acquisition
of our primary media supplier, MMC, has reduced our dependence
on outside suppliers for this component, MMC cannot supply all
of our media needs, and therefore we are still required to
purchase media from two outside sources. As we have experienced
in the past, some required parts may be periodically in short
supply. As a result, we will have to allow for significant
ordering lead times for some components. In addition, we may
have to pay significant cancellation charges to suppliers if we
cancel orders for components because we reduce production due to
market oversupply, reduced demand, transition to new products or
technologies or for other reasons. We order the majority of our
components on a purchase order basis and we have limited
long-term volume purchase agreements with only some of our
existing suppliers. In the event that these suppliers cannot
qualify to new leading-edge technology specifications, our ramp
up of production for the new products will be delayed, and our
business, operating results and financial condition will be
adversely affected.


If we cannot obtain sufficient quantities of
high-quality parts when needed, product shipments would be
delayed and our business, financial condition and operating
results could suffer. We cannot assure you that we will be able
to obtain adequate supplies of critical components in a timely
and economic manner, or at all.

The success of our products also depends on our
ability to effectively integrate parts and components that use
leading-edge technology. If we are unable to successfully manage
the integration of parts obtained from third party suppliers,
our business, financial condition and operating results could
suffer.

If we are unable to acquire needed additional
manufacturing capacity, or MKE does not meet our manufacturing
requirements or a disaster occurs at one of our or MKEs
plants, our growth will be adversely impacted and our business,
financial condition and operating results could
suffer.

Our Maxtor-owned facilities in Singapore and our
relationship with MKE for the manufacture of Atlas 10,000 RPM
hard disk drives for the enterprise market are currently our
only sources of production for our hard disk drive products. MKE
manufactures a substantial portion of our Atlas hard disk drives
for the enterprise market pursuant to a master agreement and a
purchase agreement that has been extended through March 31,
2004. Following the termination of the purchase agreement with
MKE in March 2004, we expect to continue to have MKE manufacture
a significant portion of our Atlas products pursuant to purchase
orders through September 2004. We plan to transition the
manufacturing of our server products to our Singapore
manufacturing facility in the second half of 2004. Although we
do not anticipate any disruption in supply of the enterprise
products which are being manufactured by MKE prior to our
transition to Singapore, any failure to reach an agreement with
MKE on competitive pricing arrangements for product delivered
before the transition, or any disruption of supply of such
products manufactured by MKE prior to the transition of
manufacturing to Singapore would negatively impact our business
and operating results for such periods.

We will need to acquire additional manufacturing
capacity in the future. Our inability to add capacity to allow
us to meet customers demands in a timely manner may limit
our future growth and could harm our business, financial
condition and operating results. We have begun construction of a
manufacturing facility in China that will provide us with a
low-cost facility to accommodate anticipated future growth. We
anticipate that the facility will become operational in the
second half of 2004. Any significant disruption in the
construction of the facility could delay the time at which the
facility could come online, which could harm our business,
financial condition and operating results.

In addition, our entire volume manufacturing
operations are based in Singapore. Our MKE-manufactured server
products are manufactured in Japan. We are planning to have our
factory in China operational in the second half of 2004. A
flood, earthquake, political instability, act of terrorism or
other disaster or condition in Singapore or Japan, or after our
China plant is operational, in China, that adversely affects our
facilities or ability to manufacture our hard disk drive
products could significantly harm our business, financial
condition and operating results.

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We are subject to risks related to product
defects, which could subject us to warranty claims in excess of
our warranty provision or which are greater than anticipated due
to the unenforceability of liability limitations.

Our products may contain defects. We generally
warrant our products for one to five years and prior to the
acquisition, Quantum HDD generally warranted its products for
one to five years. We assumed Quantum HDDs warranty
obligations as a result of the acquisition. The standard
warranties used by us and Quantum HDD contain limits on damages
and exclusions of liability for consequential damages and for
negligent or improper use of the products. We establish a
warranty provision at the time of product shipment in an amount
equal to estimated warranty expenses. We may incur additional
operating expenses if these steps do not reflect the actual cost
of resolving these issues, and if any resulting expenses are
significant, our business, financial condition and results of
operations will suffer.

We have asserted claims against Quantum, and
Quantum has asserted claims against us, for payment under
agreements entered into in connection with our acquisition of
the Quantum HDD business. In the event these claims are not
resolved favorably in the aggregate, our business, financial
condition, operating results, cash flows and liquidity could be
harmed.

We have asserted multiple claims against Quantum,
and Quantum has asserted multiple claims against us, for payment
under agreements entered into in connection with our acquisition
of the Quantum HDD business, including a tax sharing and
indemnity agreement, which provides for the allocation of
certain liabilities related to taxes. We disagree with Quantum
about the amounts owed by each party under the agreements and we
are in negotiations with Quantum to resolve the claims. The
parties have commenced dispute resolution procedures under the
tax sharing and indemnity agreement. Although we believe that we
will be successful in asserting and defending these claims, an
unfavorable resolution of these claims in the aggregate could
harm our business, financial condition, operating results, cash
flows and liquidity.

If Quantum incurs non-insured tax liabilities
as a result of its separation of Quantum HDD from Quantum
Corporation in connection with our acquisition of the Quantum
HDD business, our financial condition and operating results
could be negatively affected.

In connection with our acquisition of the Quantum
HDD business, we agreed to indemnify Quantum for the amount of
any tax payable by Quantum as a result of the separation of the
Quantum HDD business from Quantum Corporation (referred to as a
split-off) to the extent such tax is not covered by
insurance, unless imposition of the tax is the result of
Quantums actions, or acquisitions of Quantum stock, after
the transaction. The amount of the tax not covered by insurance
could be substantial. In addition, if it is determined that
Quantum owes federal or state tax as a result of the transaction
and the circumstances giving rise to the tax are covered by our
indemnification obligations, we will be required to pay Quantum
the amount of the tax at that time, whether or not reimbursement
may be allowed under the insurance policy. Even if a claim is
available, made and pending under the tax opinion insurance
policy, there may be a substantial period after we pay Quantum
for the tax before the outcome of the insurance claim is finally
known, particularly if the claim is denied by the insurance
company and the denial is disputed by us and/or Quantum.
Moreover, the insurance company could prevail in a coverage
dispute. In any of these circumstances, we would have to either
use our existing cash resources or borrow money to cover our
obligations to Quantum. In either case, our payment of the tax,
whether covered by insurance or not, could harm our business,
financial condition, operating results and cash flows.

Any failure to adequately protect and enforce
our intellectual property rights could harm our
business.

Our protection of our intellectual property is
limited. For example, we have patent protection on only some of
our technologies. We may not receive patents for our pending or
future patent applications, and any patents that we own or that
are issued to us may be invalidated, circumvented or challenged.
In the case of products offered in rapidly emerging markets,
such as consumer electronics, our competitors may file patents
more rapidly or in greater numbers resulting in the issuance of
patents that may result in unexpected infringement assertions
against us. Moreover, the rights granted under any such patents
may not provide us

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with any competitive advantages. Finally, our
competitors may develop or otherwise acquire equivalent or
superior technology. We also rely on trade secret, copyright and
trademark laws as well as the terms of our contracts to protect
our proprietary rights. We may have to litigate to enforce
patents issued or licensed to us, to protect trade secrets or
know-how owned by us or to determine the enforceability, scope
and validity of our proprietary rights and the proprietary
rights of others. Enforcing or defending our proprietary rights
could be expensive and might not bring us timely and effective
relief. We may have to obtain licenses of other parties
intellectual property and pay royalties. If we are unable to
obtain such licenses, we may have to stop production of our
products or alter our products. In addition, the laws of certain
countries in which we sell and manufacture our products,
including various countries in Asia, may not protect our
products and intellectual property rights to the same extent as
the laws of the United States. Our remedies in these countries
may be inadequate to protect our proprietary rights. Any failure
to enforce and protect our intellectual property rights could
harm our business, financial condition and operating results.


We are subject to existing claims relating to
our intellectual property which are costly to defend and may
harm our business.

Prior to our acquisition of the Quantum HDD
business, we, on the one hand, and Quantum and MKE, on the other
hand, were sued by Papst Licensing, GmbH, a German corporation,
for infringement of a number of patents that relate to hard disk
drives. Papsts complaint against Quantum and MKE was filed
on July 30, 1998, and Papsts complaint against Maxtor
was filed on March 18, 1999. Both lawsuits, filed in the
United States District Court for the Northern District of
California, were transferred by the Judicial Panel on
Multidistrict Litigation to the United States District Court for
the Eastern District of Louisiana for coordinated pre-trial
proceedings with other pending litigations involving the Papst
patents (the MDL Proceeding). The matters will be
transferred back to the District Court for the Northern District
of California for trial. Papsts infringement allegations
are based on spindle motors that Maxtor and Quantum purchased
from third party motor vendors, including MKE, and the use of
such spindle motors in hard disk drives. We purchased the
overwhelming majority of the spindle motors used in our hard
disk drives from vendors that were licensed under the Papst
patents. Quantum purchased many spindle motors used in its hard
disk drives from vendors that were not licensed under the Papst
patents, including MKE. As a result of our acquisition of the
Quantum HDD business, we assumed Quantums potential
liabilities to Papst arising from the patent infringement
allegations Papst asserted against Quantum. We filed a motion to
substitute Maxtor for Quantum in this litigation. The motion was
denied by the Court presiding over the MDL Proceeding, without
prejudice to being filed again in the future.

In February 2002, Papst and MKE entered into an
agreement to settle Papsts pending patent infringement
claims against MKE. That agreement includes a license of certain
Papst patents to MKE, which might provide Quantum, and thus us,
with additional defenses to Papsts patent infringement
claims.

On April 15, 2002, the Judicial Panel on
Multidistrict Litigation ordered a separation of claims and
remand to the District of Columbia of certain claims between
Papst and another party involved in the MDL Proceeding. By order
entered June 4, 2002, the court stayed the MDL Proceeding
pending resolution by the District of Columbia court of the
remanded claims. These separated claims relating to the other
party are currently proceeding in the District Court for the
District of Columbia.

The results of any litigation are inherently
uncertain and Papst may assert other infringement claims
relating to current patents, pending patent applications, and/or
future patent applications or issued patents. Additionally, we
cannot assure you we will be able to successfully defend
ourselves against this or any other Papst lawsuit. Because the
Papst complaints assert claims to an unspecified dollar amount
of damages, and because we were at an early stage of discovery
when the litigation was stayed, we are unable to determine the
possible loss, if any, that we may incur as a result of an
adverse judgment or a negotiated settlement. A favorable outcome
for Papst in these lawsuits could result in the issuance of an
injunction against us and our products and/or the payment of
monetary damages equal to a reasonable royalty. In the case of a
finding of a willful infringement, we also could be required to
pay treble damages and Papsts attorneys fees. The
litigation could result in significant diversion of time by our
technical personnel, as well as substantial expenditures for
future legal fees. Accordingly, although we cannot currently
estimate whether there will be a loss, or the size

48



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of any loss, a litigation outcome favorable to
Papst could have a material adverse effect on our business,
financial condition and operating results. Management believes
that it has valid defenses to the claims of Papst and is
defending this matter vigorously.


On December 30, 2003, an action was filed by
MKE against us and Quantum alleging, among other things,
MKEs ownership of certain intellectual property we
acquired in the acquisition of the Quantum HDD business. The
action was filed in the United States District Court for the
Northern District of California. On March 1, 2004, we filed
an answer denying all material allegations and a motion to
dismiss. MKE seeks damages, the return of the intellectual
property, a constructive trust relating to profits from the use
or license of the intellectual property, a declaratory judgment
and injunctive relief. The results of any litigation are
inherently uncertain. Although we cannot currently estimate
whether there will be a loss, or the size of any loss, a
litigation outcome unfavorable to us could have a material
adverse effect on our business, financial condition and
operating results. Management believes that the lawsuit is
without merit, that it has valid defenses to the claims of MKE,
and plans to defend the matter vigorously.

We face risks from our substantial
international operations and sales.

We conduct most of our manufacturing and testing
operations and purchase a substantial portion of our key parts
outside the United States. In particular, currently
manufacturing operations for our products are concentrated in
Singapore, where our principal manufacturing operations are
located, and in Japan, where MKEs manufacturing operations
are located. We expect to transition our manufacturing from MKE
to Singapore in the second half of 2004 and we also expect our
new manufacturing plant in Suzhou, China to be operational in
the second half of 2004. Such concentration of operations in
Singapore and either Japan or China will likely magnify the
effects on us of any disruptions or disasters relating to those
countries. In addition, we also sell a significant portion of
our products to foreign distributors and retailers. As a result,
we will be dependent on revenue from international sales.
Inherent risks relating to our overseas operations include:



| |   |                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | difficulties with staffing and managing
    international operations;                                                                                                                                                     
|
| |  | transportation and supply chain disruptions and
    increased transportation expense as a result of epidemics,
    terrorist activity, acts of war or hostility, increased security
    and less developed infrastructure;
|
| |  | economic slowdown and/or downturn in foreign
    markets;                                                                                                                                                                 
|
| |  | international currency fluctuations;                                                                                                                                                                                      
|
| |  | political and economic uncertainty caused by
    epidemics, terrorism or acts of war or hostility;                                                                                                                        
|
| |  | legislative and regulatory responses to terrorist
    activity such as increased restrictions on cross-border movement
    of products and technology;                                                                    
|
| |  | legislative, regulatory, police, or civil
    responses to epidemics or other outbreaks of infectious diseases
    such as quarantines, factory closures, or increased restrictions
    on transportation or travel;      
|
| |  | general strikes or other disruptions in working
    conditions;                                                                                                                                                           
|
| |  | labor shortages;                                                                                                                                                                                                          
|
| |  | political instability;                                                                                                                                                                                                    
|
| |  | changes in tariffs;                                                                                                                                                                                                       
|
| |  | generally longer periods to collect receivables;                                                                                                                                                                          
|
| |  | unexpected legislative or regulatory requirements;                                                                                                                                                                        
|
| |  | reduced protection for intellectual property
    rights in some countries;                                                                                                                                                
|
| |  | significant unexpected duties or taxes or other
    adverse tax consequences;                                                                                                                                             

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| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | difficulty in obtaining export licenses and other
    trade barriers;        
|
| |  | seasonality;                                                                 
|
| |  | increased transportation/shipping costs; and                                 
|
| |  | credit and access to capital issues faced by our
    international customers.

The specific economic conditions in each country
impact our international sales. For example, our international
contracts are denominated primarily in U.S. dollars.
Significant downward fluctuations in currency exchange rates
against the U.S. dollar could result in higher product
prices and/or declining margins and increased manufacturing
costs. In addition, we attempt to manage the impact of foreign
currency exchange rate changes by entering into short-term,
foreign exchange contracts. If we do not effectively manage the
risks associated with international operations and sales, our
business, financial condition and operating results could suffer.

We significantly increased our leverage as a
result of the sale of the 6.8% convertible senior
notes.

In connection with our sale of the 6.8%
convertible senior notes (the Notes) on May 7,
2003, we incurred $230 million of indebtedness, set to
mature in April 2010. We will require substantial amounts of
cash to fund semi-annual interest payments on the Notes, payment
of the principal amount of the Notes upon maturity (or earlier
upon a mandatory or voluntary redemption or if we elect to
satisfy a conversion of the Notes, in whole or in part, with
cash rather than shares of our common stock), as well as future
capital expenditures, investments and acquisitions, payments on
our leases and loans, and any increased working capital
requirements. If we are unable to meet our cash requirements out
of available funds, we may need be to obtain alternative
financing, which may not be available on favorable terms or at
all. The degree to which we are financially leveraged could
materially and adversely affect our ability to obtain additional
financing for working capital, acquisitions or other purposes
and could make us more vulnerable to industry downturns and
competitive pressures. In the absence of such financing, our
ability to respond to changing business and economic conditions,
to make future acquisitions, to absorb adverse operating results
or to fund capital expenditures or increased working capital
requirements would be significantly reduced. Our ability to meet
our debt service obligations will be dependent upon our future
performance, which will be subject to financial, business and
other factors affecting our operations, some of which are beyond
our control. If we do not generate sufficient cash flow from
operations to repay the Notes at maturity, we could attempt to
refinance the Notes; however, no assurance can be given that
such a refinancing would be available on terms acceptable to us,
if at all. Any failure by us to satisfy our obligations under
the Notes or the indenture could cause a default under
agreements governing our other indebtedness.

The loss of key personnel could harm our
business.

Our success depends upon the continued
contributions of key employees, many of whom would be extremely
difficult to replace. Like many other technology companies, we
have implemented workforce reductions that in some cases
resulted in the termination of key employees who have
substantial knowledge of our business. These and any future
workforce reductions may also adversely affect the morale of,
and our ability to retain, employees who have not been
terminated, which may result in the further loss of key
employees. We do not have key person life insurance on any of
our personnel. Worldwide competition for skilled employees in
the hard disk drive industry is extremely intense. If we are
unable to retain existing employees or to hire and integrate new
employees, our business, financial condition and operating
results could suffer. In addition, companies in the hard disk
drive industry whose employees accept positions with competitors
often claim that the competitors have engaged in unfair hiring
practices. We may be the subject of such claims in the future as
we seek to hire qualified personnel and we could incur
substantial costs defending ourselves against those claims.

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We could be subject to environmental
liabilities which could increase our expenses and harm our
business, financial condition and results of
operations.

Because of the chemicals we use in our
manufacturing and research operations, we are subject to a wide
range of environmental protection regulations in the United
States and Singapore. Once our new manufacturing facility in
Suzhou, China is operational, we will also be subject to
environmental regulation in China. While we do not believe our
operations to date have been harmed as a result of such laws,
future regulations may increase our expenses and harm our
business, financial condition and results of operations. Even if
we are in compliance in all material respects with all present
environmental regulations, in the United States environmental
regulations often require parties to fund remedial action
regardless of fault. As a consequence, it is often difficult to
estimate the future impact of environmental matters, including
potential liabilities. If we have to make significant capital
expenditures or pay significant expense in connection with
future remedial actions or to continue to comply with applicable
environmental laws, our business, financial condition and
operating results could suffer.

The market price of our common stock
fluctuated substantially in the past and is likely to fluctuate
in the future as a result of a number of factors, including the
release of new products by us or our competitors, the loss or
gain of significant customers or changes in stock market
analysts estimates.

The market price of our common stock and the
number of shares traded each day have varied greatly. Such
fluctuations may continue due to numerous factors, including:



| |   |                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |  | quarterly fluctuations in operating results;                                                                                     
|
| |  | announcements of new products by us or our
    competitors such as products that address additional hard disk
    drive segments;
|
| |  | gains or losses of significant customers;                                                                                        
|
| |  | changes in stock market analysts estimates;                                                                                     
|
| |  | the presence of short-selling of our common stock;                                                                               
|
| |  | sales of a high volume of shares of our common
    stock by our large stockholders;                                              
|
| |  | events affecting other companies that the market
    deems comparable to us;                                                     
|
| |  | general conditions in the semiconductor and
    electronic systems industries; and                                               
|
| |  | general economic conditions in the United States
    and abroad.                                                                 

Anti-takeover provisions in our certificate of
incorporation could discourage potential acquisition proposals
or delay or prevent a change of control.

We have a number of protective provisions in
place designed to provide our board of directors with time to
consider whether a hostile takeover is in our best interests and
that of our stockholders. These provisions could discourage
potential acquisition proposals and could delay or prevent a
change in control of the company and also could diminish the
opportunities for a holder of our common stock to participate in
tender offers, including offers at a price above the
then-current market price for our common stock. These provisions
also may inhibit fluctuations in our stock price that could
result from takeover attempts.

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|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

Derivatives

We enter into foreign exchange forward contracts
to manage foreign currency exchange risk associated with our
operations primarily in Singapore, Switzerland and Japan. The
foreign exchange forward contracts we enter into generally have
original maturities ranging from one to three months. We do not
enter into foreign exchange forward contracts for trading
purposes. We do not expect gains or losses on these contracts to
have a material impact on our financial results.

Investments

We maintain an investment portfolio of various
holdings, types and maturities. These marketable securities are
generally classified as available for sale and, consequently,
are recorded on the balance sheet at fair value with unrealized
gains or losses reported as a separate component of accumulated
other comprehensive income. Part of this portfolio includes
investments in bank issues, corporate bonds and commercial
papers. For additional information regarding our impairment
policy, see note 1 of the Notes to Consolidated Financial
Statements.

The following table presents the hypothetical
changes in fair values in the financial instruments held at
December 27, 2003 that are sensitive to changes in interest
rates. These instruments are not leveraged and are held for
purposes other than trading. The hypothetical changes assume
immediate shifts in the U.S. Treasury yield curve of plus or
minus 50 basis points (bps), 100 bps, and
150 bps.

|                      |  |          |        |          |  |         |        |              |  |         |        |          |  |          |        |  |  |   |        |   |  |   |        |   |  |   |        |  
|--------------------- |  | -------- | ------ | -------- |  | ------- | ------ | ------------ |  | ------- | ------ | -------- |  | -------- | ------ |  |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                      |  |          |        |          |  |         |        | Fair Value   |  |         |        |          |  |         
|                      |  |          |        |          |  |         |        | as of        |  |         |        |          |  |         
|                      |  |          |        |          |  |         |        | December 27, |  |         |        |          |  |         
|                      |  |          |        |          |  |         |        | 2003         |  |         |        |          |  |         
|                      |  | +150 bps |        | +100 bps |  | +50 bps |        | ($000)       |  | -50 bps |        | -100 bps |  | -150 bps
|                      |  |          |        |          |  |         |        |              |  |         |        |          |  |         
|Financial Instruments |  | $        | 85,760 |          |  | $       | 86,129 |              |  | $       | 86,494 |          |  | $        | 86,880 |  |  | $ | 87,261 |   |  | $ | 87,644 |   |  | $ | 87,945 |  
|% Change              |  |          | (1.29  | )%       |  |         | (0.86  | )%           |  |         | (0.44  | )%       |  |          |        |  |  |   | 0.44   | % |  |   | 0.88   | % |  |   | 1.23   | %

We are exposed to certain equity price risks on
our investments in common stock. These equity securities are
held for purposes other than trading. The following table
presents the hypothetical changes in fair values of the public
equity investments that are sensitive to changes in the stock
market. The modeling technique used measures the hypothetical
change in fair value arising from selected hypothetical changes
in the stock price. Stock price fluctuations of plus or minus
15 percent, plus or minus 25 percent, and plus or
minus 50 percent were selected based on the probability of
their occurrence.

|                             |  |                                |       |              |  |                                |        |            |  |   |        |    |  |   |        |  |  |   |        |   |  |   |        |   |  |   |        |  
|---------------------------- |  | ------------------------------ | ----- | ------------ |  | ------------------------------ | ------ | ---------- |  | - | ------ | -- |  | - | ------ |  |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                             |  |                                |       |              |  |                                |        | Fair Value |  |   |        |    |  |  
|                             |  |                                |       |              |  |                                |        | as of      |  |   |        |    |  |  
|                             |  |                                |       | December 27, |  |                               
|                             |  | Valuation of Security Given X% |       | 2003         |  | Valuation of Security Given X%
|                             |  | Decrease in the Security Price |       | ($000)       |  | Increase in the Security Price
|                             |  |                                |       |              |  |                               
|                             |  |                                |       |              |  |                                |        |            |  |   |        |    |  |  
|Corporate equity investments |  | $                              | 7,768 |              |  | $                              | 11,652 |            |  | $ | 13,206 |    |  | $ | 15,536 |  |  | $ | 17,866 |   |  | $ | 19,420 |   |  | $ | 23,304 |  
|% Change                     |  |                                | (50   | )%           |  |                                | (25    | )%         |  |   | (15    | )% |  |   |        |  |  |   | 15     | % |  |   | 25     | % |  |   | 50     | %

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|        |                                                             
|------- | ------------------------------------------------------------
|Item 8. | Consolidated Financial Statements and
    Supplementary Data




INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                                                                                                                                                                                |  |      |     | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                                                                                                                |  | Page
|                                                                                                                                                                                                                                |  |     
|Consolidated Financial Statements of Maxtor
    Corporation                                                                                                                                                                     |  |      |     | 
|Consolidated Balance Sheets 
    December 28, 2002 and December 27, 2003                                                                                                                                                       |  |      | 54  | 
|Consolidated Statements of Operations 
    Fiscal years ended December 29, 2001, December 28,
    2002 and December 27, 2003                                                                                                   |  |      | 55  | 
|Consolidated Statements of Stockholders
    Equity  Fiscal years ended December 29, 2001,
    December 28, 2002 and December 27, 2003                                                                                         |  |      | 56  | 
|Consolidated Statements of Cash Flows 
    Fiscal years ended December 29, 2001, December 28,
    2002 and December 27, 2003                                                                                                   |  |      | 57  | 
|Notes to Consolidated Financial Statements                                                                                                                                                                                      |  |      | 58  | 
|Report of Independent Auditors                                                                                                                                                                                                  |  |      | 96  | 
|Financial Statement Schedules:                                                                                                                                                                                                  |  |      |     | 
|The following consolidated financial statement
    schedule of Maxtor Corporation is filed as part of this Report
    and should be read in conjunction with the Consolidated
    Financial Statements of Maxtor Corporation:   |  |      |     | 
|Schedule II Valuation and Qualifying Accounts                                                                                                                                                                                   |  |      | 100 | 
|Schedules not listed above have been omitted
    since they are not applicable or are not required or the
    information required to be set therein is included in the
    Consolidated Financial Statements or notes thereto. |  |      |     | 

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MAXTOR CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share
amounts)


|                                                                                            |                                                                                                                                                                                                                                                       |                                            |            |              |           |  |            |         |           | 
|------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | ------------ | --------- |  | ---------- | ------- | --------- | 
|                                                                                            |                                                                                                                                                                                                                                                       | December 28,                               |            | December 27,
|                                                                                            |                                                                                                                                                                                                                                                       | 2002                                       |            | 2003        
|                                                                                            |                                                                                                                                                                                                                                                       |                                            |            |             
|ASSETS                                                                                     
|Current assets:                                                                             |                                                                                                                                                                                                                                                       |                                            |            |              |           |  |            |        
|                                                                                            | Cash and cash equivalents                                                                                                                                                                                                                             |                                            | $          | 306,444      |           |  | $          | 530,816 |          
|                                                                                            | Restricted cash                                                                                                                                                                                                                                       |                                            |            | 56,747       |           |  |            | 37,154  |          
|                                                                                            | Marketable securities                                                                                                                                                                                                                                 |                                            |            | 87,507       |           |  |            | 44,543  |          
|                                                                                            | Restricted marketable securities                                                                                                                                                                                                                      |                                            |            |             |           |  |            | 42,337  |          
|                                                                                            | Accounts receivable, net of allowance of doubtful
    accounts of $18,320 at December 28, 2002 and $11,220 at
    December 27, 2003                                                                                                                   |                                            |            | 324,875      |           |  |            | 540,943 |          
|                                                                                            | Other receivables                                                                                                                                                                                                                                     |                                            |            | 38,789       |           |  |            | 37,964  |          
|                                                                                            | Inventories                                                                                                                                                                                                                                           |                                            |            | 175,545      |           |  |            | 218,011 |          
|                                                                                            | Prepaid expenses and other                                                                                                                                                                                                                            |                                            |            | 33,438       |           |  |            | 38,301  |          
|                                                                                            |                                                                                                                                                                                                                                                       |                                            |            |              |           |  |            |        
|                                                                                            |                                                                                                                                                                                                                                                       | Total current assets                       |            |              | 1,023,345 |  |            |         | 1,490,069 | 
|Property, plant and equipment, net                                                          |                                                                                                                                                                                                                                                       |                                            | 364,842    |              |           |  | 342,679    |        
|Goodwill                                                                                    |                                                                                                                                                                                                                                                       |                                            | 813,951    |              |           |  | 813,951    |        
|Other intangible assets, net                                                                |                                                                                                                                                                                                                                                       |                                            | 146,898    |              |           |  | 61,619     |        
|Other assets                                                                                |                                                                                                                                                                                                                                                       |                                            | 11,798     |              |           |  | 13,908     |        
|                                                                                            |                                                                                                                                                                                                                                                       |                                            |            |              |           |  |            |        
|                                                                                            |                                                                                                                                                                                                                                                       | Total assets                               |            | $            | 2,360,834 |  |            | $       | 2,722,226 | 
|                                                                                            |                                                                                                                                                                                                                                                       |                                            |            |              |           |  |            |        
|                                                                                           
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                   
|Current liabilities:                                                                        |                                                                                                                                                                                                                                                       |                                            |            |              |           |  |            |        
|                                                                                            | Short-term borrowings, including current portion
    of long-term debt                                                                                                                                                                                |                                            | $          | 41,042       |           |  | $          | 77,037  |          
|                                                                                            | Accounts payable                                                                                                                                                                                                                                      |                                            |            | 642,206      |           |  |            | 730,056 |          
|                                                                                            | Accrued and other liabilities                                                                                                                                                                                                                         |                                            |            | 471,750      |           |  |            | 454,388 |          
|                                                                                            | Liabilities of discontinued operations                                                                                                                                                                                                                |                                            |            | 11,646       |           |  |            | 1,487   |          
|                                                                                            |                                                                                                                                                                                                                                                       |                                            |            |              |           |  |            |        
|                                                                                            |                                                                                                                                                                                                                                                       | Total current liabilities                  |            |              | 1,166,644 |  |            |         | 1,262,968 | 
|Deferred taxes                                                                              |                                                                                                                                                                                                                                                       |                                            | 196,455    |              |           |  | 196,455    |        
|Long-term debt, net of current portion                                                      |                                                                                                                                                                                                                                                       |                                            | 206,343    |              |           |  | 355,809    |        
|Other liabilities                                                                           |                                                                                                                                                                                                                                                       |                                            | 199,071    |              |           |  | 186,485    |        
|                                                                                            |                                                                                                                                                                                                                                                       |                                            |            |              |           |  |            |        
|                                                                                            |                                                                                                                                                                                                                                                       | Total liabilities                          |            |              | 1,768,513 |  |            |         | 2,001,717 | 
|Commitments and contingencies (Note 10)                                                     |                                                                                                                                                                                                                                                       |                                            |            |              |           |  |            |        
|Stockholders equity:                                                                       |                                                                                                                                                                                                                                                       |                                            |            |              |           |  |            |        
|                                                                                            | Preferred stock, $0.01 par value, 95,000,000
    shares authorized; no shares issued or outstanding                                                                                                                                                   |                                            |            |             |           |  |            |        |          
|                                                                                            | Common stock, $0.01 par value,
    525,000,000 shares authorized; 247,507,244 shares
    issued and 242,507,244 shares outstanding at
    December 28, 2002 and 259,246,819 shares issued and
    246,001,081 shares outstanding at December 27, 2003 |                                            |            | 2,475        |           |  |            | 2,592   |          
|Additional paid-in capital                                                                  |                                                                                                                                                                                                                                                       |                                            | 2,349,253  |              |           |  | 2,410,082  |        
|Deferred stock-based compensation                                                           |                                                                                                                                                                                                                                                       |                                            | (1,193     | )            |           |  | (110       | )      
|Accumulated deficit                                                                         |                                                                                                                                                                                                                                                       |                                            | (1,740,591 | )            |           |  | (1,637,920 | )      
|Cumulative other comprehensive income                                                       |                                                                                                                                                                                                                                                       |                                            | 2,377      |              |           |  | 10,804     |        
|Treasury stock (5,000,000 and 13,245,738 shares
    in 2002 and 2003, respectively) at cost |                                                                                                                                                                                                                                                       |                                            | (20,000    | )            |           |  | (64,939    | )      
|                                                                                            |                                                                                                                                                                                                                                                       |                                            |            |              |           |  |            |        
|                                                                                            |                                                                                                                                                                                                                                                       | Total stockholders equity                 |            |              | 592,321   |  |            |         | 720,509   | 
|                                                                                            |                                                                                                                                                                                                                                                       |                                            |            |              |           |  |            |        
|                                                                                            |                                                                                                                                                                                                                                                       | Total liabilities and stockholders equity |            | $            | 2,360,834 |  |            | $       | 2,722,226 | 
|                                                                                            |                                                                                                                                                                                                                                                       |                                            |            |              |           |  |            |        

The accompanying notes are an integral part of
these financial statements.

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MAXTOR CORPORATION

CONSOLIDATED STATEMENTS OF
OPERATIONS

(In thousands, except share and per share
amounts)


|                                                                 |                                                          |                          |           |              |             |              |           |         |             |   |           |         |             | 
|---------------------------------------------------------------- | -------------------------------------------------------- | ------------------------ | --------- | ------------ | ----------- | ------------ | --------- | ------- | ----------- | - | --------- | ------- | ----------- | 
|                                                                 |                                                          |                         
|                                                                 |                                                          | Years Ended             
|                                                                 |                                                          |                         
|                                                                 |                                                          | December 29,             |           | December 28, |             | December 27,
|                                                                 |                                                          | 2001                     |           | 2002         |             | 2003        
|                                                                 |                                                          |                          |           |              |             |             
|Net revenues                                                     |                                                          | $                        | 3,765,559 |              |             | $            | 3,779,514 |         |             | $ | 4,086,443 |        
|Cost of revenues                                                 |                                                          |                          | 3,403,051 |              |             |              | 3,382,099 |         |             |   | 3,385,390 |        
|                                                                 |                                                          |                          |           |              |             |              |           |         |             |   |           |        
|                                                                 | Gross profit                                             |                          |           | 362,508      |             |              |           | 397,415 |             |   |           | 701,053 |            
|Operating expenses:                                              |                                                          |                          |           |              |             |              |           |         |             |   |           |        
|                                                                 | Research and development                                 |                          |           | 411,189      |             |              |           | 401,014 |             |   |           | 354,050 |            
|                                                                 | Selling, general and administrative                      |                          |           | 232,028      |             |              |           | 148,486 |             |   |           | 131,703 |            
|                                                                 | Amortization of goodwill and other intangible
    assets |                          |           | 207,827      |             |              |           | 82,248  |             |   |           | 85,279  |            
|                                                                 | Purchased in-process research and development            |                          |           | 95,190       |             |              |           |        |             |   |           |        |            
|                                                                 | Restructuring charge                                     |                          |           |             |             |              |           | 9,495   |             |   |           |        |            
|                                                                 |                                                          |                          |           |              |             |              |           |         |             |   |           |        
|                                                                 |                                                          | Total operating expenses |           |              | 946,234     |              |           |         | 641,243     |   |           |         | 571,032     | 
|                                                                 |                                                          |                          |           |              |             |              |           |         |             |   |           |        
|Income (loss) from operations                                    |                                                          |                          | (583,726  | )            |             |              | (243,828  | )       |             |   | 130,021   |        
|Interest expense                                                 |                                                          |                          | (25,190   | )            |             |              | (26,945   | )       |             |   | (30,604   | )      
|Interest income                                                  |                                                          |                          | 20,306    |              |             |              | 8,012     |         |             |   | 5,160     |        
|Other gain (loss)                                                |                                                          |                          | (6,187    | )            |             |              | 4,370     |         |             |   | (613      | )      
|                                                                 |                                                          |                          |           |              |             |              |           |         |             |   |           |        
|Income (loss) from continuing operations before
    income taxes |                                                          |                          | (594,797  | )            |             |              | (258,391  | )       |             |   | 103,964   |        
|Provision for income taxes                                       |                                                          |                          | 3,382     |              |             |              | 2,175     |         |             |   | 3,504     |        
|                                                                 |                                                          |                          |           |              |             |              |           |         |             |   |           |        
|Income (loss) from continuing operations                         |                                                          |                          | (598,179  | )            |             |              | (260,566  | )       |             |   | 100,460   |        
|Income (loss) from discontinued operations                       |                                                          |                          | (48,219   | )            |             |              | (73,501   | )       |             |   | 2,211     |        
|                                                                 |                                                          |                          |           |              |             |              |           |         |             |   |           |        
|Net income (loss)                                                |                                                          | $                        | (646,398  | )            |             | $            | (334,067  | )       |             | $ | 102,671   |        
|                                                                 |                                                          |                          |           |              |             |              |           |         |             |   |           |        
|Net income (loss) per share  basic                              |                                                          |                          |           |              |             |              |           |         |             |   |           |        
|Continuing operations                                            |                                                          | $                        | (2.89     | )            |             | $            | (1.09     | )       |             | $ | 0.41      |        
|Discontinued operations                                          |                                                          | $                        | (0.23     | )            |             | $            | (0.31     | )       |             | $ | 0.01      |        
|                                                                 |                                                          |                          |           |              |             |              |           |         |             |   |           |        
|Total                                                            |                                                          | $                        | (3.12     | )            |             | $            | (1.40     | )       |             | $ | 0.42      |        
|                                                                 |                                                          |                          |           |              |             |              |           |         |             |   |           |        
|Net income (loss) per share  diluted                            |                                                          |                          |           |              |             |              |           |         |             |   |           |        
|Continuing operations                                            |                                                          | $                        | (2.89     | )            |             | $            | (1.09     | )       |             | $ | 0.40      |        
|Discontinued operations                                          |                                                          | $                        | (0.23     | )            |             | $            | (0.31     | )       |             | $ | 0.01      |        
|                                                                 |                                                          |                          |           |              |             |              |           |         |             |   |           |        
|Total                                                            |                                                          | $                        | (3.12     | )            |             | $            | (1.40     | )       |             | $ | 0.41      |        
|                                                                 |                                                          |                          |           |              |             |              |           |         |             |   |           |        
|Shares used in per share calculation                             |                                                          |                          |           |              |             |              |           |         |             |   |           |        
|                                                                 |                                                          |  basic                  |           |              | 206,911,952 |              |           |         | 239,474,179 |   |           |         | 243,022,694 | 
|                                                                 |                                                          |  diluted                |           |              | 206,911,952 |              |           |         | 239,474,179 |   |           |         | 251,135,683 | 

The accompanying notes are an integral part of
these financial statements.

55



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##### Table of Contents



MAXTOR CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

AND COMPREHENSIVE INCOME


(In thousands, except share amounts)


|                                                                        |                                                         |                      |             |            |  |             |       |              |  |               |           |          |  |               |        |               |  |        |            |          |   |   |        |        |   |   |         |   |  |   |           |          |   |  |   |          |          |  
|----------------------------------------------------------------------- | ------------------------------------------------------- | -------------------- | ----------- | ---------- |  | ----------- | ----- | ------------ |  | ------------- | --------- | -------- |  | ------------- | ------ | ------------- |  | ------ | ---------- | -------- | - | - | ------ | ------ | - | - | ------- | - |  | - | --------- | -------- | - |  | - | -------- | -------- | -
|                                                                        |                                                         |                      |             |            |  |             |       |              |  | Cumulative    |           |          |  |               |        |              
|                                                                        |                                                         | Common Stock         |             | Additional |  | Deferred    |       |              |  | Other         |           |          |  | Total         |        | Comprehensive
|                                                                        |                                                         |                      |             | Paid-in    |  | Stock-based |       | Accumulated  |  | Comprehensive |           | Treasury |  | Stockholders |        | Income       
|                                                                        |                                                         | Shares               |             | Amount     |  | Capital     |       | Compensation |  | Deficit       |           | Income   |  | Stock         |        | Equity        |  | (Loss)
|                                                                        |                                                         |                      |             |            |  |             |       |              |  |               |           |          |  |               |        |               |  |       
|Balance, December 30, 2000                                              |                                                         |                      | 116,205,270 |            |  | $           | 1,162 |              |  | $             | 1,059,899 |          |  | $             |       |               |  | $      | (760,126   | )        |   | $ | 2,803  |        |   | $ |        |   |  | $ | 303,738   |          |   |  |   |         
|                                                                        | Net loss                                                |                      |             |           |  |             |       |             |  |               |           |         |  |               |        |              |  |        |            | (646,398 | ) |   |        |       |   |   |         |  |  |   |           | (646,398 | ) |  | $ | (646,398 | )       
|                                                                        | Unrealized gain on investments in equity
    securities |                      |             |           |  |             |       |             |  |               |           |         |  |               |        |              |  |        |            |         |   |   |        | 1,408  |   |   |         |  |  |   |           | 1,408    |   |  |   | 1,408    |         
|                                                                        |                                                         |                      |             |            |  |             |       |              |  |               |           |          |  |               |        |               |  |        |            |          |   |   |        |        |   |   |         |   |  |   |           |          |   |  |   |         
|                                                                        |                                                         | Comprehensive loss   |             |            |  |             |       |              |  |               |           |          |  |               |        |               |  |        |            |          |   |   |        |        |   |   |         |   |  |   |           |          |   |  |   | $        | (644,990 | )
|                                                                        |                                                         |                      |             |            |  |             |       |              |  |               |           |          |  |               |        |               |  |        |            |          |   |   |        |        |   |   |         |   |  |   |           |          |   |  |   |         
|Issuance of stock under stock option plan and
    related benefit plans |                                                         |                      | 4,742,053   |            |  |             | 47    |              |  |               | 21,510    |          |  |               |       |               |  |        |           |          |   |   |       |        |   |   |        |   |  |   | 21,557    |          |   |  |   |         
|Issuance of stock relating to Quantum HDD
    acquisition               |                                                         |                      | 121,030,472 |            |  |             | 1,211 |              |  |               | 1,232,601 |          |  |               |       |               |  |        |           |          |   |   |       |        |   |   |        |   |  |   | 1,233,812 |          |   |  |   |         
|Deferred compensation relating to Quantum HDD
    acquisition           |                                                         |                      |            |            |  |             |      |              |  |               | 6,785     |          |  |               | (6,785 | )             |  |        |           |          |   |   |       |        |   |   |        |   |  |   |          |          |   |  |   |         
|Stock-based compensation                                                |                                                         |                      |            |            |  |             |      |              |  |               | 3,090     |          |  |               | 2,976  |               |  |        |           |          |   |   |       |        |   |   |        |   |  |   | 6,066     |          |   |  |   |         
|Treasury shares repurchased at cost                                     |                                                         |                      |            |            |  |             |      |              |  |               |          |          |  |               |       |               |  |        |           |          |   |   |       |        |   |   | (20,000 | ) |  |   | (20,000   | )        |   |  |   |         
|                                                                        |                                                         |                      |             |            |  |             |       |              |  |               |           |          |  |               |        |               |  |        |            |          |   |   |        |        |   |   |         |   |  |   |           |          |   |  |   |         
|Balance, December 29, 2001                                              |                                                         |                      | 241,977,795 |            |  |             | 2,420 |              |  |               | 2,323,885 |          |  |               | (3,809 | )             |  |        | (1,406,524 | )        |   |   | 4,211  |        |   |   | (20,000 | ) |  |   | 900,183   |          |   |  |   |         
|                                                                        | Net loss                                                |                      |             |           |  |             |       |             |  |               |           |         |  |               |        |              |  |        |            | (334,067 | ) |   |        |       |   |   |         |  |  |   |           | (334,067 | ) |  | $ | (334,067 | )       
|                                                                        | Unrealized loss on investments in equity
    securities |                      |             |           |  |             |       |             |  |               |           |         |  |               |        |              |  |        |            |         |   |   |        | (1,834 | ) |   |         |  |  |   |           | (1,834   | ) |  |   | (1,834   | )       
|                                                                        |                                                         |                      |             |            |  |             |       |              |  |               |           |          |  |               |        |               |  |        |            |          |   |   |        |        |   |   |         |   |  |   |           |          |   |  |   |         
|                                                                        |                                                         | Comprehensive loss   |             |            |  |             |       |              |  |               |           |          |  |               |        |               |  |        |            |          |   |   |        |        |   |   |         |   |  |   |           |          |   |  |   | $        | (335,901 | )
|                                                                        |                                                         |                      |             |            |  |             |       |              |  |               |           |          |  |               |        |               |  |        |            |          |   |   |        |        |   |   |         |   |  |   |           |          |   |  |   |         
|Issuance of stock under stock option plan and
    related benefit plans |                                                         |                      | 5,529,449   |            |  |             | 55    |              |  |               | 22,422    |          |  |               |       |               |  |        |           |          |   |   |       |        |   |   |        |   |  |   | 22,477    |          |   |  |   |         
|Stock-based compensation                                                |                                                         |                      |            |            |  |             |      |              |  |               | 2,946     |          |  |               | 2,616  |               |  |        |           |          |   |   |       |        |   |   |        |   |  |   | 5,562     |          |   |  |   |         
|                                                                        |                                                         |                      |             |            |  |             |       |              |  |               |           |          |  |               |        |               |  |        |            |          |   |   |        |        |   |   |         |   |  |   |           |          |   |  |   |         
|Balance, December 28, 2002                                              |                                                         |                      | 247,507,244 |            |  |             | 2,475 |              |  |               | 2,349,253 |          |  |               | (1,193 | )             |  |        | (1,740,591 | )        |   |   | 2,377  |        |   |   | (20,000 | ) |  |   | 592,321   |          |   |  |   |         
|                                                                        | Net income                                              |                      |             |           |  |             |       |             |  |               |           |         |  |               |        |              |  |        |            | 102,671  |   |   |        |       |   |   |         |  |  |   |           | 102,671  |   |  | $ | 102,671  |         
|                                                                        | Unrealized gain on investments in equity
    securities |                      |             |           |  |             |       |             |  |               |           |         |  |               |        |              |  |        |            |         |   |   |        | 8,427  |   |   |         |  |  |   |           | 8,427    |   |  |   | 8,427    |         
|                                                                        |                                                         |                      |             |            |  |             |       |              |  |               |           |          |  |               |        |               |  |        |            |          |   |   |        |        |   |   |         |   |  |   |           |          |   |  |   |         
|                                                                        |                                                         | Comprehensive income |             |            |  |             |       |              |  |               |           |          |  |               |        |               |  |        |            |          |   |   |        |        |   |   |         |   |  |   |           |          |   |  |   | $        | 111,098  |  
|                                                                        |                                                         |                      |             |            |  |             |       |              |  |               |           |          |  |               |        |               |  |        |            |          |   |   |        |        |   |   |         |   |  |   |           |          |   |  |   |         
|Issuance of stock under stock option plan and
    related benefit plans |                                                         |                      | 11,739,575  |            |  |             | 117   |              |  |               | 60,989    |          |  |               |       |               |  |        |           |          |   |   |       |        |   |   |        |   |  |   | 61,106    |          |   |  |   |         
|Stock-based compensation                                                |                                                         |                      |            |            |  |             |      |              |  |               | (160      | )        |  |               | 1,083  |               |  |        |           |          |   |   |       |        |   |   |        |   |  |   | 923       |          |   |  |   |         
|Treasury shares repurchased at cost                                     |                                                         |                      |            |            |  |             |      |              |  |               |          |          |  |               |       |               |  |        |           |          |   |   |       |        |   |   | (44,939 | ) |  |   | (44,939   | )        |   |  |   |         
|                                                                        |                                                         |                      |             |            |  |             |       |              |  |               |           |          |  |               |        |               |  |        |            |          |   |   |        |        |   |   |         |   |  |   |           |          |   |  |   |         
|Balance, December 27, 2003                                              |                                                         |                      | 259,246,819 |            |  | $           | 2,592 |              |  | $             | 2,410,082 |          |  | $             | (110   | )             |  | $      | (1,637,920 | )        |   | $ | 10,804 |        |   | $ | (64,939 | ) |  | $ | 720,509   |          |   |  |   |         
|                                                                        |                                                         |                      |             |            |  |             |       |              |  |               |           |          |  |               |        |               |  |        |            |          |   |   |        |        |   |   |         |   |  |   |           |          |   |  |   |         

The accompanying notes are an integral part of
these financial statements.

56



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##### Table of Contents



MAXTOR CORPORATION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In thousands)


|                                                                                                                                      |                                                                                     |                                   |                                                                          |              |         |              |          |         |         |         |          |         |          |          |  
|------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | --------------------------------- | ------------------------------------------------------------------------ | ------------ | ------- | ------------ | -------- | ------- | ------- | ------- | -------- | ------- | -------- | -------- | -
|                                                                                                                                      |                                                                                     |                                  
|                                                                                                                                      |                                                                                     | Years Ended                      
|                                                                                                                                      |                                                                                     |                                  
|                                                                                                                                      |                                                                                     | December 29,                      |                                                                          | December 28, |         | December 27,
|                                                                                                                                      |                                                                                     | 2001                              |                                                                          | 2002         |         | 2003        
|                                                                                                                                      |                                                                                     |                                   |                                                                          |              |         |             
|Cash Flows from Operating
    Activities:                                                                                             |                                                                                     |                                   |                                                                          |              |         |              |          |         |         |         |          |        
|Net income (loss) from continuing operations                                                                                          |                                                                                     | $                                 | (598,179                                                                 | )            |         | $            | (260,566 | )       |         | $       | 100,460  |        
|Adjustments to reconcile net income
    (loss) from continuing operations to net cash provided by
    (used in) operating activities: |                                                                                     |                                   |                                                                          |              |         |              |          |         |         |         |          |        
|                                                                                                                                      | Depreciation and amortization                                                       |                                   |                                                                          | 125,610      |         |              |          | 155,829 |         |         |          | 156,639 |         
|                                                                                                                                      | Amortization of goodwill and other intangible
    assets                            |                                   |                                                                          | 207,827      |         |              |          | 82,248  |         |         |          | 85,279  |         
|                                                                                                                                      | Amortization of deferred compensation related to
    Quantum DSS restricted shares  |                                   |                                                                          | 36,901       |         |              |          | 4,103   |         |         |          |        |         
|                                                                                                                                      | Purchased in-process research and development                                       |                                   |                                                                          | 95,190       |         |              |          |        |         |         |          |        |         
|                                                                                                                                      | Stock-based compensation expense                                                    |                                   |                                                                          | 6,066        |         |              |          | 5,562   |         |         |          | 923     |         
|                                                                                                                                      | Restructuring charge                                                                |                                   |                                                                          |             |         |              |          | 9,495   |         |         |          |        |         
|                                                                                                                                      | Loss on sale of property, plant and equipment and
    other assets                  |                                   |                                                                          | 2,478        |         |              |          | 2,568   |         |         |          | 3,235   |         
|                                                                                                                                      | Gain on retirement of bond                                                          |                                   |                                                                          | (1,280       | )       |              |          | (2,832  | )       |         |          | (163    | )       
|                                                                                                                                      | Loss on redemption of pro rata portion of Quantum
    Corporations bond            |                                   |                                                                          |             |         |              |          |        |         |         |          | 951     |         
|                                                                                                                                      | Realized loss (gain) on investment                                                  |                                   |                                                                          | 6,667        |         |              |          | (1,307  | )       |         |          |        |         
|                                                                                                                                      | Change in assets and liabilities:                                                   |                                   |                                                                          |              |         |              |          |         |         |         |          |         |         
|                                                                                                                                      |                                                                                     | Accounts receivable               |                                                                          |              | 176,366 |              |          |         | 19,783  |         |          |         | (216,068 | )       
|                                                                                                                                      |                                                                                     | Other receivables                 |                                                                          |              | (22,439 | )            |          |         | (2,400  | )       |          |         | 825      |         
|                                                                                                                                      |                                                                                     | Inventories                       |                                                                          |              | 121,281 |              |          |         | 5,587   |         |          |         | (42,466  | )       
|                                                                                                                                      |                                                                                     | Prepaid expenses and other assets |                                                                          |              | 76,626  |              |          |         | 10,093  |         |          |         | 11,358   |         
|                                                                                                                                      |                                                                                     | Accounts payable                  |                                                                          |              | (94,046 | )            |          |         | 45,336  |         |          |         | 89,040   |         
|                                                                                                                                      |                                                                                     | Accrued and other liabilities     |                                                                          |              | (60,745 | )            |          |         | (70,711 | )       |          |         | (29,948  | )       
|                                                                                                                                      |                                                                                     |                                   |                                                                          |              |         |              |          |         |         |         |          |        
|                                                                                                                                      |                                                                                     |                                   | Net cash provided by operating activities from
    continuing operations |              |         | 78,323       |          |         |         | 2,788   |          |         |          | 160,065  |  
|                                                                                                                                      |                                                                                     |                                   | Net cash used in discontinued operations                                 |              |         | (42,679      | )        |         |         | (31,578 | )        |         |          | (7,948   | )
|                                                                                                                                      |                                                                                     |                                   |                                                                          |              |         |              |          |         |         |         |          |        
|                                                                                                                                      |                                                                                     |                                   | Net cash provided by (used in) operating
    activities                  |              |         | 35,644       |          |         |         | (28,790 | )        |         |          | 152,117  |  
|Cash Flows from Investing
    Activities:                                                                                             |                                                                                     |                                   |                                                                          |              |         |              |          |         |         |         |          |        
|Proceeds from sale of property, plant and
    equipment                                                                               |                                                                                     |                                   | 289                                                                      |              |         |              | 277      |         |         |         | 348      |        
|Purchase of property, plant and equipment                                                                                             |                                                                                     |                                   | (115,067                                                                 | )            |         |              | (139,080 | )       |         |         | (131,876 | )      
|Cash acquired from acquisition, net of merger
    related expenses                                                                    |                                                                                     |                                   | 374,692                                                                  |              |         |              |         |         |         |         |         |        
|Restricted cash acquired from acquisition                                                                                             |                                                                                     |                                   | (98,629                                                                  | )            |         |              |         |         |         |         |         |        
|Change in restricted cash and marketable
    securities                                                                               |                                                                                     |                                   |                                                                         |              |         |              | 41,882   |         |         |         | 19,593   |        
|Proceeds from sale of marketable securities                                                                                           |                                                                                     |                                   | 175,401                                                                  |              |         |              | 171,447  |         |         |         | 55,953   |        
|Purchase of marketable securities                                                                                                     |                                                                                     |                                   | (156,265                                                                 | )            |         |              | (92,063  | )       |         |         | (56,911  | )      
|                                                                                                                                      |                                                                                     |                                   |                                                                          |              |         |              |          |         |         |         |          |        
|                                                                                                                                      |                                                                                     |                                   | Net cash provided by (used in) investing
    activities                  |              |         | 180,421      |          |         |         | (17,537 | )        |         |          | (112,893 | )
|                                                                                                                                      |                                                                                     |                                   |                                                                          |              |         |              |          |         |         |         |          |        
|Cash Flows from Financing
    Activities:                                                                                             |                                                                                     |                                   |                                                                          |              |         |              |          |         |         |         |          |        
|Proceeds from issuance of debt, including
    short-term borrowings                                                                   |                                                                                     |                                   |                                                                         |              |         |              |         |         |         |         | 259,428  |        
|Principal payments of debt including short-term
    borrowings                                                                        |                                                                                     |                                   | (17,765                                                                  | )            |         |              | (25,595  | )       |         |         | (108,593 | )      
|Principal payments under capital lease obligations                                                                                    |                                                                                     |                                   | (5,927                                                                   | )            |         |              | (24,038  | )       |         |         | (29,677  | )      
|Purchase of treasury stock at cost                                                                                                    |                                                                                     |                                   | (20,000                                                                  | )            |         |              |         |         |         |         | (44,939  | )      
|Net proceeds from receivable-backed borrowing                                                                                         |                                                                                     |                                   |                                                                         |              |         |              |         |         |         |         | 47,823   |        
|Proceeds from issuance of common stock from
    employee stock purchase plan and stock options exercised                              |                                                                                     |                                   | 14,326                                                                   |              |         |              | 22,477   |         |         |         | 61,106   |        
|                                                                                                                                      |                                                                                     |                                   |                                                                          |              |         |              |          |         |         |         |          |        
|                                                                                                                                      |                                                                                     |                                   | Net cash provided by (used in) financing
    activities                  |              |         | (29,366      | )        |         |         | (27,156 | )        |         |          | 185,148  |  
|                                                                                                                                      |                                                                                     |                                   |                                                                          |              |         |              |          |         |         |         |          |        
|Net change in cash and cash equivalents                                                                                               |                                                                                     |                                   | 186,699                                                                  |              |         |              | (73,483  | )       |         |         | 224,372  |        
|Cash and cash equivalents at beginning of year                                                                                        |                                                                                     |                                   | 193,228                                                                  |              |         |              | 379,927  |         |         |         | 306,444  |        
|                                                                                                                                      |                                                                                     |                                   |                                                                          |              |         |              |          |         |         |         |          |        
|Cash and cash equivalents at end of year                                                                                              |                                                                                     | $                                 | 379,927                                                                  |              |         | $            | 306,444  |         |         | $       | 530,816  |        
|                                                                                                                                      |                                                                                     |                                   |                                                                          |              |         |              |          |         |         |         |          |        
|Supplemental Disclosures of Cash Flow
    Information:                                                                                |                                                                                     |                                   |                                                                          |              |         |              |          |         |         |         |          |        
|                                                                                                                                      | Cash paid during the period for:                                                    |                                   |                                                                          |              |         |              |          |         |         |         |          |         |         
|                                                                                                                                      |                                                                                     | Interest                          |                                                                          | $            | 21,525  |              |          | $       | 21,839  |         |          | $       | 28,805   |         
|                                                                                                                                      |                                                                                     | Income taxes                      |                                                                          | $            | 936     |              |          | $       | 5,840   |         |          | $       | 1,628    |         
|Schedule of Non-Cash Investing and Financing
    Activities:                                                                          |                                                                                     |                                   |                                                                          |              |         |              |          |         |         |         |          |        
|                                                                                                                                      | Purchase of property, plant and equipment
    financed by accounts payable          |                                   | $                                                                        | 21,525       |         |              | $        | 7,058   |         |         | $        | 5,868   |         
|                                                                                                                                      | Retirement of debt in exchange for bond redemption                                  |                                   | $                                                                        | 5,000        |         |              | $        | 5,000   |         |         | $        | 5,000   |         
|                                                                                                                                      | Change in unrealized gain (loss) on
    investments                                 |                                   | $                                                                        | 1,408        |         |              | $        | (1,834  | )       |         | $        | 8,427   |         
|                                                                                                                                      | Purchase of property, plant and equipment
    financed by capital lease obligations |                                   | $                                                                        |             |         |              | $        | 11,232  |         |         | $        | 7,373   |         
|                                                                                                                                      | Value of shares issued in Quantum HDD acquisition                                   |                                   | $                                                                        | 1,240,597    |         |              | $        |        |         |         | $        |        |         
|                                                                                                                                      | Net receivables forgiven for MMC Technology Inc.
    acquisition                    |                                   | $                                                                        | 16,001       |         |              | $        |        |         |         | $        |        |         

The accompanying notes are an integral part of
these financial statements.

57



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MAXTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.     Summary of
Significant Accounting Policies



| |                      
| | ---------------------
| | Basis of Presentation

The accompanying consolidated financial
statements include the accounts of Maxtor Corporation and its
wholly-owned subsidiaries (Maxtor or the
Company). All significant inter-company accounts and
transactions have been eliminated.

The Company shut down its Network Systems Group
(NSG) in 2002. Accordingly, the Companys
financial statements have been presented to reflect NSG as a
discontinued operation for all periods presented. Its
liabilities (no remaining assets) have been segregated from
continuing operations in the accompanying consolidated balance
sheet as of December 27, 2003 and December 28, 2002
and its operating results have been segregated and reported as
discontinued operations in the accompanying consolidated
statements of operations.

The Company operates and reports financial
results on a fiscal year of 52 or 53 weeks ending on the
last Saturday of December in each year. Accordingly, fiscal year
2003 ended on December 27, 2003, fiscal year 2002 ended on
December 28, 2002 and fiscal year 2001 ended on
December 29, 2001. Fiscal years 2003, 2002 and 2001 each
comprised 52 weeks. All references to years in these notes
to consolidated financial statements represent fiscal years
unless otherwise noted.



| |         
| | --------
| | Business

Maxtor Corporation is a supplier of hard disk
drives for consumer, industrial and entertainment applications.
The Company has an expansive line of hard disk drive products
for desktop computers, storage sub-systems, high-performance
servers and consumer electronics.



| |                 
| | ----------------
| | Use of Estimates

The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles in the United States requires management to make
estimates and assumptions that affect the amounts of assets and
liabilities and disclosure of contingent assets and liabilities
as of the date of the financial statements and reported amounts
of revenues and expenses during the reporting periods. Actual
results may likely differ from those estimates and such
differences could be material.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

The Company considers all highly liquid
investments with a maturity of three months or less at time of
purchase to be cash equivalents except restricted cash. Cash and
cash equivalents include money market accounts, commercial paper
and various deposit accounts. The carrying amount of cash and
cash equivalents approximates fair value due to the short-term
maturity of those assets.



| |                                              
| | ---------------------------------------------
| | Restricted Cash and Marketable
    Securities

The Companys restricted cash balance was
$37.2 million and restricted marketable securities balance
was $42.3 million at December 27, 2003. The total
restricted amount of $79.5 million was pledged as
collateral for certain stand-by letters of credit issued by
commercial banks. These amounts are reported in the
Companys consolidated balance sheets as current depending
on when the cash and marketable securities can be contractually
released.



| |                                          
| | -----------------------------------------
| | Marketable Debt and Equity
    Securities

The Companys marketable debt securities
comprise of U.S. obligations; U.S. government debt
agencies; corporate debt securities; bank issues; and mortgage
and asset backed securities. These marketable debt

58



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

securities are carried at fair value, in
accordance with Statement of Financial Accounting Standards
No. 115 Accounting for Certain Investments in Debt
and Equity Securities. All marketable debt securities are
held in the Companys name and are managed primarily under
custodial agreements with financial institutions. All of the
Companys marketable debt securities were classified as
available-for-sale. Unrealized gains and losses on these
investments are included in other comprehensive income (loss)
and disclosed as a separate component of shareholders
equity. Realized gains and losses on sales of all such
investments are reported within the caption of other gain
(loss) in the results of operations and computed using the
specific identification method.

All marketable equity securities are classified
as available-for-sale and are carried at fair value. Unrealized
gains and losses on marketable equity securities classified as
available-for-sale are included in other comprehensive income
(loss) and are reported as a separate component of
stockholders equity. Realized gains and losses on sales of
all such investments are included in the results of operations
computed using the specific identification cost method.

The Companys investments in equity and
marketable securities are monitored on a periodic basis for
impairment. In the event that the carrying value of an
investment exceeds its fair value and the decline in value is
determined to be other-than-temporary, an impairment charge is
recorded and a new cost basis for the investment is established.
Fair values for investments in public companies are determined
using quoted market prices. Fair values for investments in
privately-held companies are estimated based upon one or more of
the following: pricing models using historical and forecasted
financial information and current market rates, liquidation
values, the values of recent rounds of financing, or quoted
market prices of comparable public companies. As of December 27,
2003 and December 28, 2002, the Company did not have any amounts
included in marketable debt and equity securities associated
with investments in privately-held companies. Marketable and
equity securities, which are classified as available-for-sale,
are summarized as follows, as of December 27, 2003 and
December 28, 2002:

|                                 |  |                |        |            |  |            |        |            |  |            |      |   |  |   |        |  |  |   |        | 
|-------------------------------- |  | -------------- | ------ | ---------- |  | ---------- | ------ | ---------- |  | ---------- | ---- | - |  | - | ------ |  |  | - | ------ | 
|                                 |  |                |        |            |  |            |        |            |  | Restricted
|                                 |  |                |        | Gross      |  | Gross      |        |            |  | Marketable
|                                 |  | Purchase       |        | Unrealized |  | Unrealized |        | Aggregate  |  | Debt      
|                                 |  | Amortized Cost |        | Gains      |  | Losses     |        | Fair Value |  | Securities
|                                 |  |                |        |            |  |            |        |            |  |           
|                                 |  |               
|                                 |  | (In thousands)
|2003                             |  |                |        |            |  |            |        |            |  |            |      |   |  |   |        |  |  |   |        | 
|US Government debt securities    |  | $              | 62,864 |            |  | $          | 229    |            |  | $          |     |   |  | $ | 63,093 |  |  | $ | 31,455 | 
|Asset backed securities          |  |                | 9,678  |            |  |            | 10     |            |  |            |     |   |  |   | 9,688  |  |  |   | 4,704  | 
|Corporate debt securities        |  |                | 8,841  |            |  |            | 8      |            |  |            |     |   |  |   | 8,849  |  |  |   | 3,778  | 
|Certificate of deposits          |  |                | 5,250  |            |  |            |       |            |  |            |     |   |  |   | 5,250  |  |  |   | 2,400  | 
|                                 |  |                |        |            |  |            |        |            |  |            |      |   |  |   |        |  |  |   |        | 
|Total marketable debt securities |  | $              | 86,633 |            |  | $          | 247    |            |  | $          |     |   |  | $ | 86,880 |  |  | $ | 42,337 | 
|                                 |  |                |        |            |  |            |        |            |  |            |      |   |  |   |        |  |  |   |        | 
|Equity securities                |  | $              | 4,980  |            |  | $          | 10,556 |            |  | $          |     |   |  | $ | 15,536 |  |  | $ |       | 
|                                 |  |                |        |            |  |            |        |            |  |            |      |   |  |   |        |  |  |   |        | 
|2002                             |  |                |        |            |  |            |        |            |  |            |      |   |  |   |        |  |  |   |        | 
|US Government debt securities    |  | $              | 56,050 |            |  | $          | 618    |            |  | $          |     |   |  | $ | 56,668 |  |  |   |       | 
|Asset backed securities          |  |                | 10,182 |            |  |            | 54     |            |  |            |     |   |  |   | 10,236 |  |  |   |       | 
|Corporate debt securities        |  |                | 12,308 |            |  |            | 96     |            |  |            |     |   |  |   | 12,404 |  |  |   |       | 
|Certificate of deposits          |  |                | 8,199  |            |  |            |       |            |  |            |     |   |  |   | 8,199  |  |  |   |       | 
|                                 |  |                |        |            |  |            |        |            |  |            |      |   |  |   |        |  |  |   |        | 
|Total marketable debt securities |  | $              | 86,739 |            |  | $          | 768    |            |  | $          |     |   |  | $ | 87,507 |  |  | $ |       | 
|                                 |  |                |        |            |  |            |        |            |  |            |      |   |  |   |        |  |  |   |        | 
|Equity securities                |  | $              | 4,980  |            |  | $          | 1,783  |            |  | $          | (174 | ) |  | $ | 6,589  |  |  | $ |       | 
|                                 |  |                |        |            |  |            |        |            |  |            |      |   |  |   |        |  |  |   |        | 

59



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |            
| | -----------
| | Inventories

Inventories include material and related
manufacturing overhead, and are stated at the lower of cost
(computed on a first-in, first-out basis) or market. The Company
writes down its inventory for estimated obsolescence or excess
inventory equal to the difference between the cost of inventory
and the estimated market value based upon assumptions about
future demand and market conditions.



| |                              
| | -----------------------------
| | Property, Plant and Equipment

Property, plant and equipment are stated at cost
and are depreciated on a straight-line basis over the estimated
useful lives of the assets, which generally range from three to
five years, except for buildings, which are depreciated over
thirty years. Assets under leasehold improvements are amortized
over the shorter of the asset life or the remaining lease term.
Upon disposal, the Company removes the asset and accumulated
depreciation from its records and recognizes the related gain or
loss in results of operations.

Repair and maintenance expenditures, which are
not considered improvements and do not extend the useful life of
property, plant and equipment, are expensed as incurred.



| |                                         
| | ----------------------------------------
| | Goodwill and Other Intangible
    Assets

Goodwill represents the excess of purchase price
and acquisition costs over the fair value of net assets of
businesses acquired. Other intangible assets represent existing
technology, being amortized over the estimated useful lives
ranging from three to five years. The Company evaluates the
periods of amortization continually to determine whether later
events and circumstances warrant renewed estimates of useful
lives.

In July 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards No. 142 (SFAS 142),
Goodwill and Other Intangible Assets, which is
effective for fiscal years beginning after December 15,
2001. SFAS 142 requires, among other things, the
discontinuance of goodwill amortization. In addition, the
standard included provisions upon adoption for the
reclassification of certain existing recognized intangibles as
goodwill, reassessment of the useful lives of existing
recognized intangibles, reclassification of certain intangibles
out of previously reported goodwill and the testing for
impairment of existing goodwill and other intangibles. As a
result, the Company reclassified its existing acquired assembled
workforce balance to goodwill, as it does not meet the separate
recognition criterion according to SFAS 142. Commencing in
fiscal 2002, the Company adopted SFAS 142.



| |                                                                              
| | -----------------------------------------------------------------------------
| | Impairment of Long-lived Assets, Including
    Goodwill and Other Intangibles

The Company assesses the impairment of its
long-lived assets, other identifiable intangibles and related
goodwill periodically in accordance with the provisions of
Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment and Disposal of Long-Lived
Assets. The Company also assesses the impairment of
enterprise level goodwill periodically in accordance with the
provision of SFAS 142.

SFAS 142 prescribes a two-step process for
impairment testing of goodwill. The first step, used to identify
potential impairment, compares the fair value of a reporting
unit with its carrying amount, including goodwill. An impairment
review is performed annually or whenever events or changes in
circumstances indicate that the carrying value may not be
recoverable. Factors considered important which could result in
an impairment review include but are not limited to, significant
underperformance relative to expected historical or projected
future operating results, undiscounted cash flows are less than
the carrying value, significant changes in the manner of use of
the acquired assets or the strategy for the Companys
overall business, significant negative industry or economic
trends, a significant decline in our stock price for a sustained
period, and the Companys market capitalization relative to
net book value. The second step (if necessary), measures the
amount of impairment loss by comparing the implied fair value of
reporting unit goodwill with the carrying amount of that
goodwill. If the Company determines that the carrying value of
goodwill may not be recoverable based

60



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

upon the existence of one or more of the above
indicators of impairment, the Company will measure any
impairment based on the projected discounted cash flow method
using a discount rate commensurate with the risk inherent to the
Companys current business model.

The Company completed its first step impairment
analysis in the fourth quarter of 2003 and found no instances of
impairment of its recorded goodwill; accordingly, the second
testing step was not necessary during fiscal year 2003.



| |                 
| | ----------------
| | Product Warranty

The Company generally warrants its products
against defects in materials and workmanship for varying lengths
of time. The Company records an accrual for estimated warranty
costs when revenue is recognized. Warranty covers cost of repair
or replacement of the hard drive and the warranty periods
generally range from one to five years. The Company has
comprehensive processes that it uses to estimate accruals for
warranty exposure. The processes include specific detail on hard
drives in the field by product type, estimated failure rates and
costs to repair or replace. Although the Company believes it has
the continued ability to reasonably estimate warranty expenses,
unforeseeable changes in factors used to estimate the accrual
for warranty could occur. These unforeseeable changes could
cause a material change in the Companys warranty accrual
estimate. Such a change would be recorded in the period in which
the change was identified.



| |                                                                  
| | -----------------------------------------------------------------
| | Restructuring Liabilities, Litigation and
    Other Contingencies

The Company accounts for its restructuring
liabilities in connection with business combinations in
accordance with Emerging Issues Task Force No. 95-3
(EITF 95-3), Recognition of Liabilities
in Connection with a Purchase Business Combination.
EITF 95-3 requires that the Company record an estimated
liability if the estimated costs are not associated with or are
not incurred to generate revenues of the combined entity after
the consummation date and they meet certain criteria defined
within EITF 95-3. We will account for our restructuring
liabilities initiated after December 31, 2002 under SFAS
146, Accounting for Costs Associated with Exist or
Disposal Activities. As of December 27, 2003, we have
not recorded any restructuring liabilities under SFAS 146.
The Company accounted for restructuring liabilities initiated in
2002 in accordance with EITF 94-3 Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring), which requires the Company to record the
liability resulting from estimated costs that are not associated
with or do not benefit activities that will be continued. The
Company accounts for litigation and contingencies in accordance
with Statement of Financial Accounting Standard No. 5
(SFAS 5), Accounting for Contingencies.
SFAS 5 requires that the Company record an estimated loss
from a loss contingency when information available prior to
issuance of the Companys financial statements indicates
that it is probable that an asset has been impaired or a
liability has been incurred at the date of the financial
statements and the amount of loss can be reasonably estimated.



| |                             
| | ----------------------------
| | Foreign Currency Translation

The functional currency for all foreign
operations is the U.S. dollar. As such, all material
foreign exchange gains or losses are included in the
determination of net income (loss). Net foreign exchange losses
included in net income (loss) for the fiscal years ended
December 29, 2001, December 28, 2002 and
December 27, 2003 were immaterial.



| |                           
| | --------------------------
| | Foreign Exchange Contracts

Although the majority of the Companys
transactions are in U.S. Dollars, the Company enters into
currency forward contracts to manage foreign currency exchange
risk associated with its operations primarily in Singapore,
Switzerland and Japan. From time to time, the Company purchases
short-term, forward

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

exchange contracts to hedge the impact of foreign
currency fluctuations on certain underlying assets, liabilities
and commitments for operating expenses denominated in foreign
currencies. The purpose of entering into these hedge
transactions is to minimize the impact of foreign currency
fluctuations on the results of operations. A majority of the
increase or decreases in the Companys local currency
operating expenses are offset by gains and losses on the hedges.
The contracts generally have maturity dates that do not exceed
three months. The Company does not purchase short-term forward
exchange contracts for trading purposes. There were no
outstanding forward exchange contracts as of December 27,
2003 and December 28, 2002.

The Company accounts for derivative instruments
and for hedging activities in accordance with Statement of
Financial Accounting Standard No. 133
(SFAS 133), Accounting for Derivative
Instruments and Hedging Activities. Since the adoption of
SFAS 133, the Company has elected not to designate these
forward exchange contracts as accounting hedges and any changes
in fair value have been recorded through the results of
operations for the year ended December 27, 2003.



| |                    
| | -------------------
| | Revenue Recognition

The Company derives its revenue from the sale of
products. As described below, significant management judgments
and estimates must be made and used in connection with the
revenue recognized in any accounting period with respect to the
amount of reserves for sales returns, allowances and doubtful
accounts. Material differences may result in the amount and
timing of the Companys revenue for any period if its
management made different judgments or utilized different
estimates.

In recognizing revenue in any period, the Company
applies the provisions of Staff Accounting Bulletin 104,
Revenue Recognition.

Revenue from sales of products is recognized when
persuasive evidence of an arrangement exists, including a fixed
price to the buyer, delivery has occurred and collectibility is
reasonably assured; this generally occurs upon shipment.

For all sales the Company uses either a binding
purchase order or signed purchase agreement as evidence of an
arrangement. Sales through its distributors are evidenced by a
master agreement governing the relationship together with
binding purchase orders on a transaction-by-transaction basis.
The Companys arrangements generally do not include
acceptance clauses.

The Company assesses collection based on a number
of factors, including past transaction history with the customer
and the credit-worthiness of the customer. The Company does not
request collateral from its customers.

Delivery generally occurs when product is
delivered to a common carrier. Certain of the Companys
products are delivered on an FOB destination basis. The Company
defers its revenue associated with these transactions until the
delivery has occurred to the customers premises.

Sales to original equipment manufacturers
(OEMs) are subject to agreements allowing limited
rights of return and sales incentive programs. Sales incentive
programs are typically related to an OEMs level of
purchases. Estimated reductions to revenue for sales incentive
programs are provided at the time the revenue is recorded.
Returns from OEMs have not been material in any period as the
Companys principal OEM customers have adopted
build-to-order manufacturing model or just-in-time inventory
management processes.

Sales to distributors and retailers
(resellers) are subject to agreements allowing
limited rights of return, price protection, sales incentive
programs and advertising. These programs are generally related
to a resellers level of sales, order size or point of sale
activity. The Company provides for these programs as deductions
from revenues at the time the revenue is recorded based on
estimated requirements. These estimates are based primarily on
estimated future price erosion, customer sell-through levels and
program participation. Such estimates are adjusted periodically
to reflect actual and anticipated experience.

62



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Estimated product returns are provided in
accordance with Statement of Financial Accounting Standard
No. 48 (SFAS 48), Revenue
Recognition When Right of Return Exists. Resellers have
limited rights of return which allow them to return a percentage
of the prior quarters purchases by these resellers.
Accordingly, revenue is not recognized with respect to those
shipments which management estimates will be returned. The
Company believes that these estimates are reasonably accurate
due to the short time period during which the Companys
resellers can return products, the limitations placed on their
right to make returns, the Companys long history of
conducting business with resellers on a sell-in basis, the
nature of the Companys historical relationships with
resellers and the weekly reporting procedures through which the
Company monitors inventory levels at resellers and sales to
end-users.



| |                    
| | -------------------
| | Advertising Expense

The cost of advertising is expensed as incurred.
For the years ended December 27, 2003, December 28,
2002 and December 29, 2001, advertising costs totaled
$2.4 million, $5.0 million and $3.1 million,
respectively. Advertising and other marketing development costs
incurred by the Companys customers and funded by the
Company through purchase volume rebates are accounted for as a
reduction of the revenue associated with such customers.



| |                            
| | ---------------------------
| | Accounting for Income Taxes

The Company accounts for income taxes under the
liability method. Under the liability method, deferred tax
assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to
reverse. The Company is required to adjust its deferred tax
assets and liabilities in the period when tax rates or the
provisions of the income tax laws change. Valuation allowances
are established to reduce deferred tax assets to the amounts
expected to be realized.



| |                         
| | ------------------------
| | Stock-Based Compensation

The Company accounts for stock-based employee
compensation in accordance with APB Opinion No. 25
(APB 25), Accounting for Stock Issued to
Employees and related Interpretations, and complies with
the disclosure provisions of Statement of Financial Accounting
Standards No. 123 (SFAS 123), Accounting
for Stock-Based Compensation and Statement of Financial
Accounting Standard No. 148 (SFAS 148),
Accounting for Stock-Based Compensation, Transition and
Disclosures. The Company adopted FASB Interpretation
No. 44 (FIN 44), Accounting for
Certain Transactions Involving Stock Compensation, an
interpretation of APB 25 as of July 1, 2000.
FIN 44 provides guidance on the application of APB 25
for stock-based compensation to employees. For fixed grants,
under APB 25, compensation expense is based on the excess
of the fair value of the Companys stock over the exercise
price, if any, on the date of the grant and is recorded on a
straight-line basis over the vesting period of the options,
which is generally four years. For variable grants, compensation
expense is based on changes in the fair value of the
Companys stock and is recorded using the methodology set
out in FASB Interpretation No. 28, Accounting for
Stock Appreciation Rights and Other Variable Stock Option or
Award Plans, an interpretation of APB 15 and
APB 25.

The Company accounts for stock-based compensation
issued to non-employees in accordance with the provisions of
SFAS No. 123 and Emerging Issues Task Force No. 96-18,
Accounting for Equity Investments That Are Issued to
Non-Employees for Acquiring, or in Conjunction with Selling,
Goods or Services.

63



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following proforma net income
(loss) information for Maxtors stock options and
employee stock purchase plan has been prepared following the
provisions of SFAS 123 (in thousands, except per share
data):

|                                                                                                              |                             |              |          |              |   |              |          |          |   |   |         |        | 
|------------------------------------------------------------------------------------------------------------- | --------------------------- | ------------ | -------- | ------------ | - | ------------ | -------- | -------- | - | - | ------- | ------ | 
|                                                                                                              |                             |             
|                                                                                                              |                             | Years Ended 
|                                                                                                              |                             |             
|                                                                                                              |                             | December 29, |          | December 28, |   | December 27,
|                                                                                                              |                             | 2001         |          | 2002         |   | 2003        
|                                                                                                              |                             |              |          |              |   |             
|Net income (loss) applicable to common
    stockholders, as reported                                          |                             | $            | (646,398 | )            |   | $            | (334,067 | )        |   | $ | 102,671 |       
|Add: Stock-based employee compensation expense
    included in reported net income (loss)                     |                             |              | 6,066    |              |   |              | 5,562    |          |   |   | 923     |       
|Deduct: Total stock-based employee compensation
    expense determined under fair value method for all awards |                             |              | 38,251   |              |   |              | 40,013   |          |   |   | 27,913  |       
|                                                                                                              |                             |              |          |              |   |              |          |          |   |   |         |       
|                                                                                                              | Pro forma net income (loss) |              | $        | (678,583     | ) |              | $        | (368,518 | ) |   | $       | 75,681 | 
|                                                                                                              |                             |              |          |              |   |              |          |          |   |   |         |       
|Net income (loss) per share                                                                                   |                             |              |          |              |   |              |          |          |   |   |         |       
|                                                                                                              | As reported  basic         |              | $        | (3.12        | ) |              | $        | (1.40    | ) |   | $       | 0.42   | 
|                                                                                                              | Pro forma  basic           |              | $        | (3.28        | ) |              | $        | (1.54    | ) |   | $       | 0.31   | 
|                                                                                                              | As reported  diluted       |              | $        | (3.12        | ) |              | $        | (1.40    | ) |   | $       | 0.41   | 
|                                                                                                              | Pro forma  diluted         |              | $        | (3.28        | ) |              | $        | (1.54    | ) |   | $       | 0.30   | 

For further information on assumptions used in
determining the fair value stock option grants, see note 11
of the Notes to Consolidated Financial Statements.

The proforma net income (loss) disclosures
made above are not necessarily representative of the effects on
pro forma net income (loss) for future years as options
granted typically vest over several years and additional option
grants are expected to be made in future years. Had we adopted
the recognition and measurement provisions of SFAS No. 123
for the years ended December 29, 2001, December 28,
2002 and December 27, 2003, the stock-based employee
compensation expense would have been $38.3 million,
$40.0 million and $27.9 million, respectively, compared to
$6.1 million, $5.6 million and $0.9 million
recorded in the Companys income statement, respectively.



| |                            
| | ---------------------------
| | Net Income (Loss) Per Share

Net income (loss) per share has been
computed in accordance with Statement of Financial Accounting
Standards No. 128 (SFAS No. 128),
Earnings per Share. Basic net income (loss) per
share is computed using the weighted average common shares
outstanding during the year, which is exclusive of stock subject
to future vesting. Diluted net income (loss) per share is
computed using the weighted average common shares and
potentially dilutive securities outstanding during the year.
Potentially dilutive securities are excluded from the
computation of diluted net loss per share for those presented
years in which their effect would be anti-dilutive due to the
Companys net losses.



| |                            
| | ---------------------------
| | Comprehensive Income (Loss)

Comprehensive income (loss) as defined
includes all changes in equity (net assets) during a period from
non-owner sources. Cumulative other comprehensive income (loss),
as presented in the accompanying consolidated balance sheets,
consists of the net unrealized gains on available-for-sale
securities, net of tax, if

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

any. Total comprehensive income (loss) for
each of the three years is presented in the following table (in
thousands):

|                                                                                             |  |              |          |              |  |              |          |   |  |   |         | 
|-------------------------------------------------------------------------------------------- |  | ------------ | -------- | ------------ |  | ------------ | -------- | - |  | - | ------- | 
|                                                                                             |  |             
|                                                                                             |  | Years Ended 
|                                                                                             |  |             
|                                                                                             |  | December 29, |          | December 28, |  | December 27,
|                                                                                             |  | 2001         |          | 2002         |  | 2003        
|                                                                                             |  |              |          |              |  |             
|Net income (loss)                                                                            |  | $            | (646,398 | )            |  | $            | (334,067 | ) |  | $ | 102,671 | 
|Unrealized gain (loss) on investments in
    equity securities                               |  |              | (5,945   | )            |  |              | 495      |   |  |   | 8,567   | 
|Less: reclassification adjustment for realized
    gain (loss) included in net income (loss) |  |              | (7,353   | )            |  |              | 2,329    |   |  |   | 140     | 
|                                                                                             |  |              |          |              |  |              |          |   |  |   |         | 
|Comprehensive income (loss)                                                                  |  | $            | (644,990 | )            |  | $            | (335,901 | ) |  | $ | 111,098 | 
|                                                                                             |  |              |          |              |  |              |          |   |  |   |         | 

Reclassifications

Certain reclassifications have been made to prior
year balances to conform to current year classifications. These
reclassifications had no impact on prior year stockholders
equity or results of operations.

Recent
Accounting Pronouncements

In January 2003, the Financial Accounting
Standards Board (FASB) issued Interpretation
No. 46 (FIN 46) Consolidation of
Variable Interest Entities. Until this interpretation, a
company generally included another entity in its consolidated
financial statements only if it controlled the entity through
voting interests. FIN 46 requires a variable interest
entity, as defined, to be consolidated by a company if that
company is subject to a majority of the risk of loss from the
variable interest entitys activities or entitled to
receive a majority of the entitys residual returns.
Certain provisions of FIN 46 were deferred until the period
ending after March 15, 2004. The adoption of FIN 46
for provisions effective during 2003 did not have a material
impact on the Companys financial position, cash flows or
results of operations.

In November 2002, the EITF reached a
consensus on EITF 00-21, Accounting for Revenue
Arrangements with Multiple Deliverables. EITF 00-21
establishes criteria for whether revenue on a deliverable can be
recognized separately from other deliverables in a multiple
deliverable arrangement. The criteria consider whether the
delivered item has stand-alone value to the customer, whether
the fair value of the delivered item can be reliably determined
and the rights of returns for the delivered item.
EITF 00-21 is effective for revenue agreements entered into
in fiscal years beginning after June 15, 2003 with early
adoption permitted. The Company believes that the adoption of
this standard will have no material impact on its financial
statements.

In April 2003, the FASB issued SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and
Hedging Activities (SFAS 149), which amends
SFAS 133 for certain decisions made by the FASB Derivatives
Implementation Group. In particular, SFAS 149:
(1) clarifies under what circumstances a contract with an
initial net investment meets the characteristic of a derivative,
(2) clarifies when a derivative contains a financing
component, (3) amends the definition of an underlying to
conform it to language used in FASB Interpretation No. 45
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, and (4) amends certain other existing
pronouncements. This Statement is effective for contracts
entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003. In
addition, most provisions of SFAS 149 are to be applied
prospectively. The adoption of SFAS 149 did not have a material
impact on the Companys financial position, cash flows or
results of operations.

65



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity (SFAS
150). SFAS 150 changes the accounting for certain
financial instruments that under previous guidance issuers could
account for as equity. It requires that those instruments be
classified as liabilities in balance sheets. The guidance in
SFAS 150 is generally effective for all financial instruments
entered into or modified after May 31, 2003, and otherwise
is effective on July 1, 2003. The adoption of SFAS 150 did
not have a material impact on the Companys financial
position, cash flows or results of operations.

2.     Certain Risks
and Concentrations

The Companys revenues are derived from the
sale of its hard disk drive products. The markets in which the
Company competes are highly competitive and rapidly changing.
Significant technological changes, changes in customer
requirements, or the emergence of competitive products with new
capabilities or technologies could adversely affect operating
results. The Company has historically derived substantially all
of its net revenues from the hard disk drive products. As a
result of this revenue concentration, the Companys
business could be harmed by a decline in demand for, or in the
prices of, these products as a result of, among other factors,
any change in pricing model, a maturation in the markets for
these products, increased price competition or a failure by the
Company to keep up with technological change.

The Company sells a significant amount of its
products through intermediaries such as distributors. Revenue
from sales to distributors represented 41.8% of total revenues
in the year ended December 27, 2003. The Companys
distributor agreements may be terminated by either party without
cause. If one of the Companys significant distributors
terminates its distribution agreement, the Company could
experience a significant interruption in the distribution of its
products.

The Companys distributors may sell other
vendors products that are complementary to, or compete
with, its products. While the Company encourages its
distributors to focus on the Companys products through
market and support programs, these distributors may give greater
priority to products of other suppliers, including competitors.

Financial instruments which potentially subject
Maxtor to concentrations of credit risk consist primarily of
accounts receivable, cash equivalents, restricted cash and
marketable securities. The Company has cash equivalents and
marketable securities policies that limit the amount of credit
exposure to any one financial institution and restricts
placement of these funds to financial institutions evaluated as
highly credit-worthy. Maxtors products are sold worldwide
to OEMs, distributors, and retailers. Concentration of credit
risk with respect to the Companys trade receivables is
limited by an ongoing credit evaluation process and the
geographical dispersion of sales transactions. Therefore,
collateral is generally not required from the Companys
customers. The allowance for doubtful accounts is based upon the
expected collectibility of all accounts receivable. As of
December 27, 2003, the Company had one customer who
accounted for 15.0% of the outstanding trade receivables and
another customer who accounted for 10.3% of the outstanding
trade receivables. There were only two customers who accounted
for more than 10% of the outstanding trade receivables as of
December 27, 2003. If the customers fail to perform their
obligations to the Company, such failures would have adverse
effects upon Maxtors financial position, results of
operations, cash flows and liquidity.

The Company purchases a majority of its server
hard disk drive finished goods from Matsushita Kotobuki
Electronics, Ltd. (MKE). If MKE were unable to
produce according to the Companys product delivery
schedules, the Companys operating results could be
adversely affected. The purchase agreement between MKE and the
Company expires in March 2004, and the Company is planning to
transition the manufacture of its server products to Singapore
in the second half of 2004. The Company intends to purchase its
Atlas products from MKE upon the expiration of the purchase
agreement under purchase orders through September 2004.

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

For the year ended December 27, 2003, the
Company had income from operations of $130.0 million. As of
December 27, 2003, the Company had an accumulated deficit
of $1,637.9 million. The Company operates in a highly
competitive market characterized by rapidly changing technology.
The Company intends to incur significant expenses to continue to
develop and promote new products as well as to support existing
product sales. Failure to generate sufficient revenues from new
and existing products may require the Company to delay, scale
back or eliminate certain research and development or marketing
programs.

The Company believes that cash, cash equivalents,
restricted cash and marketable securities will be sufficient to
meet its needs for operations and working capital requirements
through fiscal 2004. To the extent that the Company does not
generate sufficient revenues from new and existing products or
reduce discretionary expenditures and, as a result, cash
generated from operations is insufficient to satisfy liquidity
requirements, additional cash may be needed to finance operating
and investing needs. However, depending on market conditions,
any additional financing needed may not be available on
acceptable terms, or at all.



|   |                                          
|-- | -----------------------------------------
|3. | Supplemental Financial Statement
    Data

|                                               |                                                 |                |          |              |  |   |          |         | 
|---------------------------------------------- | ----------------------------------------------- | -------------- | -------- | ------------ |  | - | -------- | ------- | 
|                                               |                                                 | December 28,   |          | December 27,
|                                               |                                                 | 2002           |          | 2003        
|                                               |                                                 |                |          |             
|                                               |                                                 |               
|                                               |                                                 | (In thousands)
|Inventories:                                   |                                                 |                |          |              |  |   |          |        
|                                               | Raw materials                                   |                | $        | 40,209       |  |   | $        | 56,132  | 
|                                               | Work-in-process                                 |                |          | 25,523       |  |   |          | 44,650  | 
|                                               | Finished goods                                  |                |          | 109,813      |  |   |          | 117,229 | 
|                                               |                                                 |                |          |              |  |   |          |        
|                                               |                                                 | $              | 175,545  |              |  | $ | 218,011  |        
|                                               |                                                 |                |          |              |  |   |          |        
|Prepaid expenses and other:                    |                                                 |                |          |              |  |   |          |        
|                                               | Investments in equity securities, at fair value |                | $        | 6,589        |  |   | $        | 15,536  | 
|                                               | Prepaid expenses and other                      |                |          | 26,849       |  |   |          | 22,765  | 
|                                               |                                                 |                |          |              |  |   |          |        
|                                               |                                                 | $              | 33,438   |              |  | $ | 38,301   |        
|                                               |                                                 |                |          |              |  |   |          |        
|Property, plant and equipment, at cost:        |                                                 |                |          |              |  |   |          |        
|                                               | Buildings                                       |                | $        | 137,467      |  |   | $        | 152,381 | 
|                                               | Machinery and equipment                         |                |          | 548,149      |  |   |          | 608,735 | 
|                                               | Software                                        |                |          | 75,284       |  |   |          | 79,682  | 
|                                               | Furniture and fixtures                          |                |          | 23,962       |  |   |          | 26,583  | 
|                                               | Leasehold improvements                          |                |          | 77,925       |  |   |          | 86,430  | 
|                                               |                                                 |                |          |              |  |   |          |        
|                                               |                                                 | $              | 862,787  |              |  | $ | 953,811  |        
|Less accumulated depreciation and amortization |                                                 |                | (497,945 | )            |  |   | (611,132 | )      
|                                               |                                                 |                |          |              |  |   |          |        
|Net property, plant and equipment              |                                                 | $              | 364,842  |              |  | $ | 342,679  |        
|                                               |                                                 |                |          |              |  |   |          |        
|Accrued and other liabilities:                 |                                                 |                |          |              |  |   |          |        
|                                               | Income taxes payable                            |                | $        | 22,183       |  |   | $        | 23,763  | 
|                                               | Accrued payroll and payroll-related expenses    |                |          | 76,876       |  |   |          | 132,967 | 
|                                               | Accrued warranty                                |                |          | 278,713      |  |   |          | 209,426 | 
|                                               | Restructuring liabilities, short-term           |                |          | 11,589       |  |   |          | 9,096   | 
|                                               | Accrued expenses                                |                |          | 82,389       |  |   |          | 79,136  | 
|                                               |                                                 |                |          |              |  |   |          |        
|                                               |                                                 | $              | 471,750  |              |  | $ | 454,388  |        
|                                               |                                                 |                |          |              |  |   |          |        

67



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                   |                                      |                |         |              |  |   |         |         | 
|------------------ | ------------------------------------ | -------------- | ------- | ------------ |  | - | ------- | ------- | 
|                   |                                      | December 28,   |         | December 27,
|                   |                                      | 2002           |         | 2003        
|                   |                                      |                |         |             
|                   |                                      |               
|                   |                                      | (In thousands)
|Other liabilities: |                                      |                |         |              |  |   |         |        
|                   | Tax indemnification liability        |                | $       | 138,567      |  |   | $       | 135,559 | 
|                   | Restructuring liabilities, long-term |                |         | 50,921       |  |   |         | 43,517  | 
|                   | Other                                |                |         | 9,583        |  |   |         | 7,409   | 
|                   |                                      |                |         |              |  |   |         |        
|                   |                                      | $              | 199,071 |              |  | $ | 186,485 |        
|                   |                                      |                |         |              |  |   |         |        

Depreciation and amortization expense of
property, plant and equipment for the years ended
December 27, 2003, December 28, 2002 and
December 29, 2001 was $156.6 million,
$155.8 million and $125.6 million, respectively. Total
property, plant and equipment recorded under capital leases was
$38.3 million, as of December 27, 2003. Total
accumulated depreciation under capital leases was
$14.1 million, as of December 27, 2003.



|   |                              
|-- | -----------------------------
|4. | Sales of Accounts Receivables

In July 1998, the Company entered into an
accounts receivable securitization program (the
Program) with a group of commercial banks. On
November 15, 2001, the Company amended and restated the
Program, extending the Program for another three years and
increasing the available size of the Program from
$200 million to $300 million. On December 30,
2002, the Company elected to terminate the Program. Under the
Program, the Company sold U.S. and Canadian accounts receivable
in securitization transactions and retains a subordinated
interest and servicing rights to those receivables. The eligible
receivables, net of estimated credit losses, were sold to third
party conduits through a wholly-owned bankruptcy-remote entity
that was consolidated for financial reporting purposes. The
investors in the securitized receivables had no recourse to the
Companys assets as a result of debtors defaults
except for the retained interests in the securitized accounts
receivable. The Company retained the portion of the sold
receivables that was in excess of the minimum receivables level
required to support the securities issued by the third party
conduits, referred to as retained interest. The carrying amount
of the Companys retained interest, which approximated fair
value because of the short-term nature of receivables, was
recorded in accounts receivable. The Company serviced the sold
receivables and charged the third party conduits a monthly
servicing fee at market rates; accordingly, no servicing asset
or liability was recorded.

The Company accounted for the Program under the
FASBs Statement of Financial Accounting Standards
No. 140 (SFAS 140), Accounting for
Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities. The Program qualifies for treatment as a
sale under SFAS 140. As of December 28, 2002 and
December 29, 2001, the outstanding balance of securitized
accounts receivable held by the third party conduits totaled
$140.3 million and $124.3 million, respectively, of
which the Companys subordinated retained interest was
$95.3 million and $79.1 million, respectively.
Accordingly, $45.0 million and $45.2 million of
accounts receivable balances, net of applicable allowances,
respectively, were removed from the consolidated balance sheets
at December 28, 2002 and December 29, 2001,
respectively. Delinquent amounts and credit losses related to
these receivables were not material as of December 28, 2002
and December 29, 2001. Expenses associated with the Program
totaled $4.0 million and $7.0 million in the years
ended December 28, 2002 and December 29, 2001,
respectively, and were included within the interest expense
caption of the results of operations statement. In fiscal years
ended 2002 and 2001, $1.0 million and $4.5 million of
these expenses, respectively, related primarily to the loss on
sale of receivables, net of related servicing revenues, with the
remainder representing program and facility fees. Net cash flows
from sales (repayments) under the Program were
$(0.2) million and $(29.8) million for the years ended
December 28, 2002 and December 29, 2001, respectively.
On December 30, 2002, the Company elected to terminate the
Program.

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                     
|-- | ------------------------------------
|5. | Goodwill and Other Intangible Assets

Commencing in fiscal 2002, the Company adopted
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets
(SFAS 142). SFAS 142 requires goodwill to
be tested for impairment under certain circumstances, written
down when impaired, and requires purchased intangible assets
other than goodwill to be amortized over their useful lives
unless these lives are determined to be indefinite. Goodwill and
indefinite lived intangible assets will be subject to an
impairment test at least annually.

The Company ceased amortizing goodwill totaling
$846.0 million as of the adoption date, including
$31.1 million, net of accumulated amortization, of acquired
workforce intangibles previously classified as purchased
intangible assets. Subsequent to the decision to shut down the
manufacture and sales of NSG products, the Company wrote off
goodwill related to the NSG operations of $32.0 million. As
of December 27, 2003, goodwill amounted to
$814.0 million.

Purchased intangible assets are carried at cost
less accumulated amortization. The Company evaluated its
intangible assets and determined that all such assets have
determinable lives. Amortization is computed over the estimated
useful lives of the respective assets, generally three to five
years. The Company expects amortization expense on purchased
intangible assets to be $36.0 million in fiscal 2004,
$20.2 million in fiscal 2005 and $5.4 million in
fiscal 2006, at which time purchased intangible assets will be
fully amortized. Amortization of other intangible assets was
$61.3 million, $82.2 million and $85.3 million
for the years ended December 29, 2001, December 28,
2002 and December 27, 2003, respectively.

|                              |                      |         |   |                   |  |                   |         |         |  |          |          |              |   |     |         |        |  |   |         |         |  |   |          |         |   |   |         |        | 
|----------------------------- | -------------------- | ------- | - | ----------------- |  | ----------------- | ------- | ------- |  | -------- | -------- | ------------ | - | --- | ------- | ------ |  | - | ------- | ------- |  | - | -------- | ------- | - | - | ------- | ------ | 
|                              |                      |         |   |                   |  |                  
|                              |                      |         |   | December 28, 2002 |  | December 27, 2003
|                              |                      |         |   |                   |  |                  
|                              |                      |         |   | Gross             |  |                   |         | Gross   |  |         
|                              |                      | Useful  |   | Carrying          |  | Accumulated       |         |         |  | Carrying |          | Accumulated  |   |    
|                              |                      | Life    |   | Amount            |  | Amortization      |         | Net     |  | Amount   |          | Amortization |   | Net
|                              |                      |         |   |                   |  |                   |         |         |  |          |          |              |   |    
|                              |                      | (Years) |   |                   |  |                  
|                              |                      |         |   | (In thousands)    |  | (In thousands)   
|Goodwill                      |                      |         |   |                   |  | $                 | 813,951 |         |  | $        |         |              |   | $   | 813,951 |        |  | $ | 813,951 |         |  | $ |         |         |   | $ | 813,951 |       
|                              |                      |         |   |                   |  |                   |         |         |  |          |          |              |   |     |         |        |  |   |         |         |  |   |          |         |   |   |         |       
|Quantum HDD                   |                      |         |   |                   |  |                   |         |         |  |          |          |              |   |     |         |        |  |   |         |         |  |   |          |         |   |   |         |       
|Existing technology           |                      |         |   |                   |  |                   |         |         |  |          |          |              |   |     |         |        |  |   |         |         |  |   |          |         |   |   |         |       
|                              | Core technology      |         |   | 5                 |  |                   | $       | 96,700  |  |          | $        | (36,750      | ) |     | $       | 59,950 |  |   | $       | 96,700  |  |   | $        | (53,185 | ) |   | $       | 43,515 | 
|                              | Consumer electronics |         |   | 3                 |  |                   |         | 8,900   |  |          |          | (5,192       | ) |     |         | 3,708  |  |   |         | 8,900   |  |   |          | (8,158  | ) |   |         | 742    | 
|                              | High-end             |         |   | 3                 |  |                   |         | 75,500  |  |          |          | (44,042      | ) |     |         | 31,458 |  |   |         | 75,500  |  |   |          | (69,208 | ) |   |         | 6,292  | 
|                              | Desktop              |         |   | 3                 |  |                   |         | 105,000 |  |          |          | (56,408      | ) |     |         | 48,592 |  |   |         | 105,000 |  |   |          | (96,250 | ) |   |         | 8,750  | 
|MMC Technology                |                      |         |   |                   |  |                   |         |         |  |          |          |              |   |     |         |        |  |   |         |         |  |   |          |         |   |   |         |       
|Existing technology           |                      |         | 5 |                   |  |                   | 4,350   |         |  |          | (1,160   | )            |   |     | 3,190   |        |  |   | 4,350   |         |  |   | (2,030   | )       |   |   | 2,320   |       
|                              |                      |         |   |                   |  |                   |         |         |  |          |          |              |   |     |         |        |  |   |         |         |  |   |          |         |   |   |         |       
|Total other intangible assets |                      |         |   |                   |  | $                 | 290,450 |         |  | $        | (143,552 | )            |   | $   | 146,898 |        |  | $ | 290,450 |         |  | $ | (228,831 | )       |   | $ | 61,619  |       
|                              |                      |         |   |                   |  |                   |         |         |  |          |          |              |   |     |         |        |  |   |         |         |  |   |          |         |   |   |         |       

In accordance with SFAS 142, the Company
completed its impairment analysis as of January 1, 2002,
upon the adoption of SFAS 142, and as of December 27,
2003 for the purpose of the annual review. The Company found no
instances of impairment of the recorded goodwill on both dates
and accordingly no impairment was recorded.

69



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following tables present the impact of
SFAS 142 on net income (loss) and net income
(loss) per share had the Company ceased to amortize
goodwill for the year ended December 29, 2001 (in
thousands, except per share amounts):

|                                                                     |                                                                                                         |                                                                      |                                                                      |              |       |              |          |   |       |       |         |   |      |      | 
|-------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | -------------------------------------------------------------------- | ------------ | ----- | ------------ | -------- | - | ----- | ----- | ------- | - | ---- | ---- | 
|                                                                     |                                                                                                         |                                                                     
|                                                                     |                                                                                                         | Years Ended                                                         
|                                                                     |                                                                                                         |                                                                     
|                                                                     |                                                                                                         | December 29,                                                         |                                                                      | December 28, |       | December 27,
|                                                                     |                                                                                                         | 2001                                                                 |                                                                      | 2002         |       | 2003        
|                                                                     |                                                                                                         |                                                                      |                                                                      |              |       |             
|Income (loss) from continuing
    operations  as reported           |                                                                                                         | $                                                                    | (598,179                                                             | )            |       | $            | (260,566 | ) |       | $     | 100,460 |  
|Adjustments:                                                         |                                                                                                         |                                                                      |                                                                      |              |       |              |          |   |       |       |         |  
|                                                                     | Amortization of goodwill                                                                                |                                                                      |                                                                      | 134,042      |       |              |          |  |       |       |         |  |     
|                                                                     | Amortization of acquired workforce intangibles
    previously classified as purchased intangible assets |                                                                      |                                                                      | 12,472       |       |              |          |  |       |       |         |  |     
|                                                                     |                                                                                                         |                                                                      |                                                                      |              |       |              |          |   |       |       |         |  
|                                                                     | Net adjustments                                                                                         |                                                                      |                                                                      | 146,514      |       |              |          |  |       |       |         |  |     
|                                                                     |                                                                                                         |                                                                      |                                                                      |              |       |              |          |   |       |       |         |  
|Income (loss) from continuing
    operations  adjusted              |                                                                                                         | $                                                                    | (451,665                                                             | )            |       | $            | (260,566 | ) |       | $     | 100,460 |  
|Basic earnings per share from continuing
    operations:             |                                                                                                         |                                                                      |                                                                      |              |       |              |          |   |       |       |         |  
|                                                                     |                                                                                                         | Income (loss) per share from continuing
    operations  as reported |                                                                      | $            | (2.89 | )            |          | $ | (1.09 | )     |         | $ | 0.41 |     
|                                                                     |                                                                                                         |                                                                      | Amortization of goodwill                                             |              |       | 0.65         |          |   |       |      |         |   |      |     | 
|                                                                     |                                                                                                         |                                                                      | Amortization of workforce                                            |              |       | 0.06         |          |   |       |      |         |   |      |     | 
|                                                                     |                                                                                                         |                                                                      |                                                                      |              |       |              |          |   |       |       |         |  
|                                                                     |                                                                                                         |                                                                      | Basic earnings per share from continuing
    operations  adjusted   |              | $     | (2.18        | )        |   | $     | (1.09 | )       |   | $    | 0.41 | 
|                                                                     |                                                                                                         |                                                                      |                                                                      |              |       |              |          |   |       |       |         |  
|Diluted earnings per share from continuing
    operations:           |                                                                                                         |                                                                      |                                                                      |              |       |              |          |   |       |       |         |  
|Income (loss) per share from continuing
    operations  as reported |                                                                                                         | $                                                                    | (2.89                                                                | )            |       | $            | (1.09    | ) |       | $     | 0.40    |  
|                                                                     |                                                                                                         |                                                                      | Amortization of goodwill                                             |              |       | 0.65         |          |   |       |      |         |   |      |     | 
|                                                                     |                                                                                                         |                                                                      | Amortization of workforce                                            |              |       | 0.06         |          |   |       |      |         |   |      |     | 
|                                                                     |                                                                                                         |                                                                      |                                                                      |              |       |              |          |   |       |       |         |  
|                                                                     |                                                                                                         |                                                                      | Diluted earnings per share from continuing
    operations  adjusted |              | $     | (2.18        | )        |   | $     | (1.09 | )       |   | $    | 0.40 | 
|                                                                     |                                                                                                         |                                                                      |                                                                      |              |       |              |          |   |       |       |         |  

|                                |                                                                                                         |              |          |              |  |              |          |   |  |   |         |   | 
|------------------------------- | ------------------------------------------------------------------------------------------------------- | ------------ | -------- | ------------ |  | ------------ | -------- | - |  | - | ------- | - | 
|                                |                                                                                                         |             
|                                |                                                                                                         | Years Ended 
|                                |                                                                                                         |             
|                                |                                                                                                         | December 29, |          | December 28, |  | December 27,
|                                |                                                                                                         | 2001         |          | 2002         |  | 2003        
|                                |                                                                                                         |              |          |              |  |             
|Net income (loss)  as reported |                                                                                                         | $            | (646,398 | )            |  | $            | (334,067 | ) |  | $ | 102,671 |  
|Adjustments:                    |                                                                                                         |              |          |              |  |              |          |   |  |   |         |  
|                                | Amortization of goodwill                                                                                |              |          | 140,779      |  |              |          |  |  |   |         |  | 
|                                | Amortization of acquired workforce intangibles
    previously classified as purchased intangible assets |              |          | 12,616       |  |              |          |  |  |   |         |  | 
|                                |                                                                                                         |              |          |              |  |              |          |   |  |   |         |  
|Net adjustments                 |                                                                                                         |              | 153,395  |              |  |              |         |   |  |   |        |  
|                                |                                                                                                         |              |          |              |  |              |          |   |  |   |         |  
|Net income (loss)  adjusted    |                                                                                                         | $            | (493,003 | )            |  | $            | (334,067 | ) |  | $ | 102,671 |  
|                                |                                                                                                         |              |          |              |  |              |          |   |  |   |         |  

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                              |                                       |              |       |              |   |              |       |       |   |   |      |      | 
|--------------------------------------------- | ------------------------------------- | ------------ | ----- | ------------ | - | ------------ | ----- | ----- | - | - | ---- | ---- | 
|                                              |                                       |             
|                                              |                                       | Years Ended 
|                                              |                                       |             
|                                              |                                       | December 29, |       | December 28, |   | December 27,
|                                              |                                       | 2001         |       | 2002         |   | 2003        
|                                              |                                       |              |       |              |   |             
|Basic earnings per share:                     |                                       |              |       |              |   |              |       |       |   |   |      |     
|Net income (loss) per share  as
    reported |                                       | $            | (3.12 | )            |   | $            | (1.40 | )     |   | $ | 0.42 |     
|                                              | Amortization of goodwill              |              |       | 0.68         |   |              |       |      |   |   |      |     | 
|                                              | Amortization of workforce             |              |       | 0.06         |   |              |       |      |   |   |      |     | 
|                                              |                                       |              |       |              |   |              |       |       |   |   |      |     
|                                              | Basic earnings per share  adjusted   |              | $     | (2.38        | ) |              | $     | (1.40 | ) |   | $    | 0.42 | 
|                                              |                                       |              |       |              |   |              |       |       |   |   |      |     
|Diluted earnings per share:                   |                                       |              |       |              |   |              |       |       |   |   |      |     
|Net income (loss) per share  as
    reported |                                       | $            | (3.12 | )            |   | $            | (1.40 | )     |   | $ | 0.41 |     
|                                              | Amortization of goodwill              |              |       | 0.68         |   |              |       |      |   |   |      |     | 
|                                              | Amortization of workforce             |              |       | 0.06         |   |              |       |      |   |   |      |     | 
|                                              |                                       |              |       |              |   |              |       |       |   |   |      |     
|                                              | Diluted earnings per share  adjusted |              | $     | (2.38        | ) |              | $     | (1.40 | ) |   | $    | 0.41 | 
|                                              |                                       |              |       |              |   |              |       |       |   |   |      |     

6.     Short-term
Borrowings and Long-term Debt

Short-term borrowings and long-term debt consist
of the following (in thousands):

|                                                                                                   |  |              |         |              |  |   |         |  
|-------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ------------ |  | - | ------- | -
|                                                                                                   |  | December 28, |         | December 27,
|                                                                                                   |  | 2002         |         | 2003        
|                                                                                                   |  |              |         |             
|5.75% Subordinated Debentures due March 1,
    2012                                                |  | $            | 60,427  |              |  | $ | 59,352  |  
|6.8% Convertible Senior Notes due April 30,
    2010                                               |  |              |        |              |  |   | 230,000 |  
|Economic Development Board of Singapore Loans                                                      |  |              | 9,909   |              |  |   | 24,138  |  
|Manufacturing facility Loan, Suzhou China                                                          |  |              |        |              |  |   | 15,000  |  
|Pro rata portion of Quantum Corporations 7%
    Subordinated Convertible Notes due August 1, 2004 |  |              | 95,833  |              |  |   |        |  
|Mortgages                                                                                          |  |              | 35,609  |              |  |   | 34,164  |  
|Equipment Loans and Capital Leases                                                                 |  |              | 45,607  |              |  |   | 20,192  |  
|Receivables-backed Borrowings                                                                      |  |              |        |              |  |   | 50,000  |  
|                                                                                                   |  |              |         |              |  |   |         |  
|                                                                                                   |  |              | 247,385 |              |  |   | 432,846 |  
|Less amounts due within one year                                                                   |  |              | (41,042 | )            |  |   | (77,037 | )
|                                                                                                   |  |              |         |              |  |   |         |  
|                                                                                                   |  | $            | 206,343 |              |  | $ | 355,809 |  
|                                                                                                   |  |              |         |              |  |   |         |  

Future aggregate maturities as of
December 27, 2003 are as follows:

|                   |  |                |         | 
|------------------ |  | -------------- | ------- | 
|Fiscal Year Ending |  |               
|                   |  |               
|                   |  | (In thousands)
|2004               |  | $              | 77,037  | 
|2005               |  |                | 17,880  | 
|2006               |  |                | 42,641  | 
|2007               |  |                | 12,811  | 
|2008               |  |                | 8,750   | 
|Thereafter         |  |                | 273,727 | 
|                   |  |                |         | 
|Total              |  | $              | 432,846 | 
|                   |  |                |         | 

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The future minimum annual lease payments on
capital leases as of December 27, 2003 are as follows:

|                                                      |  |              |         |  
|----------------------------------------------------- |  | ------------ | ------- | -
|                                                      |  | December 27,
|Fiscal Year Ending                                    |  | 2003        
|                                                      |  |             
|2004                                                  |  | $            | 15,124  |  
|2005                                                  |  |              | 5,422   |  
|2006                                                  |  |              | 875     |  
|Thereafter                                            |  |              |        |  
|                                                      |  |              |         |  
|Total minimum lease payments & estimated
    residual |  | $            | 21,421  |  
|Imputed interest                                      |  |              | (1,229  | )
|                                                      |  |              |         |  
|Present value of minimum of lease payments            |  |              | 20,192  |  
|Current portion                                       |  |              | (14,117 | )
|                                                      |  |              |         |  
|Long-term capitalized lease obligations               |  | $            | 6,075   |  
|                                                      |  |              |         |  

The 5.75% Subordinated Debentures due
March 1, 2012 require semi-annual interest payments and
annual sinking fund payments of $5.0 million, which
commenced March 1, 1998. The Debentures are subordinated in
right to payment to all senior indebtedness. The Company owns
bonds in a principal amount sufficient to fulfill its sinking
fund obligation until March 1, 2005.

In September 1999, Maxtor Peripherals
(S) Pte Ltd entered into a four-year Singapore dollar
denominated loan agreement with the Economic Development Board
of Singapore (the Board), which is being amortized
in seven equal semi-annual installments ending March 2004. As of
December 27, 2003, the balance was 5.8 million
Singapore dollars, equivalent to $3.4 million. The Board
charges interest at 1.0% above the prevailing Central Provident
Fund lending rate, subject to a minimum of 3.5% per year (3.5%
as of December 27, 2003). This loan is supported by a
two-year guaranty from a bank. Cash is currently provided as
collateral for this guaranty but the Company may, at its option,
substitute other assets as security. As part of this agreement,
the Company was originally subject to two financial covenants,
the maintenance of minimum unrestricted cash and a tangible net
worth test. On January 29, 2003, the loan was amended to
remove the tangible net worth covenant. As of December 27,
2003, the Company was in compliance with the covenant regarding
maintenance of minimum restricted cash.

In September 2003, Maxtor Peripherals
(S) Pte Ltd. entered into a second four-year
52 million Singapore dollar loan agreement with the Board
which is amortized in seven equal semi-annual installments
ending December 2007. As of December 27, 2003, the balance
was 35.5 million Singapore dollars, equivalent to
$20.8 million. The Board charges interest at 4.25%. This
loan is supported by a guaranty from a bank. Cash is currently
provided as collateral for this guaranty; however, the Company
may at its option substitute other assets as security.

In connection with the Companys acquisition
of Quantum HDD, Maxtor agreed to indemnify Quantum for the
Quantum HDD pro rata portion of Quantums outstanding
$287.5 million 7.0% convertible subordinated notes due
August 1, 2004, and the principal amount of
$95.8 million had been included in the Companys
long-term debt. On August 21, 2003, Quantum redeemed these
notes at a redemption price equal to 101% of the face amount
plus accrued interest and the Company reimbursed
$97.2 million to Quantum Corporation as payment in full for
its obligations related to the $95.8 million representing
Quantum HDDs pro rata portion of such notes. Accordingly,
the Company recognized a $1.0 million loss as a result of
the early redemption of the notes which is included in other
gain (loss) caption of the consolidated statement of
operations.

In connection with the acquisition of the Quantum
HDD business, the Company acquired real estate and related
mortgage obligations. The term of the mortgages is ten years, at
an interest rate of 9.2%, with monthly

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

payments based on a twenty-year amortization
schedule, and a balloon payment at the end of the 10-year term,
which is September 2006. The outstanding balance at
December 27, 2003 was $34.2 million.

In April 2003, the Company obtained credit lines
with the Bank of China for up to $133 million to be used
for the construction and working capital requirements of the
manufacturing facility being established in Suzhou, China. These
lines of credit are U.S.-dollar-denominated and are drawable
until April 2007. Borrowings which, under these lines of credits
will be collateralized by the facilities being established in
Suzhou, China, bear interest at LIBOR plus 50 basis points
(subject to adjustments to 60 basis points) will be
repayable in eight semi-annual installments commencing October
2007, except for $30 million repayable in April 2013. In October
2003, Maxtor Technology Suzhou (MTS) drew down
$15 million on this line. MTS is required to maintain a
liability to assets ratio as detailed in the line of credit
agreement starting in fiscal 2004.

On May 7, 2003, the Company sold
$230 million in aggregate principal amount of 6.8%
convertible senior notes due 2010 to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of
1933, as amended. The notes are unsecured and effectively
subordinated to all existing and future secured indebtedness.
The notes are convertible into the Companys common stock
at a conversion rate of 81.5494 shares per $1,000 principal
amount of the notes, or an aggregate of 18,756,362 shares,
subject to adjustment in certain circumstances (equal to an
initial conversion price of $12.2625 per share). The Company has
the right to settle its obligation with cash or common stock.
The initial conversion price represents a 125% premium over the
closing price of the Companys common stock on May 1,
2003, which was $5.45 per share. Prior to May 5, 2008, the
Notes will not be redeemable at the Companys option.
Beginning May 5, 2008, if the closing price of the
Companys common stock for 20 trading days within a period
of 30 consecutive trading days ending on the trading day
before the date of mailing of the redemption notice exceeds 130%
of the conversion price in effect on such trading day, the
Company may redeem the Notes in whole or in part, in cash, at a
redemption price equal to 100% of the principal amount of the
Notes being redeemed plus any accrued and unpaid interest and
accrued and unpaid liquidated damages, if any, to, but
excluding, the redemption date. If, at any time, substantially
all of the Companys common stock is exchanged or acquired
for consideration that does not consist entirely of common stock
that is listed on United States national securities exchange or
approved for quotation on the Nasdaq National Market or similar
system, the holders of the notes have the right to require the
Company to repurchase all or any portion of the notes at their
face value plus accrued interest.

On May 9, 2003, the Company entered into a
two-year receivable-backed borrowing arrangement for up to
$100 million with certain financial institutions. Under
this arrangement the Company uses a special purpose subsidiary
to purchase U.S. and Canadian accounts receivable and can borrow
up to $100 million collateralized by the U.S. and Canadian
accounts receivable. The special purpose subsidiary is
consolidated for financial reporting purposes. The transactions
under the arrangement are accounted for as short-term borrowings
and remain on the Companys consolidated balance sheet. As
of December 27, 2003, the Company had borrowed
$50.0 million under the arrangement, which had been
reported as short-term borrowings in the Companys
consolidated financial statements. The average interest rate of
the loans outstanding under this arrangement is 6.0%. As of
December 27, 2003, $245.9 million of U.S. and Canadian
receivables were pledged under the Companys
receivable-backed borrowing arrangement and remain on the
Companys consolidated balance sheet. The arrangement
requires the Company to comply with operational and financial
covenants, including a liquidity covenant and a test of
operating income (loss) before depreciation and
amortization to long-term debt and certain tests relating to the
quality and nature of the receivables, including a dilution to
liquidation ratio, comparing reductions to the invoiced amounts
of receivables to actual collections in a designated period, and
a shadow rating for the arrangement from a credit rating agency.
As of December 27, 2003, the Company was in compliance with
these requirements; however, as of March 9, 2004 the
dilution to liquidation ratio for this facility exceeded the
agreed upon threshold. The lenders under the facility have
agreed to forbear from exercising remedies for noncompliance
with this ratio until March 31, 2004 and in return, the
Company has agreed to apply all collections of receivables to
the repayment of the outstanding facility until repaid in full,
which the Company expects will occur by the same date. During
this period the Company will continue to

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

transfer its receivables to the special purpose
subsidiary, but will not have access to collections on those
receivables until the facility is repaid in full.

As of December 27, 2003, the Company had
capital leases totaling $20.2 million. These obligations
include certain leases assumed in connection with the September
2001 acquisition of MMC Technology, Inc. These capital leases
have maturity dates through September 2006 and interest rates
averaging 8.7%.

7.     Financial
Instruments



| |                       
| | ----------------------
| | Fair Value Disclosures

The fair values of cash and cash equivalents
approximate carrying values because of their short maturities.
The Companys marketable debt and equity securities are
carried at current market values. The fair values of the
Companys 5.75% subordinated debentures are based on the
bid price of the last trade for the fiscal years ended
December 28, 2002 and December 27, 2003 and the 6.8%
convertible senior notes are based on the bid price of the last
trade for the fiscal year ended December 27, 2003. The fair
value of the Companys mortgages was based on the estimated
present value of the remaining payments, utilizing risk-adjusted
market interest rates of similar instruments at the balance
sheet date.

The carrying values and estimated fair values of
the Companys financial instruments are as follows (in
thousands):

|                                                                                |  |                   |        |                   |  |          |        |            |  |   |         |  |  |   |         | 
|------------------------------------------------------------------------------- |  | ----------------- | ------ | ----------------- |  | -------- | ------ | ---------- |  | - | ------- |  |  | - | ------- | 
|                                                                                |  |                   |        |                  
|                                                                                |  | December 28, 2002 |        | December 27, 2003
|                                                                                |  |                   |        |                  
|                                                                                |  | Carrying          |        | Estimated         |  | Carrying |        | Estimated 
|                                                                                |  | Amount            |        | Fair Value        |  | Amount   |        | Fair Value
|                                                                                |  |                   |        |                   |  |          |        |           
|6.8% Convertible Senior Notes                                                   |  | $                 |       |                   |  | $        |       |            |  | $ | 230,000 |  |  | $ | 319,413 | 
|Manufacturing Facility Loan  Suzhou,
    China                                 |  |                   |       |                   |  |          |       |            |  |   | 15,000  |  |  |   | 15,000  | 
|Pro rata portion of Quantum Corporations 7%
    Subordinated Convertible Notes |  |                   | 95,833 |                   |  |          | 95,833 |            |  |   |        |  |  |   |        | 
|5.75% Subordinated Debentures                                                   |  |                   | 60,427 |                   |  |          | 49,550 |            |  |   | 59,352  |  |  |   | 50,449  | 
|Mortgages                                                                       |  |                   | 35,609 |                   |  |          | 35,657 |            |  |   | 34,164  |  |  |   | 33,990  | 
|Economic Development Board of Singapore Loan                                    |  |                   | 9,909  |                   |  |          | 9,909  |            |  |   | 24,138  |  |  |   | 24,138  | 
|Receivable-backed Borrowing                                                     |  | $                 |       |                   |  | $        |       |            |  | $ | 50,000  |  |  | $ | 50,000  | 

8.     Guarantees



| |                                                      
| | -----------------------------------------------------
| | Intellectual Property Indemnification
    Obligations

The Company indemnifies certain customers,
distributors, suppliers, and subcontractors for attorney fees
and damages and costs awarded against these parties in certain
circumstances in which its products are alleged to infringe
third party intellectual property rights, including patents,
registered trademarks, or copyrights. The terms of its
indemnification obligations are generally perpetual from the
effective date of the agreement. In certain cases, there are
limits on and exceptions to its potential liability for
indemnification relating to intellectual property infringement
claims. The Company cannot estimate the amount of potential
future payments, if any, that the Company might be required to
make as a result of these agreements. To date, the Company has
not paid any claims or been required to defend any claim related
to its indemnification obligations, and accordingly, the Company
has not accrued any amounts for its indemnification obligations.
However, there can be no assurances that the Company will not
have any future financial exposure under those indemnification
obligations.

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                 
| | ----------------
| | Accrued Warranty

The Company records an accrual for estimated
warranty costs when revenue is recognized. Warranty covers cost
of repair of the hard drive and the warranty periods generally
range from one to five years. The Company has comprehensive
processes that it uses to estimate accruals for warranty
exposure. The processes include specific detail on hard drives
in the field by product type, estimated failure rates and costs
to repair or replace. Although the Company believes it has the
continued ability to reasonably estimate warranty expenses,
unforeseeable changes in factors used to estimate the accrual
for warranty could occur. These unforeseeable changes could
cause a material change in the Companys warranty accrual
estimate. Such a change would be recorded in the period in which
the change was identified. Changes in the Companys product
warranty liability during the twelve-month periods ended
December 28, 2002 and December 27, 2003 were as
follows (in thousands):

|                                            |  |              |          |              |  |   |          |  
|------------------------------------------- |  | ------------ | -------- | ------------ |  | - | -------- | -
|                                            |  |             
|                                            |  | Years Ended 
|                                            |  |             
|                                            |  | December 28, |          | December 27,
|                                            |  | 2002         |          | 2003        
|                                            |  |              |          |             
|Balance at beginning of period              |  | $            | 313,894  |              |  | $ | 278,713  |  
|Charges to operations                       |  |              | 207,896  |              |  |   | 162,335  |  
|Settlements                                 |  |              | (242,305 | )            |  |   | (191,733 | )
|Changes in estimates, primarily expirations |  |              | (772     | )            |  |   | (39,889  | )
|                                            |  |              |          |              |  |   |          |  
|Balance at end of period                    |  | $            | 278,713  |              |  | $ | 209,426  |  

9.     Income
Taxes

The provision for income taxes consists of the
following:

|         |         |                |   |              |       |              |   |       |       |  |   |       |       | 
|-------- | ------- | -------------- | - | ------------ | ----- | ------------ | - | ----- | ----- |  | - | ----- | ----- | 
|         |         |               
|         |         | Years Ended   
|         |         |               
|         |         | December 29,   |   | December 28, |       | December 27,
|         |         | 2001           |   | 2002         |       | 2003        
|         |         |                |   |              |       |             
|         |         |               
|         |         | (In thousands)
|Current: |         |                |   |              |       |              |   |       |       |  |   |      
|         | U.S.    |                | $ | 76           |       |              | $ | 700   |       |  | $ | 2,477 |      
|         | Foreign |                |   | 3,306        |       |              |   | 1,475 |       |  |   | 1,027 |      
|         |         |                |   |              |       |              |   |       |       |  |   |      
|         |         | Total          |   | $            | 3,382 |              |   | $     | 2,175 |  |   | $     | 3,504 | 
|         |         |                |   |              |       |              |   |       |       |  |   |      

Income (loss) before provision for income
taxes consists of the following:

|        |       |                |          |              |   |              |          |          |   |   |         |         | 
|------- | ----- | -------------- | -------- | ------------ | - | ------------ | -------- | -------- | - | - | ------- | ------- | 
|        |       |               
|        |       | Years Ended   
|        |       |               
|        |       | December 29,   |          | December 28, |   | December 27,
|        |       | 2001           |          | 2002         |   | 2003        
|        |       |                |          |              |   |             
|        |       |               
|        |       | (In thousands)
|U.S.    |       | $              | (592,540 | )            |   | $            | (320,176 | )        |   | $ | (54,823 | )      
|Foreign |       |                | (50,476  | )            |   |              | (11,716  | )        |   |   | 160,998 |        
|        |       |                |          |              |   |              |          |          |   |   |         |        
|        | Total |                | $        | (643,016     | ) |              | $        | (331,892 | ) |   | $       | 106,175 | 
|        |       |                |          |              |   |              |          |          |   |   |         |        

Subject to the Companys continued
compliance with certain legal requirements, the Company
currently has a tax holiday for its operations in Singapore that
has been extended to June 30, 2005.

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The provision for income taxes differs from the
amount computed by applying the U.S. statutory rate of 35%
to the income (loss) before income taxes for the years
ended December 29, 2001, December 28, 2002 and
December 27, 2003. The principal reasons for this
difference are as follows:

|                                                        |       |                |          |              |  |              |          |       |  |   |         |       | 
|------------------------------------------------------- | ----- | -------------- | -------- | ------------ |  | ------------ | -------- | ----- |  | - | ------- | ----- | 
|                                                        |       |               
|                                                        |       | Years Ended   
|                                                        |       |               
|                                                        |       | December 29,   |          | December 28, |  | December 27,
|                                                        |       | 2001           |          | 2002         |  | 2003        
|                                                        |       |                |          |              |  |             
|                                                        |       |               
|                                                        |       | (In thousands)
|Income tax expense (benefit) at U.S.
    statutory rate |       | $              | (225,056 | )            |  | $            | (116,162 | )     |  | $ | 37,161  |      
|State tax                                               |       |                |         |              |  |              |         |       |  |   | 1,212   |      
|Losses not providing current tax benefit                |       |                | 228,113  |              |  |              | 116,857  |       |  |   |        |      
|Utilization of NOL carryforward                         |       |                |         |              |  |              |         |       |  |   | (36,095 | )    
|Other                                                   |       |                | 325      |              |  |              | 1,480    |       |  |   | 1,226   |      
|                                                        |       |                |          |              |  |              |          |       |  |   |         |      
|                                                        | Total |                | $        | 3,382        |  |              | $        | 2,175 |  |   | $       | 3,504 | 
|                                                        |       |                |          |              |  |              |          |       |  |   |         |      

Deferred income taxes reflect the tax effect of
temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. The significant components of the
Companys deferred tax assets and liabilities are as
follows (in thousands):

|                                            |                                                                |                                |          |              |         |   |          |         |         | 
|------------------------------------------- | -------------------------------------------------------------- | ------------------------------ | -------- | ------------ | ------- | - | -------- | ------- | ------- | 
|                                            |                                                                |                               
|                                            |                                                                | As of                         
|                                            |                                                                |                               
|                                            |                                                                | December 28,                   |          | December 27,
|                                            |                                                                | 2002                           |          | 2003        
|                                            |                                                                |                                |          |             
|Deferred tax assets:                        |                                                                |                                |          |              |         |   |          |        
|                                            | Inventory reserves and accruals                                |                                | $        | 6,298        |         |   | $        | 5,650   |        
|                                            | Depreciation                                                   |                                |          | 24,388       |         |   |          | 30,982  |        
|                                            | Sales related reserves                                         |                                |          | 30,729       |         |   |          | 33,688  |        
|                                            | Net operating loss carry-forwards                              |                                |          | 301,559      |         |   |          | 306,078 |        
|                                            | Tax credit carry-forwards                                      |                                |          | 27,550       |         |   |          | 29,284  |        
|                                            | Capitalized research and development                           |                                |          | 41,086       |         |   |          | 34,876  |        
|                                            | Other                                                          |                                |          | 26,391       |         |   |          | 39,315  |        
|                                            |                                                                |                                |          |              |         |   |          |        
|                                            |                                                                | Total deferred tax assets      |          |              | 458,001 |   |          |         | 479,873 | 
|Valuation allowance for deferred tax assets |                                                                |                                | (384,353 | )            |         |   | (377,750 | )      
|                                            |                                                                |                                |          |              |         |   |          |        
|Net deferred tax assets                     |                                                                | $                              | 73,648   |              |         | $ | 102,123  |        
|                                            |                                                                |                                |          |              |         |   |          |        
|Deferred tax liabilities:                   |                                                                |                                |          |              |         |   |          |        
|                                            | Unremitted earnings of certain foreign entities                |                                |          | 269,271      |         |   |          | 294,409 |        
|                                            | Unrealized gain (loss) on investments in
    equity securities |                                |          | 832          |         |   |          | 4,169   |        
|                                            |                                                                |                                |          |              |         |   |          |        
|                                            |                                                                | Total deferred tax liabilities |          |              | 270,103 |   |          |         | 298,578 | 
|                                            |                                                                |                                |          |              |         |   |          |        
|Net deferred tax liabilities                |                                                                | $                              | 196,455  |              |         | $ | 196,455  |        
|                                            |                                                                |                                |          |              |         |   |          |        

During the years ended December 29, 2001,
December 28, 2002 and December 27, 2003 the change in
the valuation allowance for deferred tax assets were
$141.3 million, $12.3 million and $(6.6) million,
respectively. The Company determines deferred taxes for each of
its tax-paying subsidiaries within each tax jurisdiction. The
deferred tax assets indicated above are attributable primarily
to tax jurisdictions where a history of earnings has not been
established. The taxable earnings in these tax jurisdictions are
also subject to volatility. Therefore, the Company believes a
valuation allowance is needed to reduce the deferred tax asset
to an amount that is more likely than not to be
realized.

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of December 27, 2003, for federal income
tax purposes, the Company had net operating loss carry-forwards
of $854.9 million and tax credit carry-forwards of
approximately $24.6 million, which will expire beginning in
fiscal years 2008 and 2004, respectively. To the extent that net
operating loss carry-forward when realized relate to stock
option deductions, the resulting benefits will be credited to
stockholders equity. Certain changes in stock ownership
can result in a limitation on the amount of net operating loss
and tax credit carry-overs that can be utilized each year. The
Company determined it had undergone such an ownership change
during 2001. Consequently, utilization of approximately
$322.7 million of net operating loss carry-forward and the
deduction equivalent of approximately $17.4 million of tax
credit carry-forward will be limited to approximately
$16.0 million per year from prior ownership change in 1998.
Also, approximately $244.3 million of net operating loss
carry-forward and the deduction equivalent of approximately
$2.9 million of tax credit carryforward will be limited to
approximately $42.0 million per year from the change of
ownership resulting from the Quantum HDD acquisition.

Pursuant to a Tax Sharing and Indemnity
Agreement entered into in connection with the
Companys merger with Quantum HDD, Maxtor, as successor to
Quantum HDD, and Quantum are allocated their share of
Quantums income tax liability for periods before the
split-off, consistent with past practices and as if the Quantum
HDD and Quantum DSS business divisions had been separate and
independent corporations. To the extent that the income tax
liability attributable to one business division is reduced by
using NOLs and other tax attributes of the other business
division, the business division utilizing the attributes must
pay the other for the use of those attributes. The Company must
also indemnify Quantum for additional taxes related to the
Quantum DSS business for all periods before Quantums
issuance of tracking stock and additional taxes related to the
Quantum HDD business for all periods before the split-off,
limited in the aggregate to $142.0 million plus 50% of any
excess over $142.0 million, excluding any required gross-up
payment. Currently, $135.6 million remains on the original
indemnity. Management has determined that, based on the facts
available at this time, the likelihood that the payment will
exceed $135.6 million is remote. As of December 27,
2003, the Company has reimbursed $6.4 million to Quantum
Corporation leaving a balance of $135.6 million on the
original indemnity, prior to any sharing of tax liability with
Quantum.

The Company purchased a $340 million
insurance policy covering the risk that the split-off of Quantum
HDD from Quantum DSS could be determined to be subject to
federal income tax or state income or franchise tax. Under the
Tax Sharing and Indemnity Agreement, the Company
agreed to indemnify Quantum for the amount of any tax payable by
Quantum as a result of the split-off to the extent such tax is
not covered by such insurance policy, unless imposition of the
tax is the result of Quantums actions, or acquisitions of
Quantum stock, after the split-off. The amount of the tax not
covered by insurance could be substantial. In addition, if it is
determined that Quantum owes federal or state tax as a result of
the split-off and the circumstances giving rise to the tax are
covered by the Companys indemnification obligations, the
Company will be required to pay Quantum the amount of the tax at
that time, whether or not reimbursement may be allowed under the
Companys tax insurance policy.

The Company recorded approximately
$196.4 million of deferred tax liabilities in connection
with the acquisition of Quantum HDD on April 2, 2001. The
deferred taxes were recorded principally to reflect the taxes
which would become payable upon the repatriation of the cash
which was invested abroad by Quantum HDD.

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

10.     Commitments
and Contingencies



| |       
| | ------
| | Leases

The Company leases certain of its principal
facilities and certain machinery and equipment under operating
lease arrangements. The future minimum annual rental
commitments, including amounts accrued in restructuring
liabilities as of December 27, 2003 are as follows:

|                   |  |                |         | 
|------------------ |  | -------------- | ------- | 
|Fiscal Year Ending |  |               
|                   |  |               
|                   |  | (In thousands)
|2004               |  | $              | 35,550  | 
|2005               |  |                | 32,520  | 
|2006               |  |                | 30,911  | 
|2007               |  |                | 31,382  | 
|2008               |  |                | 30,566  | 
|Thereafter         |  |                | 147,896 | 
|                   |  |                |         | 
|Total              |  | $              | 308,825 | 
|                   |  |                |         | 

The above commitments extend through fiscal year
2018. Rental expense was approximately $25.0 million,
$29.6 million and $27.1 million for fiscal years 2001,
2002 and 2003, respectively.



| |                   
| | ------------------
| | Third Party Vendor

Following the acquisition of Quantum HDD, the
Company entered into a master agreement and a purchase agreement
with MKE which provided for MKE to supply certain levels of hard
disk drive products according to rolling forecasts and purchase
orders provided by the Company. The term of this purchase
agreement has been extended through March 31, 2004. The
Company guarantees a minimum production commitment based on this
rolling forecast. The Company is liable for the purchase price
of products scheduled to be delivered within 30 days of the
date of cancellation. In addition, the Company is liable for the
actual cost of materials plus a handling fee for orders
cancelled within 31-90 days of the date of scheduled
delivery. The Company may cancel orders with scheduled delivery
more than 120 days from the date of cancellation without
liability. To date, the Company has not cancelled any orders
pursuant to this purchase agreement since the commencement of
the relationship. Had the Company cancelled any such orders, its
maximum liability at December 27, 2003 under the
cancellation provisions of this purchase agreement would have
approximated $32.1 million.



| |                  
| | -----------------
| | Legal Proceedings

From time to time, the Company has been subject
to litigation including the pending litigation described below.
Because of the uncertainties related to both the amount and
range of loss on the remaining pending litigation, the Company
is unable to make a reasonable estimate of the liability that
could result from an unfavorable outcome. As additional
information becomes available, the Company will assess its
potential liability and revise its estimates. Pending or future
litigation could be costly, could cause the diversion of
managements attention and could upon resolution, have a
material adverse effect on its business, results of operations,
financial condition and cash flows.

In addition, the Company is engaged in certain
legal and administrative proceedings incidental to the
Companys normal business activities and believes that
these matters will not have a material adverse effect on the
Companys financial position, results of operations or cash
flows.

Prior to Maxtors acquisition of the Quantum
HDD business, the Company, on the one hand, and Quantum and MKE,
on the other hand, were sued by Papst Licensing, GmbH, a German
corporation, for

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

infringement of a number of patents that relate
to hard disk drives. Papsts complaint against Quantum and
MKE was filed on July 30, 1998, and Papsts complaint
against Maxtor was filed on March 18, 1999. Both lawsuits,
filed in the United States District Court for the Northern
District of California, were transferred by the Judicial Panel
on Multidistrict Litigation to the United States District Court
for the Eastern District of Louisiana for coordinated pre-trial
proceedings with other pending litigations involving the Papst
patents (the MDL Proceeding). The matters will be
transferred back to the District Court for the Northern District
of California for trial. Papsts infringement allegations
are based on spindle motors that Maxtor and Quantum purchased
from third party motor vendors, including MKE, and the use of
such spindle motors in hard disk drives. The Company purchased
the overwhelming majority of the spindle motors used in our hard
disk drives from vendors that were licensed under the Papst
patents. Quantum purchased many spindle motors used in its hard
disk drives from vendors that were not licensed under the Papst
patents, including MKE. As a result of the Companys
acquisition of the Quantum HDD business, Maxtor assumed
Quantums potential liabilities to Papst arising from the
patent infringement allegations Papst asserted against Quantum.
The Company filed a motion to substitute the Company for Quantum
in this litigation. The motion was denied by the Court presiding
over the MDL Proceeding, without prejudice to being filed again
in the future.

In February 2002, Papst and MKE entered into an
agreement to settle Papsts pending patent infringement
claims against MKE. That agreement includes a license of certain
Papst patents to MKE which might provide Quantum, and thus the
Company, with additional defenses to Papsts patent
infringement claims.

On April 15, 2002, the Judicial Panel on
Multidistrict Litigation ordered a separation of claims and
remand to the District of Columbia of certain claims between
Papst and another party involved in the MDL Proceeding. By order
entered June 4, 2002, the court stayed the MDL Proceeding
pending resolution by the District of Columbia court of the
remanded claims. These separated claims relating to the other
party are currently proceeding in the District Court for the
District of Columbia.

The results of any litigation are inherently
uncertain and Papst may assert other infringement claims
relating to current patents, pending patent applications, and/or
future patent applications or issued patents. Additionally, the
Company cannot assure you it will be able to successfully defend
itself against this or any other Papst lawsuit. Because the
Papst complaints assert claims to an unspecified dollar amount
of damages, and because the Company was at an early stage of
discovery when the litigation was stayed, the Company is unable
to determine the possible loss, if any, that the Company may
incur as a result of an adverse judgment or a negotiated
settlement with respect to the claims against Maxtor. The
Company made an estimate of the potential liabilities, which
might arise from the Papst claims against Quantum at the time of
the Companys acquisition of the Quantum HDD business. This
estimate will be revised as additional information becomes
available. A favorable outcome for Papst in these lawsuits could
result in the issuance of an injunction against the Company and
its products and/or the payment of monetary damages equal to a
reasonable royalty. In the case of a finding of a willful
infringement, the Company also could be required to pay treble
damages and Papsts attorneys fees. The litigation
could result in significant diversion of time by the
Companys technical personnel, as well as substantial
expenditures for future legal fees. Accordingly, although the
Company cannot currently estimate whether there will be a loss,
or the size of any loss, a litigation outcome favorable to Papst
could have a material adverse effect on its business, financial
condition and operating results. Management believes that it has
valid defenses to the claims of Papst and is defending this
matter vigorously.

On December 30, 2003, an action was filed by
MKE against the Company and Quantum alleging, among other
things, MKEs ownership of certain intellectual property
the Company acquired in the acquisition of the Quantum HDD
business. The action was filed in the United States District
Court for the Northern District of California. On March 1,
2004, the Company filed an answer denying all material
allegations and a motion to dismiss. MKE seeks damages, the
return of the intellectual property, a constructive trust
relating to profits from the use or license of the intellectual
property, a declaratory judgment and injunctive relief. The
results of

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

any litigation are inherently uncertain. Although
the Company cannot currently estimate whether there will be a
loss, or the size of any loss, a litigation outcome unfavorable
to the Company could have a material adverse effect on the
Companys business, financial condition and operating
results. Management believes that the lawsuit is without merit,
that it has valid defenses to the claims of MKE, and plans to
defend the matter vigorously.

11.     Stockholders
Equity



| |             
| | ------------
| | Common Stock

In March 2001, the Board of Directors approved
the increase of the Companys authorized common stock to
525,000,000 shares.

On April 2, 2001, Maxtor completed the
acquisition of Quantum HDD. Maxtor issued 121.0 million
shares of Maxtor common stock and assumed options to purchase
12.8 million shares of Maxtor common stock to effect the
acquisition.

On October 9, 2001, Hynix sold 23,329,843
shares of Maxtor common stock in a registered public offering.
Maxtor did not receive any proceeds from Hynixs sale of
Maxtor stock to the public. In addition, at the same time and on
the same terms as Hynixs sale of Maxtor stock to the
public, Maxtor repurchased 5.0 million shares from Hynix an
aggregate purchase price of $20.0 million. These
repurchased shares are being held as treasury shares.

In connection with the sale of 6.8% convertible
senior notes due 2010, on May 7, 2003, the Company also
repurchased from an affiliate of one of the initial purchasers
of the Notes 8,245,738 shares of its common stock for an
aggregate purchase price of $44.9 million, or $5.45 per
share, the closing price of our common stock on May 1,
2003, plus commissions.



| |                      
| | ---------------------
| | Restricted Stock Plan

On May 29, 1998, the Company adopted the
1998 Restricted Stock Plan, which provides for awards of shares
of common stock to certain executive employees. Restricted stock
awarded under this plan vests three years from the date of grant
and is subject to forfeiture in the event of termination of
employment with the Company prior to vesting. The Company
granted 390,000 shares of common stock in June 1998 under this
plan. Compensation cost based on fair market value of the
Companys stock at the date of grant is reported as
compensation expense on a ratable basis over the vesting
periods. For the years ended December 29, 2001,
December 28, 2002 and December 27, 2003, compensation
expense recorded in connection with the Restricted Stock Plan
amounted to $0.4 million $0 and $0, respectively.

The Company also grants awards of restricted
stock pursuant to the Amended and Restated 1996 Stock Option
Plan. See Stock Option Plan below for further
information.

On April 2, 2001, in connection with the
Quantum HDD acquisition, the Company assumed 479,127 shares of
Quantum HDD restricted stock held by employees who accepted
offers of employment with Maxtor, or transferred
employees, whether or not restricted stock have vested.
The intrinsic value of the unvested restricted shares was
$3.4 million, determined in accordance with APB Opinion
No. 25, by multiplying the number of shares with the
closing market price of Maxtor shares of $7.375 on April 1,
2001 (consummation date of the merger).



| |                             
| | ----------------------------
| | Employee Stock Purchase Plan

The Company has adopted the 1998 Employee Stock
Purchase Plan (the Purchase Plan) and in 1999
reserved 2.4 million shares for issuance under the Purchase
Plan. During 2001 and 2000, the Company reserved an additional
3.5 million shares and 2.1 million shares for
issuance, respectively. During 2002, the

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Company reserved an additional 9.0 million
shares for issuance. The Company issued 3.3 million,
3.7 million and 2.1 million shares pursuant to the
Purchase Plan for the years ended December 27, 2003,
December 28, 2002 and December 29, 2001, respectively.
The Purchase Plan permits eligible employees to purchase
Maxtors common stock at a discount, but only through
accumulated payroll deductions, during sequential six-month
offering periods. Participants purchase shares on the last day
of each offering period. In general, the price at which shares
are purchased under the Purchase Plan is equal to 85% of the
lower of the fair market value of a share of common stock on
(a) the first day of the offering period, or (b) the
purchase date. Offering periods of the Purchase Plan generally
begin on February 16 and August 16 of each year,
although the initial offering period under the Purchase Plan
commenced on July 30, 1998.



| |                  
| | -----------------
| | Stock Option Plan

The Company grants options and awards of
restricted stock pursuant to the Amended and Restated 1996 Stock
Option Plan (the Option Plan), which was approved by
the Board of Directors in May 1996, and amended by Maxtors
stockholders at the 1999 Annual Meeting of Stockholders. Options
under the Amended Plan expire ten years from the date of grant.
Restricted stock vests in one or more installments over a number
of years.

The Option Plan was amended in February 1998 to
remove certain provisions which had given rise to variable
accounting, and offered and modified employee option agreements
in the second quarter of 1998 for the majority of employees who
had previously held variable options to achieve fixed-award
accounting. To comply with the variable plan accounting required
prior to these amendments, the Company recorded compensation
expense related to the difference between the estimated fair
market value of its stock and the stated exercise price of its
options. Compensation cost was reflected in accordance with
Financial Accounting Standards Board Interpretation No. 28,
Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans.

The Option Plan generally provides for the grant
of non-qualified stock options and incentive stock options to
eligible employees, consultants, affiliates and directors, as
determined by the board of directors, and incentive stock
options to Maxtor employees at a price not less than the fair
market value at the date of grant. The Option Plan also provides
for the grant of restricted stock to eligible employees. The
Board of Directors or an executive committee appointed by the
Board also approves other terms such as number of shares granted
and exercisability thereof. Options granted under the Amended
Plan vest over a four-year period with 25% vesting at the first
anniversary date of the vest date and 6.25% each quarter
thereafter. Restricted stock grants vest in one or more
installments over a period of years, and are subject to
forfeiture if employment is terminated prior to the time the
shares become fully vested and non-forfeitable. During 2001,
2002 and 2003, the Company reserved 17.0 million, zero and
zero shares for issuance, respectively.

In June 1999, the Company granted 1,765,000
shares of restricted common stock under this plan. During 2003,
2002 and 2001, the Company granted zero, 30,000 and
140,000 shares of restricted common stock, respectively.
During the years ended December 27, 2003, December 28,
2002 and December 29, 2001, the number of shares that had
been cancelled were 20,000, none and 213,133, respectively. The
Company recorded compensation expense of $2.4 million,
$2.9 million and $0.1 million in 2001, 2002 and 2003,
respectively, related to this plan.

In connection with Maxtors acquisition of
Creative Design Solutions, Inc. (CDS) in September
1999, the Company established a separate reserve of
674,477 shares of its common stock for issuance upon the
exercise of stock options (the Assumed Options)
granted under the CDS Incentive Stock Option Plan (the CDS
Plan). As of December 27, 2003, December 28,
2002 and December 29, 2001, none, 18,403 and 72,337 options
were outstanding under the CDS Plan, respectively. The Assumed
Options are incentive stock options which vest over four years
subject to the terms and conditions of the Assumed Options
agreement.

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On April 2, 2001, as part of the Quantum HDD
acquisition, the Company assumed all vested and unvested Quantum
HDD options held by employees who accepted offers of employment
with Maxtor, whether or not options or restricted stock have
vested. The Company also assumed all vested Quantum HDD options
held by Quantum employees whose employment was terminated prior
to separation. In addition, Maxtor assumed vested Quantum HDD
options held by Quantum employees who continued to provide
services during a transitional period. The outstanding options
to purchase Quantum HDD common stock held by transferred
employees and vested options to purchase Quantum HDD common
stock held by former Quantum employees, consultants and
transition employees were assumed by Maxtor and converted into
options to purchase Maxtor common stock according to the
exchange ratio of 1.52 shares of Maxtor common stock for each
share of Quantum HDD common stock. In connection with the
Quantum HDD acquisition, the Company established a reserve of
12,785,328 shares of common stock for the assumption of Quantum
HDD options to purchase Maxtor common stock. Vested and unvested
options for Quantum HDD common stock assumed in the merger
represented options for 7,650,965 shares and 4,655,236 shares of
Maxtor common stock, respectively. The intrinsic value of the
4,655,236 unvested options was determined to be
$3.4 million, using the intrinsic value methodology in
accordance with EITF 00-23 Issues Related to the
Accounting for Stock Based Compensation under APB Opinion
No. 25 and FASB Interpretation No. 44. As of
December 27, 2003, 2,311,131 options were outstanding under
the Quantum HDD merger plan.

Stock options are granted to employees and
directors at an exercise price equal to the fair market value of
the Companys stock at the date of grant. Generally,
options vest 25 percent per year, are fully vested four
years from the grant date and have a term of ten years. The
following table summarizes option activity through
December 27, 2003:

|                                |                                                |           |           |                     |   |                |            |            |   |   |      |      | 
|------------------------------- | ---------------------------------------------- | --------- | --------- | ------------------- | - | -------------- | ---------- | ---------- | - | - | ---- | ---- | 
|                                |                                                |           |           |                    
|                                |                                                |           |           | Options Outstanding
|                                |                                                |           |           |                    
|                                |                                                | Shares    |           |                     |   | Wtd Average   
|                                |                                                | Available |           |                     |   | Exercise Price
|                                |                                                | for Grant |           | Shares              |   | Per Share     
|                                |                                                |           |           |                     |   |               
|Balance as of December 30, 2000 |                                                |           | 5,478,076 |                     |   |                | 14,789,006 |            |   | $ | 7.96 |     
|                                | Shares reserved  1996 stock option plan       |           |           | 17,000,000          |   |                |            |           |   |   |      |     | 
|                                | Shares reserved  Quantum assumed
    options  |           |           | 12,785,328          |   |                |            |           |   |   |      |     | 
|                                | Options assumed from acquisition               |           |           | (12,306,201         | ) |                |            | 12,306,201 |   |   |      | 5.05 | 
|                                | RSP Options assumed from acquisition           |           |           | (479,127            | ) |                |            |           |   |   |      |     | 
|                                | Options granted                                |           |           | (13,329,365         | ) |                |            | 13,329,365 |   |   |      | 5.36 | 
|                                | Restricted stock granted                       |           |           | (140,000            | ) |                |            |           |   |   |      |     | 
|                                | Options exercised                              |           |           |                    |   |                |            | (2,938,608 | ) |   |      | 3.95 | 
|                                | Options canceled  1996 stock option
    plan  |           |           | 788,732             |   |                |            | (788,732   | ) |   |      | 6.51 | 
|                                | Options canceled  Quantum assumed
    options |           |           |                    |   |                |            | (2,166,150 | ) |   |      |     | 
|                                | Restricted stock canceled                      |           |           | 49,000              |   |                |            |           |   |   |      |     | 
|                                |                                                |           |           |                     |   |                |            |            |   |   |      |     
|Balance as of December 29, 2001 |                                                |           | 9,846,443 |                     |   |                | 34,531,082 |            |   |   | 6.41 |     
|                                | Options granted                                |           |           | (4,089,058          | ) |                |            | 4,089,058  |   |   |      | 4.98 | 
|                                | Restricted stock granted                       |           |           | (30,000             | ) |                |            |           |   |   |      |     | 
|                                | Options exercised                              |           |           |                    |   |                |            | (1,987,555 | ) |   |      | 4.13 | 
|                                | Options canceled  1996 stock option
    plan  |           |           | 3,759,844           |   |                |            | (3,759,844 | ) |   |      | 7.00 | 
|                                | Options canceled  Quantum assumed
    options |           |           |                    |   |                |            | (1,297,687 | ) |   |      | 6.25 | 
|                                |                                                |           |           |                     |   |                |            |            |   |   |      |     

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                |                                                |           |           |                     |   |                |            |            |   |   |      |      | 
|------------------------------- | ---------------------------------------------- | --------- | --------- | ------------------- | - | -------------- | ---------- | ---------- | - | - | ---- | ---- | 
|                                |                                                |           |           |                    
|                                |                                                |           |           | Options Outstanding
|                                |                                                |           |           |                    
|                                |                                                | Shares    |           |                     |   | Wtd Average   
|                                |                                                | Available |           |                     |   | Exercise Price
|                                |                                                | for Grant |           | Shares              |   | Per Share     
|                                |                                                |           |           |                     |   |               
|Balance as of December 28, 2002 |                                                |           | 9,487,229 |                     |   |                | 31,575,054 |            |   |   | 6.35 |     
|                                | Options granted                                |           |           | (7,064,793          | ) |                |            | 7,064,793  |   |   |      | 5.81 | 
|                                | Options exercised                              |           |           |                    |   |                |            | (8,430,526 | ) |   |      | 5.59 | 
|                                | Options canceled  1996 stock option
    plan  |           |           | 3,081,477           |   |                |            | (3,081,477 | ) |   |      | 6.19 | 
|                                | Options canceled  Quantum assumed
    options |           |           |                    |   |                |            | (304,383   | ) |   |      | 6.85 | 
|                                | Restricted stock canceled                      |           |           | 20,000              |   |                |            |           |   |   |      |     | 
|                                |                                                |           |           |                     |   |                |            |            |   |   |      |     
|Balance as of December 27, 2003 |                                                |           | 5,523,913 |                     |   |                | 26,823,461 |            |   | $ | 6.46 |     
|                                |                                                |           |           |                     |   |                |            |            |   |   |      |     

There were 14,383,421 shares vested but
unexercised as of December 29, 2001 at a weighted average
exercise price of $6.78, and no shares exercised subject to
repurchase. There were 17,718,564 shares vested but unexercised
as of December 28, 2002 at a weighted average exercise
price of $7.00, and no shares exercised subject to repurchase.
There are 13,496,158 shares vested but unexercised as of
December 27, 2003 at a weighted average exercise price of
$7.39, and no shares exercised subject to repurchase.

The following table summarizes information for
stock options outstanding as of December 27, 2003:

|                        |  |                     |            |                     |  |          |      |             |  |          |       |  |  |  |            |  |  |   |       | 
|----------------------- |  | ------------------- | ---------- | ------------------- |  | -------- | ---- | ----------- |  | -------- | ----- |  |  |  | ---------- |  |  | - | ----- | 
|                        |  |                     |            |                    
|                        |  | Options Outstanding |            | Options Exercisable
|                        |  |                     |            |                    
|                        |  |                     |            | Weighted            |  |          |      |            
|                        |  |                     |            | Average             |  | Weighted |      |             |  | Weighted
|                        |  |                     |            | Remaining           |  | Average  |      |             |  | Average 
|                        |  | Number              |            | Contractual         |  | Exercise |      | Number      |  | Exercise
|Range of Exercise Price |  | Outstanding         |            | Life                |  | Price    |      | Outstanding |  | Price   
|                        |  |                     |            |                     |  |          |      |             |  |         
|$0.575  $5.875         |  |                     | 13,222,607 |                     |  |          | 8.08 |             |  | $        | 4.50  |  |  |  | 3,636,160  |  |  | $ | 4.18  | 
|$5.9375  $7.75         |  |                     | 7,170,794  |                     |  |          | 6.43 |             |  |          | 6.68  |  |  |  | 4,791,263  |  |  |   | 6.67  | 
|$7.8125  $13.125       |  |                     | 4,107,930  |                     |  |          | 6.93 |             |  |          | 8.50  |  |  |  | 2,887,178  |  |  |   | 8.20  | 
|$13.1875  $19.3113     |  |                     | 2,322,130  |                     |  |          | 5.19 |             |  |          | 13.30 |  |  |  | 2,181,557  |  |  |   | 13.25 | 
|                        |  |                     |            |                     |  |          |      |             |  |          |       |  |  |  |            |  |  |   |       | 
|                        |  |                     | 26,823,461 |                     |  |          |      |             |  | $        | 6.46  |  |  |  | 13,496,158 |  |  | $ | 7.39  | 
|                        |  |                     |            |                     |  |          |      |             |  |          |       |  |  |  |            |  |  |   |       | 

During 1997, the Company also granted options to
the employees of MMC, a wholly owned subsidiary of HEA. As of
December 30, 2000, there were 274,032 options outstanding,
which are now fully vested, pursuant to these grants which are
included in the table above. Prior to the acquisition of MMC in
September 2001, 246,115 options were outstanding as of
September 1, 2001. Compensation cost for options granted to
non-employees is measured at their fair value in accordance with
Emerging Issues Task Force No. 96-18. MMC reimbursed Maxtor
for any compensation expense arising from these grants.

For information on the proforma net income (loss)
for Maxtors stock options and employee stock purchase
plan, see note 1 of the Notes to Consolidated Financial
Statements.

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The fair value of option grants has been
estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average
assumptions:

|                               |  |              |           |              |  |              |           |   |  |  |           |  
|------------------------------ |  | ------------ | --------- | ------------ |  | ------------ | --------- | - |  |  | --------- | -
|                               |  |             
|                               |  | Years Ended 
|                               |  |             
|                               |  | December 28, |           | December 28, |  | December 27,
|                               |  | 2001         |           | 2002         |  | 2003        
|                               |  |              |           |              |  |             
|Risk-free interest rate        |  |              | 4.37      | %            |  |              | 4.26      | % |  |  | 3.17      | %
|Weighted average expected life |  |              | 4.5 years |              |  |              | 4.5 years |   |  |  | 4.5 years |  
|Volatility                     |  |              | 81        | %            |  |              | 90        | % |  |  | 73        | %
|Dividend yield                 |  |              |          |              |  |              |          |   |  |  |          |  

The fair value of employee stock purchase plan
option grants has been estimated on the date of grant using the
Black-Scholes option-pricing model with the following
weighted-average assumptions:

|                               |  |              |           |              |  |              |           |   |  |  |           |  
|------------------------------ |  | ------------ | --------- | ------------ |  | ------------ | --------- | - |  |  | --------- | -
|                               |  |             
|                               |  | Years Ended 
|                               |  |             
|                               |  | December 28, |           | December 28, |  | December 27,
|                               |  | 2001         |           | 2002         |  | 2003        
|                               |  |              |           |              |  |             
|Risk-free interest rate        |  |              | 3.34      | %            |  |              | 1.73      | % |  |  | 1.08      | %
|Weighted average expected life |  |              | 0.5 years |              |  |              | 0.5 years |   |  |  | 0.5 years |  
|Volatility                     |  |              | 81        | %            |  |              | 90        | % |  |  | 73        | %
|Dividend yield                 |  |              |          |              |  |              |          |   |  |  |          |  

No dividend yield is assumed as the Company has
not paid dividends and has no plans to do so.

The weighted average expected life was calculated
based on the respective vesting periods and the expected lives
at the date of the option grants. The risk-free interest rates
were calculated based on rates prevailing during grant periods
and the expected lives of the respective options at the date of
grants. The weighted average fair values of options granted to
employees during the years ended, December 29, 2001
December 28, 2002 and December 27, 2003, were $3.51,
$3.41 and $3.56 respectively. The weighted average fair values
of restricted stock options granted to employees during the
years ended December 29, 2001 and December 28, 2002 were
$6.32 and $6.58 respectively.



|    |             
|--- | ------------
|12. | Acquisitions



|   |            
|-- | -----------
|a. | Quantum HDD

On April 2, 2001, Maxtor acquired the hard
disk drive business of Quantum Corporation (Quantum
HDD). The acquisition was approved by the stockholders of
both companies on March 30, 2001 and was accounted for as a
purchase. As of the effective time of the merger, each share of
Quantum HDD common stock was converted into 1.52 shares of
Maxtor common stock, and each outstanding Quantum HDD option
assumed by Maxtor was converted into an option to purchase
Maxtor common stock, with appropriate adjustment to the exercise
price and share numbers in accordance with the exchange ratio.
The total purchase price of $1,269.4 million included
consideration of 121.0 million shares of our common stock
valued at an average of $9.40 per common share. The average
market price was based on the average closing price for two
trading days prior and two trading days subsequent to
October 4, 2000, the announcement date of the terms of the
merger.

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The total purchase price was determined as
follows (in millions):

|                                                                  |                      |   |         |         | 
|----------------------------------------------------------------- | -------------------- | - | ------- | ------- | 
|Value of securities issued                                        |                      | $ | 1,133.5 |        
|Assumption of Quantum HDD options, including
    restricted stock |                      |   | 107.1   |        
|                                                                  |                      |   |         |        
|                                                                  |                      |   | 1,240.6 |        
|Transaction costs                                                 |                      |   | 28.8    |        
|                                                                  |                      |   |         |        
|                                                                  | Total purchase price |   | $       | 1,269.4 | 
|                                                                  |                      |   |         |        

The purchase price allocation was as follows (in
millions):

|                                    |                                           |                           |       |       |  |  |       |       |          |  
|----------------------------------- | ----------------------------------------- | ------------------------- | ----- | ----- |  |  | ----- | ----- | -------- | -
|Tangible assets:                    |                                           |                           |       |       |  |  |       |      
|                                    | Cash and cash equivalents                 |                           | $     | 315.3 |  |  |       |       |         
|                                    | Restricted cash                           |                           |       | 93.9  |  |  |       |       |         
|                                    | Accounts receivable                       |                           |       | 249.1 |  |  |       |       |         
|                                    | Inventories                               |                           |       | 181.7 |  |  |       |       |         
|                                    | Prepaid expenses and other current assets |                           |       | 120.9 |  |  |       |       |         
|                                    | Property, plant and equipment             |                           |       | 126.4 |  |  |       |       |         
|                                    | Other noncurrent assets                   |                           |       | 21.1  |  |  |       |       |         
|                                    |                                           |                           |       |       |  |  |       |      
|                                    |                                           | Total tangible assets     |       |       |  |  |       | $     | 1,108.4  |  
|                                    |                                           |                           |       |       |  |  |       |      
|Intangible assets acquired:         |                                           |                           |       |       |  |  |       |      
|                                    | Core and other existing technology        |                           |       |       |  |  |       | 286.1 |         
|                                    | Assembled workforce                       |                           |       |       |  |  |       | 43.0  |         
|Deferred stock-based compensation   |                                           |                           |       |       |  |  | 6.8   |      
|Goodwill                            |                                           |                           |       |       |  |  | 896.3 |      
|In-process research and development |                                           |                           |       |       |  |  | 94.7  |      
|Liabilities assumed:                |                                           |                           |       |       |  |  |       |      
|                                    | Accounts payable                          |                           |       | 230.0 |  |  |       |       |         
|                                    | Accruals and other liabilities            |                           |       | 364.3 |  |  |       |       |         
|                                    | Deferred taxes                            |                           |       | 196.2 |  |  |       |       |         
|Long-term debt                      |                                           |                           | 132.4 |       |  |  |       |      
|Other long-term liabilities         |                                           |                           | 142.0 |       |  |  |       |      
|Merger-related restructuring costs  |                                           |                           | 101.0 |       |  |  |       |      
|                                    |                                           |                           |       |       |  |  |       |      
|                                    |                                           | Total liabilities assumed |       |       |  |  |       |       | (1,165.9 | )
|                                    |                                           |                           |       |       |  |  |       |      
|                                    |                                           | Total purchase price      |       |       |  |  |       | $     | 1,269.4  |  
|                                    |                                           |                           |       |       |  |  |       |      

In connection with the acquisition, the Company
assumed all vested and nonvested Quantum HDD options and
restricted stock held by employees who accepted offers of
employment with Maxtor, whether or not options or restricted
stock have vested. The Company also assumed all vested Quantum
HDD options held by Quantum employees whose employment was
terminated prior to separation. In addition, Maxtor assumed
vested Quantum HDD options held by Quantum employees who
continued to provide services during a transitional period.

Vested and unvested options for Quantum HDD
common stock assumed in the merger represented options for
7,650,965 shares and 4,655,236 shares of Maxtor common
stock, respectively. The fair value of the options was
determined to be $102.6 million. This was determined in
accordance with APB Opinion No. 16,

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Business Combinations and
EITF 99-12 Accounting for Formula Arrangements under
Issue 95-19, using the Black Scholes methodology.

The restricted stock assumed represent
479,127 shares of Maxtor stock. Fair value of the unvested
restricted shares was $4.5 million. This was determined in
accordance with APB Opinion No. 16 Business
Combinations, by multiplying the number of restricted
shares granted with the average stock price of $9.40, which in
turn was determined based on the average closing market prices
of Maxtors common stock as of October 4, 2000
(announcement date) and as of the two trading days prior and two
trading days subsequent to October 4, 2000.

In addition, Quantum Corporation issued
restricted Quantum DSS shares to Quantum employees who
joined Maxtor in connection with the merger in exchange for the
fair value of Quantum DSS options held by such employees. A
portion of the acquisition purchase price has been allocated to
this deferred compensation, recorded as prepaid expense, and is
amortized to expenses over the vesting period as the vesting of
the shares are subject to continued employment with Maxtor. As
of December 28, 2002, the amount was fully amortized.

Under purchase accounting rules, the Company
recorded $29.2 million for estimated severance pay
associated with termination of approximately 700 employees
in the United States. In addition, the Company paid and expensed
$30.5 million for severance pay associated with termination
of approximately 600 Quantum Corporation
(Quantum) employees. As a result, total severance
related costs amounted to $59.7 million and the total
number of terminated employees, including Quantum transitional
employees was approximately 1,300. The Company also recorded a
$59.1 million liability for estimated facility exit costs
for the closure of three Quantum HDD offices and research and
development facilities located in Milpitas, California, and two
Quantum HDD office facilities located in Singapore. The
Company also recorded a $12.7 million liability for certain
non-cancelable adverse inventory and other purchase commitments.

The following table summarizes the activity
related to the merger-related restructuring costs as of
December 27, 2003 (in millions):

|                             |  |          |      |           |  |       |       |       |  |   |       |   |  |   |       |  
|---------------------------- |  | -------- | ---- | --------- |  | ----- | ----- | ----- |  | - | ----- | - |  | - | ----- | -
|                             |  |          |      | Severance |  |       |       |      
|                             |  | Facility |      | and       |  | Other |       |      
|                             |  | Costs    |      | Benefits  |  | Costs |       | Total
|                             |  |          |      |           |  |       |       |      
|Provision at April 2, 2001   |  | $        | 59.1 |           |  | $     | 29.2  |       |  | $ | 12.7  |   |  | $ | 101.0 |  
|Amounts paid                 |  |          | (0.9 | )         |  |       | (15.5 | )     |  |   | (12.7 | ) |  |   | (29.1 | )
|                             |  |          |      |           |  |       |       |       |  |   |       |   |  |   |       |  
|Balance at December 29, 2001 |  |          | 58.2 |           |  |       | 13.7  |       |  |   |      |   |  |   | 71.9  |  
|Amounts paid                 |  |          | (4.5 | )         |  |       | (13.7 | )     |  |   |      |   |  |   | (18.2 | )
|                             |  |          |      |           |  |       |       |       |  |   |       |   |  |   |       |  
|Balance at December 28, 2002 |  |          | 53.7 |           |  |       |      |       |  |   |      |   |  |   | 53.7  |  
|Amounts paid                 |  |          | (8.5 | )         |  |       |      |       |  |   |      |   |  |   | (8.5  | )
|                             |  |          |      |           |  |       |       |       |  |   |       |   |  |   |       |  
|Balance at December 27, 2003 |  | $        | 45.2 |           |  | $     |      |       |  | $ |      |   |  | $ | 45.2  |  
|                             |  |          |      |           |  |       |       |       |  |   |       |   |  |   |       |  

The balance remaining in the facilities exit
accrual is expected to be paid over several years based on the
underlying lease agreements. The merger-related restructuring
accrual is included on the balance sheet within the captions of
accrued and other liabilities, and other liabilities.

A portion of the purchase price has been
allocated to developed technology and acquired in-process
research and development. Developed technology and in-process
research and development were identified and valued through
analysis of data provided by Quantum HDD concerning
developmental products, their stage of development, the time and
resources needed to complete them, if applicable, their expected
income generating ability, target markets and associated risks.
The income approach, which includes an analysis of the markets,
cash flows and risks associated with achieving such cash flows,
was the primary technique utilized in valuing the developed
technology and in-process research and development. Where
developmental projects

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

had reached technological feasibility, they were
classified as developed technology, and the value assigned to
developed technology was capitalized. Where the developmental
projects had not reached technological feasibility and had no
future alternative uses, they were classified as in-process
research and development and were charged to expense upon
closing of the merger.

At the time of the merger, Quantum HDD was
developing new products that qualify as in-process research and
development in multiple product areas. For the purposes of
determining which projects qualified as in-process research and
development, technological feasibility is defined as being
equivalent to completion of design verification testing, when
the design is finalized and ready for pilot manufacturing. The
following is a general description of in-process research and
development efforts: current engineering efforts are
focused on developing new products, integrating new
technologies, improving designs to enable manufacturing
efficiencies, improving product performance and integrating
multiple functions into single components and multiple
components into modules. The principal products to which
research and development efforts are as follows: Self-Servo
Writer Technology, Desktop, High-end, Core Technology and other
identified projects. There is a risk that these developments
will not be competitive with other products using alternative
technologies that offer comparable functionality. The analysis
of research and development projects was conducted as of
April 2, 2001.

Self-Servo Writer Technology:Quantum HDDs Self-Servo Writer
technology was being developed to write servo tracks onto the
disk media during the manufacturing process, replacing the need
to purchase and use servo writer equipment. Quantum HDD expected
the development cycle for the current research and development
project with respect to the Self-Servo Writer technology to
continue for another 6 months, with expected completion
dates in the fourth quarter of the calendar year 2001. The
development cycle was approximately 85% complete with estimated
cost to complete to be incurred ratably over the remainder of
the development cycles.

High End:Quantum
HDDs High-End development efforts supported future
generation high-end hard disk drives. Quantum HDD expected the
development cycle for the current research and development
project with respect to the High-end technology to continue for
another 21 months, with expected completion dates in the
first quarter of the calendar year 2003. The development cycle
was approximately 40% complete with estimated cost to complete
to be incurred ratably over the remainder of the development
cycles.

Core Technology:Quantum HDDs Core
technology development efforts supported future generation hard
disk drives. Quantum HDD expected the development cycle for
the current research and development project with respect to
these products to continue for another 21 months with
expected completion dates in the first quarter of the calendar
year 2003. The development cycle was approximately 44% complete
with estimated cost to complete to be incurred ratably over the
remainder of the development cycle.

Desktop:Quantum
HDDs core technology development efforts supported the
development of 3.5 inch hard disk drives. Quantum HDD
expected the development cycle for the current research and
development project with respect to the Desktop technology to
continue for another 5 months, with expected completion
dates in the third quarter of the calendar year 2001. The
development cycle was approximately 75% complete with estimated
cost to complete to be incurred ratably over the remainder of
the development cycles.

The value assigned to in-process research and
development was determined by considering the importance of each
project to the overall development plan, estimating costs to
develop the purchased in-process research and development into
commercially viable products, estimating the resulting net cash
flows from the projects when completed and discounting the net
cash flows to their present value. The revenue estimates used to
value the purchased in-process research and development were
based on estimates of relevant market sizes and growth factors,
expected trends in technology and the nature and expected timing
of new product introductions by Quantum HDD and its
competitors. The rates utilized to discount the net cash flows
to their present value are based on Quantum HDD weighted
average cost of capital. Given the nature of

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the risks associated with the difficulties and
uncertainties in completing each project and thereby achieving
technological feasibility, anticipated market acceptance and
penetration, market growth rates and risks related to the impact
of potential changes in future target markets, the weighted
average cost of capital was adjusted. Based on these factors, a
discount rate of 23% for High-end and Desktop and other
identified projects and a discount rate of 28% for Core
Technology and Self Servo-Writer Technology were deemed
appropriate. The estimates used in valuing in-process research
and development were based upon assumptions believed to be
reasonable but which are inherently uncertain and unpredictable.
The assumptions may be incomplete or inaccurate, and no
assurance can be given that unanticipated events and
circumstances will not occur. Accordingly, actual results may
vary from the projected results. Following were the estimated
completion percentages with respect to the research and
development efforts and technology lives at the close of the
Quantum HDD acquisition:

|                          |  |           |       |                 |  |  |         | 
|------------------------- |  | --------- | ----- | --------------- |  |  | ------- | 
|                          |  | Percent   |       | Expected       
|                          |  | Completed |       | Technology Life
|                          |  |           |       |                
|Self-servo Writer         |  |           | 85    | %               |  |  | 3 years | 
|High-end                  |  |           | 40    | %               |  |  | 4 years | 
|Core Technology           |  |           | 44    | %               |  |  | 6 years | 
|Desktop                   |  |           | 75    | %               |  |  | 4 years | 
|Other identified projects |  |           | 55-80 | %               |  |  | 4 years | 

The values assigned to each acquired in-process
research and development project are as follows (in millions):

|                          |  |   |      | 
|------------------------- |  | - | ---- | 
|Self-servo Writer         |  | $ | 47.7 | 
|High-end                  |  |   | 18.2 | 
|Core Technology           |  |   | 16.0 | 
|Desktop                   |  |   | 8.9  | 
|Other identified projects |  |   | 3.9  | 
|                          |  |   |      | 
|                          |  | $ | 94.7 | 
|                          |  |   |      | 

The acquired existing technology, which comprises
products that are already technologically feasible, includes
products in most of Quantum HDDs product lines. The
Company is amortizing the acquired core and existing technology
of $286.1 million on a straight-line basis over an
estimated remaining useful lives of three to five years. For
additional information regarding the acquired Quantum HDD
existing technology amortization, see note 5 of the Notes
to Consolidated Financial Statements.

The acquired assembled workforce was composed of
approximately 1,650 skilled employees across Quantum
HDDs Executive, Research and Development, Manufacturing,
Supervisor/ Manager, and Sales and Marketing groups. The fair
value assigned to the assembled workforce was $43.0 million
and was amortized on a straight-line basis over an estimated
remaining useful life of three years. Subsequent to the adoption
of Statements of Financial Accounting
Standards No. 142 (SFAS 142) on
December 30, 2001, the Company no longer amortize its
existing acquired assembled workforce and reclassified the
balance to goodwill.

Goodwill, which represents the excess of the
purchase price of an investment in an acquired business over the
fair value of the underlying net identifiable assets was being
amortized on a straight-line basis over an estimated remaining
useful life of five years. The Company adopted SFAS 142
effective December 30, 2001, and no longer amortizes its
remaining goodwill.

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                     
|-- | --------------------
|b. | MMC Technology, Inc.

On September 2, 2001, Maxtor completed the
acquisition of MMC Technology, Inc. (MMC), a
wholly-owned subsidiary of Hynix Semiconductor America Inc.
(Hynix). MMC, based in San Jose, California,
designed, developed and manufactured media for hard disk drives.
Prior to the acquisition, sales to Maxtor comprised 95% of
MMCs annual revenues. The primary reason for Maxtor
acquiring MMC was to provide the Company with a reliable source
of supply of media. The acquisition was accounted for as a
purchase with a total cost of $17.9 million, which
consisted of cash consideration of $1 million,
$16 million of loan forgiveness and $0.9 million of
estimated direct transaction costs. In connection with the
acquisition, the Company had also assumed liabilities of
$105.7 million. Included in this amount was
$7.3 million owed by MMC to Hynix. On April 5, 2002,
the Company paid off this amount. MMCs results of
operations are included in the financial statements from the
date of acquisition, and the assets and liabilities acquired
were recorded based on their fair values as of the date of
acquisition.

The total purchase price and the purchase price
allocation of the MMC acquisition were as follows (in millions):

|                                  |                      |   |      |      | 
|--------------------------------- | -------------------- | - | ---- | ---- | 
|Cash paid                         |                      | $ | 1.0  |     
|Forgiveness of loan consideration |                      |   | 16.0 |     
|                                  |                      |   |      |     
|                                  |                      |   | 17.0 |     
|Transaction costs                 |                      |   | 0.9  |     
|                                  |                      |   |      |     
|                                  | Total purchase price |   | $    | 17.9 | 
|                                  |                      |   |      |     

Purchase Price Allocation:

|                                    |                                    |                           |  |      |  |   |      |   |        |  
|----------------------------------- | ---------------------------------- | ------------------------- |  | ---- |  | - | ---- | - | ------ | -
|Total tangible assets               |                                    |                           |  |      |  | $ | 97.7 |  
|Existing technology                 |                                    |                           |  |      |  |   | 4.4  |  
|Goodwill                            |                                    |                           |  |      |  |   | 21.1 |  
|In-process research and development |                                    |                           |  |      |  |   | 0.5  |  
|Liabilities assumed:                |                                    |                           |  |      |  |   |      |  
|                                    | Accruals and other liabilities     |                           |  | 30.6 |  |   |      |   |       
|                                    | Capital lease obligations and debt |                           |  | 75.1 |  |   |      |   |       
|                                    |                                    |                           |  |      |  |   |      |  
|                                    |                                    | Total liabilities assumed |  |      |  |   |      |   | (105.7 | )
|                                    |                                    |                           |  |      |  |   |      |  
|                                    |                                    | Total purchase price      |  |      |  |   |      | $ | 17.9   |  
|                                    |                                    |                           |  |      |  |   |      |  

A portion of the purchase price has been
allocated to developed technology and acquired in-process
research and development. Developed technology and in-process
research and development were identified and valued through
analysis of data concerning developmental products, their stage
of development, the time and resources needed to complete them,
if applicable, their expected income-generating ability, target
markets and associated risks. The income approach, which
includes an analysis of the markets, cash flows and risks
associated with achieving such cash flows, was the primary
technique utilized in valuing the developed technology and
in-process research and development. Where developmental
products had reached technological feasibility, they were
classified as developed technology, and the value assigned to
developed technology was capitalized. Where the developmental
projects had not reached technological feasibility and had no
future alternative uses, they were classified as in-process
research and development and were charged to expense upon
closing of the acquisition.

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The value assigned to in-process research and
development was determined by considering the importance of each
project to the overall development plan, estimating costs to
develop the purchased in-process research and development into
commercially viable products, estimating the resulting net cash
flows from the projects when completed and discounting the net
cash flows to their present value. The revenue estimates used to
value the purchased in-process research and development were
based on estimates of relevant market sizes and growth factors,
expected trends in technology and the nature and expected timing
of new product introductions by MMC and its competitors. The
rates utilized to discount the net cash flows to their present
value were based on an average cost of capital of publicly
traded companies comparable to MMC. Given the nature of the
risks associated with the difficulties and uncertainties in
completing each project and thereby achieving technological
feasibility, anticipated market acceptance and penetration,
market growth rates and risks related to the impact of potential
changes in future target markets, the weighted average cost of
capital was adjusted. Based on these factors, an average
discount rate of 28.5% for the 80GB Project and the
120GB Project was deemed appropriate. The estimates used in
valuing in-process research and development were based upon
assumptions believed to be reasonable but which are inherently
uncertain and unpredictable. The assumptions may be incomplete
or inaccurate, and no assurance can be given that unanticipated
events and circumstances will not occur. Accordingly, actual
results may vary from the projected results.

The allocation of revenue to existing and
in-process technology was based on the obsolescence rate for
mechanical and magnetic technology. MMCs acquired existing
technology and in-process research and development consisted of
magnetic, mechanical and process technology related primarily to
its 80GB and 120GB products. The development cycle for the
current research and development with respect to the
80GB Program will continue, with the expected completion
dates in the third quarter of calendar year 2002. The
development cycle for the current research and development with
respect to the 120GB Program will continue, with expected
completion dates by the fourth quarter of calendar year 2003.
Following are the estimated completion percentages with respect
to the research and development efforts and technology lives:

|              |  |           |    |                 |  |  |         | 
|------------- |  | --------- | -- | --------------- |  |  | ------- | 
|              |  | Percent   |    | Expected       
|              |  | Completed |    | Technology Life
|              |  |           |    |                
|80GB Program  |  |           | 30 | %               |  |  | 5 years | 
|120GB Program |  |           | 5  | %               |  |  | 5 years | 

The Company is amortizing the acquired existing
technology of $4.4 million on a straight-line basis over an
estimated remaining useful life of five years. For additional
information regarding the acquired MMC existing technology
amortization, see note 5 of the Notes to Consolidated
Financial Statements.

Goodwill, which represents the excess of the
purchase price of an investment in an acquired business over the
fair value of the underlying net identifiable assets, is
reflected in the financial statements of the Company. In
accordance with SFAS 142, the Company is not amortizing the
amount of goodwill associated with the MMC acquisition. The
Company expects that none of the goodwill amount will be
deductible for tax purposes.

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                     
|-- | --------------------
|c. | Pro Forma Disclosure

The following unaudited proforma consolidated
amounts for continued operations give effect to the acquisitions
of Quantum HDD and MMC, excluding the charges for acquired
in-process research and development, as if the acquisitions had
occurred on January 1, 2001. On a proforma basis, the
results of operations of Quantum HDD and MMC are consolidated
with the Companys results of continued operations for the
year ended December 29, 2001. The proforma amounts do not
purport to be indicative of what would have occurred had the
acquisitions been made as of the beginning of each period or of
results which may occur in the future.

|                                       |                       |                      |         |             |  
|-------------------------------------- | --------------------- | -------------------- | ------- | ----------- | -
|                                       |                       | Year Ended          
|                                       |                       | December 29, 2001   
|                                       |                       |                     
|                                       |                       | (In millions, except
|                                       |                       | share and per       
|                                       |                       | share data)         
|                                       |                       | (Unaudited)         
|Revenue from continuing operations     |                       | $                    | 4,418.6 |            
|Loss from continued operations         |                       | $                    | (614.7  | )          
|Loss per share  basic and diluted     |                       |                      |         |            
|                                       | Continuing operations |                      | $       | (2.59       | )
|Shares used in per share calculations: |                       |                      |         |            
|                                       | Basic                 |                      |         | 237,097,087 |  
|                                       | Diluted               |                      |         | 237,097,087 |  



|    |                        
|--- | -----------------------
|13. | Discontinued Operations

On August 15, 2002, the Company announced
its decision to shut down the manufacturing and sales of its
MaxAttachTM branded network attached storage products
of NSG. The discontinuance of the NSG operations represents the
abandonment of a component of an entity as defined in
paragraph 47 of Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. Accordingly, the Companys
financial statements have been presented to reflect NSG as a
discontinued operation for all periods presented. Its
liabilities (no remaining assets) have been segregated from
continuing operations in the accompanying consolidated balance
sheet as of December 28, 2002 and its operating results
have been segregated and reported as discontinued operations in
the accompanying consolidated statements of operations.

Operating results of NSG are presented in the
following table (in millions):

|                                           |  |              |       |              |  |              |       |   |  |   |     | 
|------------------------------------------ |  | ------------ | ----- | ------------ |  | ------------ | ----- | - |  | - | --- | 
|                                           |  |             
|                                           |  | Years Ended 
|                                           |  |             
|                                           |  | December 29, |       | December 28, |  | December 27,
|                                           |  | 2001         |       | 2002         |  | 2003        
|                                           |  |              |       |              |  |             
|Revenue from discontinued operations       |  | $            | 31.5  |              |  | $            | 20.4  |   |  | $ |    | 
|Income (loss) from discontinued operations |  | $            | (48.2 | )            |  | $            | (73.5 | ) |  | $ | 2.2 | 

Included in the 2002 loss from the NSG
discontinued operations are the following significant charges
(in millions):

|                                          |  |   |      | 
|----------------------------------------- |  | - | ---- | 
|Personnel related                         |  | $ | 13.0 | 
|Goodwill and other intangibles write-offs |  |   | 32.5 | 
|Non-cancelable purchase commitments       |  |   | 4.2  | 

Income from discontinued operations of
$2.2 million for the year ended December 27, 2003
reflects the net impact of the favorable resolution of
contingencies. The remaining liabilities of the NSG discontinued

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

operations as of December 27, 2003 was
$1.5 million relating to warranty, returns and other
miscellaneous expenses.

14.     Restructuring

During year ended December 28, 2002, the
Company recorded a restructuring charge of $9.5 million
associated with closure of one of its facilities located in
California. The amount comprised $8.9 million of future
non-cancelable lease payments which are expected to be paid over
several years based on the underlying lease agreement, and the
write-off of $0.6 million in leasehold improvements. The
restructuring accrual is included on the balance sheet within
accrued and other liabilities with the balance of
$7.4 million after cash payments of $1.5 in fiscal year
2003.

15.     Other Gain
(Loss)

Other gain (loss) was $(0.6) million,
$4.4 million and $(6.2) million in 2003, 2002 and
2001, respectively. The loss in 2003 was due to
$1.0 million loss on redemption of the pro rata portion of
Quantum Corporations bonds offset by a $0.2 million
gain on retirement of bonds, gain of $0.1 million from
investments and $0.1 million in other income. The gain in
2002 was primarily due to the retirement of bonds of
$2.8 million and $2.3 million from investments offset
by $0.7 million other loss. During fiscal year 2001, in
accordance with the Companys investment policy, the
Company recorded a loss of $(6.2) million on an investment,
primarily due to a $6.7 million write-off of a Quantum HDD
acquired investment in a high-tech start-up company; a net loss
of $1.3 million impairment charge in other fixed income
portfolio investments and $0.1 million other loss; offset
by a gain on sale investments of $0.6 million and
retirement of bonds of $1.3 million.

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

16.     Net Income
(Loss) Per Share

In accordance with the disclosure requirements of
SFAS 128, a reconciliation of the numerator and denominator of
the basic and diluted net income (loss) per share
calculations is provided as follows (in thousands, except share
and per share amounts):

|                                                       |                                         |              |             |              |  |              |             |   |  |   |             |           | 
|------------------------------------------------------ | --------------------------------------- | ------------ | ----------- | ------------ |  | ------------ | ----------- | - |  | - | ----------- | --------- | 
|                                                       |                                         |             
|                                                       |                                         | Years Ended 
|                                                       |                                         |             
|                                                       |                                         | December 29, |             | December 28, |  | December 27,
|                                                       |                                         | 2001         |             | 2002         |  | 2003        
|                                                       |                                         |              |             |              |  |             
|Numerator  Basic and
    Diluted                      |                                         |              |             |              |  |              |             |   |  |   |             |          
|Income (loss) from continuing operations               |                                         | $            | (598,179    | )            |  | $            | (260,566    | ) |  | $ | 100,460     |          
|Income (loss) from discontinued operations             |                                         | $            | (48,219     | )            |  | $            | (73,501     | ) |  | $ | 2,211       |          
|                                                       |                                         |              |             |              |  |              |             |   |  |   |             |          
|Net income (loss)                                      |                                         | $            | (646,398    | )            |  | $            | (334,067    | ) |  | $ | 102,671     |          
|                                                       |                                         |              |             |              |  |              |             |   |  |   |             |          
|Net income (loss) available to common
    stockholders |                                         | $            | (646,398    | )            |  | $            | (334,067    | ) |  | $ | 102,671     |          
|                                                       |                                         |              |             |              |  |              |             |   |  |   |             |          
|Denominator                                            |                                         |              |             |              |  |              |             |   |  |   |             |          
|Basic weighted average common shares outstanding       |                                         |              | 206,911,952 |              |  |              | 239,474,179 |   |  |   | 243,022,694 |          
|Effect of dilutive securities:                         |                                         |              |             |              |  |              |             |   |  |   |             |          
|                                                       | Common stock options                    |              |             |             |  |              |             |  |  |   |             | 8,044,949 | 
|                                                       | Restricted shares subject to repurchase |              |             |             |  |              |             |  |  |   |             | 68,040    | 
|                                                       |                                         |              |             |              |  |              |             |   |  |   |             |          
|Diluted weighted average common shares                 |                                         |              | 206,911,952 |              |  |              | 239,474,179 |   |  |   | 251,135,683 |          
|                                                       |                                         |              |             |              |  |              |             |   |  |   |             |          
|Net income (loss) per share  basic                    |                                         |              |             |              |  |              |             |   |  |   |             |          
|Continuing operations                                  |                                         | $            | (2.89       | )            |  | $            | (1.09       | ) |  | $ | 0.41        |          
|Discontinued operations                                |                                         | $            | (0.23       | )            |  | $            | (0.31       | ) |  | $ | 0.01        |          
|                                                       |                                         |              |             |              |  |              |             |   |  |   |             |          
|Total                                                  |                                         | $            | (3.12       | )            |  | $            | (1.40       | ) |  | $ | 0.42        |          
|                                                       |                                         |              |             |              |  |              |             |   |  |   |             |          
|Net income (loss) per share  diluted                  |                                         |              |             |              |  |              |             |   |  |   |             |          
|Continuing operations                                  |                                         | $            | (2.89       | )            |  | $            | (1.09       | ) |  | $ | 0.40        |          
|Discontinued operations                                |                                         | $            | (0.23       | )            |  | $            | (0.31       | ) |  | $ | 0.01        |          
|                                                       |                                         |              |             |              |  |              |             |   |  |   |             |          
|Total                                                  |                                         | $            | (3.12       | )            |  | $            | (1.40       | ) |  | $ | 0.41        |          
|                                                       |                                         |              |             |              |  |              |             |   |  |   |             |          

The following securities and restricted shares
subject to repurchase are excluded in the calculation of diluted
shares outstanding as their effects would be antidilutive:

|                                                                             |  |              |            |              |  |              |            |  |  |  |            | 
|---------------------------------------------------------------------------- |  | ------------ | ---------- | ------------ |  | ------------ | ---------- |  |  |  | ---------- | 
|                                                                             |  |             
|                                                                             |  | Years Ended 
|                                                                             |  |             
|                                                                             |  | December 29, |            | December 28, |  | December 27,
|                                                                             |  | 2001         |            | 2002         |  | 2003        
|                                                                             |  |              |            |              |  |             
|Common stock options                                                         |  |              | 34,531,082 |              |  |              | 31,575,054 |  |  |  | 3,114,254  | 
|Restricted shares subject to repurchase                                      |  |              | 1,505,891  |              |  |              | 1,012,752  |  |  |  |           | 
|As-if converted shares related to 6.8%
    Convertible Senior Notes due 2010 |  |              |           |              |  |              |           |  |  |  | 18,756,362 | 

17.     Segment and
Major Customers Information

Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise
and Related Information, establishes annual and interim
reporting standards for an enterprises business

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

segments and related disclosures about its
products, services, geographic areas and major customers. The
method for determining what information to report is based upon
the way management organizes the operating segments within the
Company for making operating decisions and assessing financial
performance. The Companys chief operating decision-maker
is considered to be the Chief Executive Officer
(CEO). The CEO reviews financial information for
purposes of making operational decisions and assessing financial
performance.

Subsequent to the decision to shut down its NSG
operations, the Company determined that it operates in one
reportable segment.

The Company has a worldwide sales, service and
distribution network. Products are marketed and sold through a
direct sales force to computer equipment manufacturers,
distributors and retailers in the United States, Europe, Latin
America and Asia Pacific. Maxtor operations outside the United
States primarily consist of its manufacturing facilities in
Singapore that produce subassemblies and final assemblies for
the Companys disk drive products. Revenue by destination
and long-lived asset information by geographic area for each of
the three years is presented in the following table:

|                               |  |                   |           |                   |  |                   |           |            |  |         |           |            |  |   |           |  |  |   |           |  |  |   |           | 
|------------------------------ |  | ----------------- | --------- | ----------------- |  | ----------------- | --------- | ---------- |  | ------- | --------- | ---------- |  | - | --------- |  |  | - | --------- |  |  | - | --------- | 
|                               |  |                   |           |                   |  |                  
|                               |  | Year Ended        |           | Year Ended        |  | Year Ended       
|                               |  | December 29, 2001 |           | December 28, 2002 |  | December 27, 2003
|                               |  |                   |           |                   |  |                  
|                               |  |                   |           | Long-lived        |  |                   |           | Long-lived |  |         |           | Long-lived
|                               |  | Revenue           |           | Assets            |  | Revenue           |           | Assets     |  | Revenue |           | Assets    
|                               |  |                   |           |                   |  |                   |           |            |  |         |           |           
|                               |  |                   |           |                   |  |                   |           |            |  |        
|                               |  |                   |           |                   |  | (In thousands)    |           |            |  |        
|United States                  |  | $                 | 1,503,710 |                   |  | $                 | 1,333,978 |            |  | $       | 1,295,527 |            |  | $ | 1,207,454 |  |  | $ | 1,375,663 |  |  | $ | 1,101,889 | 
|Asia Pacific and Japan         |  |                   | 916,538   |                   |  |                   | 122,901   |            |  |         | 1,147,745 |            |  |   | 128,860   |  |  |   | 1,259,801 |  |  |   | 129,380   | 
|Europe, Middle East and Africa |  |                   | 1,082,261 |                   |  |                   | 1,588     |            |  |         | 1,231,794 |            |  |   | 891       |  |  |   | 1,354,421 |  |  |   | 731       | 
|Latin America and other        |  |                   | 263,050   |                   |  |                   | 144       |            |  |         | 104,448   |            |  |   | 284       |  |  |   | 96,558    |  |  |   | 157       | 
|                               |  |                   |           |                   |  |                   |           |            |  |         |           |            |  |   |           |  |  |   |           |  |  |   |           | 
|Total                          |  | $                 | 3,765,559 |                   |  | $                 | 1,458,611 |            |  | $       | 3,779,514 |            |  | $ | 1,337,489 |  |  | $ | 4,086,443 |  |  | $ | 1,232,157 | 
|                               |  |                   |           |                   |  |                   |           |            |  |         |           |            |  |   |           |  |  |   |           |  |  |   |           | 

Long-lived assets located within the United
States consist primarily of goodwill and other intangible
assets. Goodwill and other intangible assets within the United
States amounted to $1,077.4 million, $960.8 million
and $875.6 million as of December 29, 2001,
December 28, 2002 and December 27, 2003, respectively.
Long-lived assets located outside the United States consist
primarily of the Companys manufacturing operations located
in Singapore.

Sales to computer equipment manufacturers
represented 55.4%, 48.0% and 50.5% of total revenue for the
fiscal years 2001, 2002 and 2003, respectively. Sales to
distribution channel and retail customers represented 44.6%,
52.0% and 49.5% in fiscal years 2001, 2002 and 2003,
respectively. Sales to one customer were 11.3%, 11.5% and 11.0%
of revenue in fiscal years 2001, 2002 and 2003, respectively;
only one customer represented more than 10% of our sales in
those years.

18.     Employee
Benefit Plan



| |            
| | -----------
| | 401(k) Plan

The Company maintains a retirement and deferred
savings plan for its employees (the 401(k) Plan)
which is intended to qualify as a tax-qualified plan under the
Code. The 401(k) Plan is a profit sharing plan which is intended
to qualify under section 401(a) of the Internal Revenue Code of
1986, as amended, which includes a cash or deferred arrangement
intended to satisfy the requirements of Code section 401(k). The
401(k) Plan has been amended from time to time to comply with
applicable laws and regulations. Under the 401(k) Plan, in
addition to the Company match, the Company may make
discretionary contributions. The

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Companys contributions to the 401(k) Plan,
for the years ended December 29, 2001, December 28,
2002 and December 27, 2003 were $6.3 million,
$6.9 million and $5.7 million, respectively. All
amounts contributed by participants and the Company, along with
earnings on such contributions are fully vested at all times.

19.     Related Party
Transaction

In 2003, the Company sold an aggregate of
approximately $75.0 million of goods to Solectron
Corporation and purchased an aggregate of approximately
$3.4 million of goods and services from Solectron. The
Companys accounts receivable and accounts payable balances
for Solectron were $13.7 million and $2.2 million,
respectively, as of December 27, 2003. A director of the
Company is also the Chief Executive Officer and a director of
Solectron.

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REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders

of Maxtor Corporation:


In our opinion, the consolidated financial
statements listed in the accompanying index present fairly, in
all material respects, the financial position of Maxtor
Corporation and its subsidiaries at December 28, 2002 and
December 27, 2003 and the results of their operations and
their cash flows for each of the three years in the period ended
December 27, 2003, in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects,
the information set forth therein when read in conjunction with
the related consolidated financial statements. These financial
statements and financial statement schedule are the
responsibility of the Companys management; our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free from material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

As discussed in Note 5 to the consolidated
financial statements, the Company adopted Statement of Financial
Accounting Standards No. 142 Goodwill and Other
Intangible Assets effective December 30, 2001.

PRICEWATERHOUSECOOPERS LLP

San Jose, California

March 9, 2004


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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes In and Disagreements with
    Accountants on Accounting and Financial Disclosure

None.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Under the supervision and with the participation
of our management, including our President and Chief Executive
Officer and our Chief Financial Officer, we evaluated the
effectiveness of our disclosure controls and procedures, as such
term is defined under Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended. Based upon that
evaluation, our President and Chief Executive Officer and our
Chief Financial Officer concluded that our disclosure controls
and procedures were effective as of the end of the period
covered by this annual report.

There has been no change in our internal control
over financial reporting during the quarter ended
December 27, 2003 that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

The information required by this item with
respect to identification of directors is incorporated by
reference to the information contained in the section captioned
Election of Directors in the Proxy Statement. For
information with respect to our executive officers, see
Executive Officers at the end of Part I,
Item 1of this report. Information with respect to
Items 405 and 406 of Regulation S-K is incorporated by
reference to the information contained in the sections captioned
Section 16(a) Beneficial Ownership Reporting
Compliance and Proposal No. 1, Election of
Directions  Corporate Governance and Board
Committees in the Proxy Statement.




Item 11.     Executive
Compensation

The information required by this Item is
incorporated herein by reference to the information contained in
the section captioned Executive Compensation and Other
Matters in the Proxy Statement.




Item 12.     Security
Ownership of Certain Beneficial Owners and
Management

The information required by this Item is
incorporated herein by reference to the information contained in
the sections captioned Stock Ownership of Management and
Certain Beneficial Owners and Equity Compensation
Plans in the Proxy Statement.




Item 13.     Certain
Relationships and Related Transactions

The information required by this Item is
incorporated herein by reference to the information contained in
the section captioned Executive Compensation and Other
Matters in the Proxy Statement.




Item 14.     Principal
Accounting Fees and Services

The information required by this Item is
incorporated herein by reference to the information contained in
the section captioned Ratification of Appointment of
Independent Auditors in the Proxy Statement.

97



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##### Table of Contents






PART IV






|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

(a) The following documents are filed as
part of this report:



| |                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1)-(2) Financial Statements and Financial
    Statement Schedules  See Index to Consolidated
    Financial Statements under Item 8 on page 53 of this
    report.
|
| | (3) Exhibits. See Index to Exhibits
    on pages 101 to 106 hereof.                                                                                                

(b) Reports on Form 8-K.

Maxtor filed a Current Report on Form 8-K on
October 21, 2003, in which it reported financial results
for the third fiscal quarter ended September 27, 2003.

98



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) 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, in the City of Milpitas,
State of California, on the 11th day of March, 2004.



| |                   
| | ------------------
| | MAXTOR CORPORATION
| | (Registrant)      



| |     |                   
| | --- | ------------------
| | By: | /s/ PAUL J. TUFANO

| |                                          
| | -----------------------------------------
| |                                          
| | Paul J. Tufano                           
| | President and Chief Executive
    Officer



| |                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Pursuant to the requirements of the Securities
    Exchange Act of 1934, this report has been signed below by the
    following persons on behalf of the registrant and in the
    capacities and on the dates indicated.

|                                               |  |                                                                                                                                 |  |                |  | 
|---------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                               |  |                                                                                                                                 |  |               
|Signature                                      |  | Title                                                                                                                           |  | Date          
|                                               |  |                                                                                                                                 |  |               
|                                              
|/s/ PAUL J. TUFANOPaul J. Tufano               |  | President, Chief Executive Officer
    and Director
    (Principal Executive Officer)                                           |  | March 10, 2004
|                                              
|/s/ ROBERT L. EDWARDSRobert L. Edwards         |  | Executive Vice President and
    Chief Financial Officer
    (Principal Financial Officer and
    Principal Accounting Officer) |  | March 10, 2004
|                                              
|/s/ CHONG SUP PARKDr. Chong Sup Park           |  | Chairman of the Board                                                                                                           |  | March 10, 2004
|                                              
|/s/ CHARLES M. BOESENBERGCharles M. Boesenberg |  | Director                                                                                                                        |  | March 10, 2004
|                                              
|/s/ MICHAEL R. CANNONMichael R. Cannon         |  | Director                                                                                                                        |  | March 10, 2004
|                                              
|/s/ CHARLES F. CHRISTCharles F. Christ         |  | Director                                                                                                                        |  | March 10, 2004
|                                              
|/s/ CHARLES HILLCharles Hill                   |  | Director                                                                                                                        |  | March 10, 2004
|                                              
|/s/ ROGER W. JOHNSONRoger W. Johnson           |  | Director                                                                                                                        |  | March 10, 2004
|                                              
|/s/ GREGORY E. MYERSGregory E. Myers           |  | Director                                                                                                                        |  | March 10, 2004

99



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MAXTOR CORPORATION

SCHEDULE II  VALUATION AND QUALIFYING
ACCOUNTS

|                  |                                                 |                |   |            |  |            |   |         |   |            |   |         |     |  |   |        |     |  |   |         | 
|----------------- | ----------------------------------------------- | -------------- | - | ---------- |  | ---------- | - | ------- | - | ---------- | - | ------- | --- |  | - | ------ | --- |  | - | ------- | 
|                  |                                                 |                |   | Additions  |  |            |   |         |   |           
|                  |                                                 |                |   | Charged to |  |            |   |         |   |           
|                  |                                                 |                |   | Cost,      |  |            |   |         |   |           
|                  |                                                 | Balance at     |   | Expenses   |  |            |   |         |   | Balance at
|                  |                                                 | Beginning      |   | and Other  |  |            |   |         |   | End of    
|Fiscal Year Ended |                                                 | of Period      |   | Accounts   |  | Deductions |   | Other   |   | Period    
|                  |                                                 |                |   |            |  |            |   |         |   |           
|                  |                                                 |               
|                  |                                                 | (In thousands)
|2003              |                                                 |                |   |            |  |            |   |         |   |            |   |         |     |  |   |        |     |  |   |        
|                  | Allowance for doubtful accounts                 |                | $ | 18,320     |  |            | $ | (2,000  | ) |            | $ | 5,100   | (1) |  | $ |       |     |  | $ | 11,220  | 
|                  | Revenue reserves                                |                | $ | 82,878     |  |            | $ | 525,329 |   |            | $ | 525,399 | (3) |  | $ |       |     |  | $ | 82,809  | 
|                  | Valuation allowance for deferred
    tax assets |                | $ | 384,353    |  |            | $ | (6,603  | ) |            | $ |        |     |  | $ |       |     |  | $ | 377,750 | 
|2002              |                                                 |                |   |            |  |            |   |         |   |            |   |         |     |  |   |        |     |  |   |        
|                  | Allowance for doubtful accounts                 |                | $ | 21,638     |  |            | $ | (1,000  | ) |            | $ | 2,318   | (1) |  | $ |       |     |  | $ | 18,320  | 
|                  | Revenue reserves                                |                | $ | 102,332    |  |            | $ | 339,266 |   |            | $ | 358,720 | (3) |  | $ |       |     |  | $ | 82,878  | 
|                  | Valuation allowance for deferred
    tax assets |                | $ | 372,063    |  |            | $ | 12,290  |   |            | $ |        |     |  | $ |       |     |  | $ | 384,353 | 
|2001              |                                                 |                |   |            |  |            |   |         |   |            |   |         |     |  |   |        |     |  |   |        
|                  | Allowance for doubtful accounts                 |                | $ | 15,148     |  |            | $ | 7,200   |   |            | $ | 710     | (1) |  | $ |       |     |  | $ | 21,638  | 
|                  | Revenue reserves                                |                | $ | 44,254     |  |            | $ | 301,641 |   |            | $ | 303,823 | (3) |  | $ | 60,260 | (2) |  | $ | 102,332 | 
|                  | Valuation allowance for deferred
    tax assets |                | $ | 230,746    |  |            | $ | 141,317 |   |            | $ |        |     |  | $ |       |     |  | $ | 372,063 | 



---



|    |                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Deductions represent recoveries of previously
    reserved balances and write-offs of fully reserved balances for
    which collection efforts have been exhausted.
|   
|(2) | Reflects reserves acquired from the acquisition
    of Quantum HDD in 2001.                                                                                        

Allowance for Doubtful Accounts.The provision for doubtful accounts
consists of the Companys estimates with respect to the
uncollectability of our receivables, net of recoveries of
amounts previously written off. The Company must make estimates
of the uncollectability of its accounts receivables. The Company
specifically analyzes accounts receivable and analyzes
historical bad debts, customer concentrations, customer
credit-worthiness, current economic trends and changes in its
customer payment terms when evaluating the adequacy of the
allowance for doubtful accounts.

Revenue Reserves.The provision for sales returns and
allowances consists of the Companys estimates of potential
future product returns related to current period product
revenue, and specific provisions for original equipment
manufacturer, distributor and retailer sales incentives
(allowances) that are reductions in the revenue to
be realized. The Company analyzes historical returns, current
economic trends, and changes in customer demand and acceptance
of its products when evaluating the adequacy of the sales
returns and allowances. Significant management judgments and
estimates must be made and used in connection with establishing
the sales returns and allowances in any accounting period.
Material differences may result in the amount and timing of our
revenue for any period if management made different judgments or
utilized different estimates.

(3) Represents actual returns and allowances.

100



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INDEX TO EXHIBITS

|        |          |             |  |                                                                                                                                                                                                                                                                                                                                                    
|------- | -------- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |          |            
|Number  |          | Description
|        |          |            
|        | 3.1(10)  |             |  | Restated Certificate of Incorporation of
    Registrant.                                                                                                                                                                                                                                                                                           
|        | 3.2(11)  |             |  | Certificate of Correction to the Restated
    Certificate of Incorporation of Registrant.                                                                                                                                                                                                                                                          
|        | 3.3(12)  |             |  | Amended and Restated Bylaws of Registrant, dated
    March 12, 2001.                                                                                                                                                                                                                                                                               
|        | 3.4(13)  |             |  | Certificate of Merger as filed with the Secretary
    of State of State of Delaware on April 2, 2001.                                                                                                                                                                                                                                              
|        | 4.1(5)   |             |  | Stockholder Agreement dated June 25, 1998.                                                                                                                                                                                                                                                                                                         
|        | 4.2(14)  |             |  | Reimbursement Agreement between Registrant and
    Quantum Corporation, dated April 2, 2001, together with the
    Third Supplemental Trust Indenture dated April 2, 2001, the
    Second Supplemental Trust Indenture dated August 4, 1999,
    the Supplemental Trust Indenture dated August 1, 1997, and
    the Indenture dated August 1, 1997.
|        | 4.3(20)  |             |  | Indenture between Registrant and U.S. Bank
    National Association, dated as of May 7, 2003.                                                                                                                                                                                                                                                      
|        | 4.4(20)  |             |  | Resale Registration Rights Agreement between
    Registrant, Banc of America Securities LLC and Merrill Lynch,
    Pierce, Fenner & Smith Incorporated, dated as of May 7,
    2003.                                                                                                                                                               
|        | 10.1(7)  |             |  | Form of Indemnification Agreement between
    Registrant and Registrants directors and officers.**                                                                                                                                                                                                                                                
|        | 10.2(5)  |             |  | Indenture dated as of March 1, 1987 between
    Registrant and Security Pacific National Bank, as Trustee.                                                                                                                                                                                                                                         
|        | 10.3(2)  |             |  | Amendment to the Financing Agreement among
    Registrant and the CIT Group/ Business Credit, Inc., dated
    October 17, 1995.                                                                                                                                                                                                                    
|        | 10.4(4)  |             |  | Employment Agreement between Michael R. Cannon
    and Registrant, dated June 17, 1996.**                                                                                                                                                                                                                                                          
|        | 10.5(4)  |             |  | Employment Agreement between Paul J. Tufano and
    Registrant, dated July 12, 1996.**                                                                                                                                                                                                                                                             
|        | 10.6(5)  |             |  | Employment Agreement between Philip Duncan and
    Registrant dated July 15, 1996.**                                                                                                                                                                                                                                                               
|        | 10.7(5)  |             |  | Employment Agreement between K.H. Teh and
    Registrant, dated March 23, 1997.**                                                                                                                                                                                                                                                                  
|        | 10.8(5)  |             |  | Lease Agreement between Milpitas Oak Creek
    Delaware, Inc. and Registrant dated as of February 23, 1998.                                                                                                                                                                                                                                        
|        | 10.9(5)  |             |  | Land Lease between Housing Development Board and
    Maxtor Singapore Limited dated as of March 8, 1991.                                                                                                                                                                                                                                           
|        | 10.10(5) |             |  | Sublicense Agreement between Hyundai Electronics
    Industries Co., Ltd., and Registrant dated as of January 1,
    1996.                                                                                                                                                                                                                         
|        | 10.11(5) |             |  | Tax Allocation Agreement dated as of
    July 21, 1995 among Hyundai Electronics America (n/k/a
    Hynix Semiconductor America Inc.), Registrant and certain other
    subsidiaries.                                                                                                                                                              
|        | 10.12(5) |             |  | Tax Indemnification Agreement and Amendment to
    Tax Allocation Agreement dated June 26, 1998.                                                                                                                                                                                                                                                   
|        | 10.13(5) |             |  | Indemnity Agreement between Hyundai Electronics
    Industries Co., Ltd. and Registrant dated June 25, 1998.                                                                                                                                                                                                                                       
|        | 10.14(5) |             |  | License Agreement between Registrant and Hyundai
    Electronics Industries Co., Ltd. dated June 25, 1998.                                                                                                                                                                                                                                         
|        | 10.15(5) |             |  | 1998 Restricted Stock Plan.**                                                                                                                                                                                                                                                                                                                      
|        | 10.16(5) |             |  | Form of Restricted Stock Grant Agreement.**                                                                                                                                                                                                                                                                                                        
|        | 10.17(5) |             |  | Chief Executive Officer Retention Agreement dated
    as of May 29, 1998 between Registrant and Michael R.
    Cannon.**                                                                                                                                                                                                                           
|        | 10.18(5) |             |  | Retention Agreement dated as of May 29, 1998
    between Registrant and Paul J. Tufano.**                                                                                                                                                                                                                                                          
|        | 10.19(5) |             |  | Form of Retention Agreement between Registrant
    and Executive Officers.**                                                                                                                                                                                                                                                                       

101



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|        |           |             |  |                                                                                                                                                                                                                                                                             
|------- | --------- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |           |            
|Number  |           | Description
|        |           |            
|        | 10.20(6)  |             |  | Purchase and Sale Agreement, dated as of
    July 31, 1998, between Registrant and Maxtor Receivables
    Corporation.                                                                                                                                                      
|        | 10.21(6)  |             |  | Receivables Purchase Agreement, dated as of
    July 31, 1998, among Maxtor Receivables Corporation,
    Registrant, BlueKeel Funding LLC and Fleet National Bank.                                                                                                          
|        | 10.22(8)  |             |  | Executive Retention Incentive Agreement between
    Michael R. Cannon and Registrant dated June 25, 1999.**                                                                                                                                                                 
|        | 10.23(8)  |             |  | Promissory Note between Michael R. Cannon and
    Registrant dated June 23, 1999.**                                                                                                                                                                                         
|        | 10.24(9)  |             |  | Executive Retention Incentive Agreement and
    Promissory Note between Registrant and Paul J. Tufano,
    dated October 18, 1999.**                                                                                                                                        
|        | 10.25(8)  |             |  | Capital Assistant Scheme Loan Agreement between
    Maxtor Peripherals (S) Pte Ltd. and the Economic
    Development Board of Singapore dated September 9, 1999.                                                                                                            
|        | 10.26(8)  |             |  | Guarantee Facility Agreement between Maxtor
    Peripherals (S) Pte Ltd. and the Bank of Nova Scotia,
    Singapore branch dated August 31, 1999.                                                                                                                           
|        | 10.27(9)  |             |  | Lease Agreement for Premises Located at 2452
    Clover Basin Drive, Longmont, Colorado, between Registrant, as
    Tenant, and Pratt Land Limited Liability Company, as Landlord,
    dated October 28, 1999.                                                              
|        | 10.28(9)  |             |  | Forms of Executive Retention Incentive Agreement
    and Promissory Note Between Registrant and Pantelis Alexopoulos,
    Michael D. Cordano, Phillip C. Duncan, Misha Rozenberg,
    Glenn H. Stevens, K.H. Teh and Michael J.
    Wingert, each dated November 19, 1999.**
|        | 10.29(12) |             |  | 1998 Employee Stock Purchase Plan.**                                                                                                                                                                                                                                        
|        | 10.30(10) |             |  | Form of Tax Opinion Insurance Policy.                                                                                                                                                                                                                                       
|        | 10.31(14) |             |  | Form of Tax Opinion Insurance Policy Rider.                                                                                                                                                                                                                                 
|        | 10.32(14) |             |  | Option to Purchase Shares of Stock by and between
    Hynix Semiconductor America, Inc. and Registrant.                                                                                                                                                                     
|        | 10.33(15) |             |  | Master Agreement between Matsushita Kotobuki
    Electronics Industries, Ltd., and Registrant dated April 2,
    2001.*                                                                                                                                                     
|        | 10.34(15) |             |  | Purchase Agreement between Matsushita Kotobuki
    Electronics Industries, Ltd., and Registrant dated April 2,
    2001.*                                                                                                                                                   
|        | 10.35(13) |             |  | Separation and Redemption Agreement dated as of
    April 2, 2001 among Quantum Corporation, Insula Corporation
    and Registrant.                                                                                                                                         
|        | 10.36(13) |             |  | Tax Sharing and Indemnity Agreement dated as of
    April 2, 2001 among Quantum Corporation, Insula Corporation
    and Registrant.                                                                                                                                         
|        | 10.37(13) |             |  | Transitional Services Agreement dated as of
    April 2, 2001 among Quantum Corporation, Insula Corporation
    and Registrant.                                                                                                                                             
|        | 10.38(13) |             |  | Intellectual Property Agreement dated as of
    April 2, 2001 by and between Quantum Corporation and Insula
    Corporation.                                                                                                                                                
|        | 10.39(13) |             |  | Indemnification Agreement dated as of
    April 2, 2001 among Quantum Corporation, Insula Corporation
    and Registrant.                                                                                                                                                   
|        | 10.40(13) |             |  | Real Estate Matters Agreement dated as of
    April 2, 2001 among Quantum Corporation, Insula Corporation
    and Registrant.                                                                                                                                               
|        | 10.41(13) |             |  | General Assignment and Assumption Agreement dated
    as of April 2, 2001 among Quantum Corporation, Insula
    Corporation and Registrant.                                                                                                                                 
|        | 10.42(15) |             |  | Amendment to Liquidity Agreement dated
    June 30, 2001, among Registrant, Blue Keel Funding, LLC,
    the Liquidity Institutions and Fleet National Bank.                                                                                                                 

102



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|        |           |             |  |                                                                                                                                                                                                                                                                                                                                                                           
|------- | --------- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |           |            
|Number  |           | Description
|        |           |            
|        | 10.43(16) |             |  | Lease Amendment and Novation Agreement made as of
    August 31, 2001, by and between FortuneFirst, LLC, Hynix
    Semiconductor America Inc., and MMC Technology, Inc.                                                                                                                                                                                                   
|        | 10.44(16) |             |  | Termination of Lease Agreement made effective as
    of September 20, 2001, by and between Pratt Land Limited
    Liability Company and Registrant.                                                                                                                                                                                                                       
|        | 10.45(16) |             |  | Guaranty made as of September 2, 2001, by
    Registrant to and for the benefit of CIT Technologies
    Corporation.                                                                                                                                                                                                                                                      
|        | 10.46(16) |             |  | $12,273,650.11 Promissory Note of MMC Technology,
    Inc. in favor of Hynix Semiconductor America Inc. and assumed by
    Registrant dated September 2, 2001.                                                                                                                                                                                                            
|        | 10.47(16) |             |  | $2,000,000 Promissory Note of Hyundai Electronics
    America (n/k/a Hynix Semiconductor America Inc.) in favor of
    Registrant dated January 5, 2001.                                                                                                                                                                                                                  
|        | 10.48(12) |             |  | Employment Offer Letter from Registrant to
    Michael J. Wingert dated October 31, 2001.**                                                                                                                                                                                                                                                                               
|        | 10.49(12) |             |  | Forms of First Amendment to Executive Retention
    Incentive Agreement and Amended Restated Promissory Note Between
    Registrant and Pantelis Alexopoulos, Michael D. Cordano, Phillip
    C. Duncan, Misha Rozenberg, Glenn H. Stevens, K.H. Teh, Paul J.
    Tufano, Michael J. Wingert, David Beaver and Michael
    R. Cannon, each dated as of November 1, 2001.**
|        | 10.50(12) |             |  | First Amendment to Purchase Agreement between
    Matsushita Kotobuki Electronics Industries, Ltd. and Registrant
    dated as of November 2, 2001.                                                                                                                                                                                                                       
|        | 10.51(12) |             |  | Amended and Restated Receivables Purchase
    Agreement, dated as of November 15, 2001, among Maxtor
    Receivables Corporation, Registrant, the Purchasers, the
    Committed Purchasers, the Agents and Fleet National Bank.                                                                                                                                           
|        | 10.52(12) |             |  | First Amendment to Amended and Restated
    Receivables Purchase Agreement, dated as of February 15,
    2002, among Maxtor Receivables Corporation, Registrant, the
    Purchasers, the Committed Purchasers, the Agents and Fleet
    National Bank.                                                                                                                    
|        | 10.53(12) |             |  | Second Amendment to Amended and Restated
    Receivables Purchase Agreement dated as of March 15, 2002,
    among Maxtor Receivables Corporation, Registrant, the Conduit
    Purchasers, the Committed Purchasers, the Agents and Fleet
    National Bank.                                                                                                               
|        | 10.54(17) |             |  | Form of Second Amendment to Executive Retention
    Agreement between Registrant and Pantelis S. Alexopoulos,
    Michael D. Cordano, Phillip C. Duncan, Michael J. Wingert,
    David L. Beaver, Misha Rozenberg and Glenn H. Stevens,
    each dated as of May 24, 2002.**                                                                                              
|        | 10.55(17) |             |  | Third Amendment to Amended and Restated
    Receivables Purchase Agreement, dated as of May 28, 2002 by
    and among Registrant, Maxtor Receivables Corporation, the
    Conduit Purchasers, the Committed Purchasers, the Agents and
    Fleet National Bank.                                                                                                           
|        | 10.56(17) |             |  | Bank Guarantee Facility of SGD 23,000,000,
    Amendments to Covenants on Tangible Networth and Consolidated
    Cash Balance, dated as of June 20, 2002, between the Bank
    of Nova Scotia, Singapore Branch, and Maxtor Peripherals(s) Pte
    Ltd.                                                                                                                   
|        | 10.57(17) |             |  | Revolving Bank Guarantee Facility of SGD 666,000,
    Amendments to Covenants on Tangible Networth and Consolidated
    Cash Balance, dated as of June 20, 2002, between the Bank
    of Nova Scotia, Singapore Branch and Maxtor Peripherals(s) Pte
    Ltd.                                                                                                             
|        | 10.58(18) |             |  | Maxtor Corporation Amended and Restated Executive
    Deferred Compensation Plan effective April 2, 2001.**                                                                                                                                                                                                                                                               
|        | 10.59(18) |             |  | Maxtor Corporation Restricted Stock Unit Plan.**                                                                                                                                                                                                                                                                                                                          

103



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|        |           |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- | --------- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |           |            
|Number  |           | Description
|        |           |            
|        | 10.60(18) |             |  | Form of Restricted Stock Unit Award Agreement
    between Registrant and Michael R. Cannon (200,000 Restricted
    Stock Units), Paul J. Tufano (140,000 Restricted Stock Units),
    Victor B. Jipson (100,000 Restricted Stock Units), Michael
    Cordano (70,000 Restricted Stock Units), K.H. Teh (70,000
    Restricted Stock Units), Pantelis S. Alexopoulos (70,000
    Restricted Stock Units), Phillip C. Duncan (50,000 Restricted
    Stock Units), Glenn H. Stevens (50,000 Restricted Stock Units),
    David L. Beaver (50,000 Restricted Stock Units), Misha Rozenberg
    (50,000 Restricted Stock Units), each dated as of June 10,
    2002.**
|        | 10.61(18) |             |  | Bank Guarantee Facility of SGD 17,250,000,
    Waiver of the Consolidated Tangible Net Worth Covenant for 3rd
    Quarter Ended 28 September 2002, dated as of October 22,
    2002, by and among the Bank of Nova Scotia and Maxtor
    Peripherals(s) Pte Ltd.                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10.62(18) |             |  | Revolving Bank Guarantee Facility of
    SGD 666,000, Waiver of the Consolidated Tangible Net Worth
    Covenant for 3rd Quarter Ended 28 September 2002, dated as of
    October 22, 2002, by and among the Bank of Nova Scotia and
    Maxtor Peripherals(s) Pte Ltd.                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10.63(18) |             |  | Fourth Amendment to Amended and Restated
    Receivables Purchase Agreement and Amendment to Fee Letter,
    dated as of November 5, 2002, by and among Maxtor
    Receivables Corporation, Registrant, the Committed Purchasers,
    the Conduit Purchasers, the Agents, and Fleet National Bank.                                                                                                                                                                                                                                                                                                                                                               
|        | 10.64(18) |             |  | Amendment to Liquidity Agreement, dated as of
    November 5, 2002 by and among Blue Keel Funding, LLC, the
    Liquidity Institutions, and Fleet National Bank.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10.65(18) |             |  | Waiver, dated as of October 21, 2002, by and
    among Registrant, Maxtor Receivables Corporation, the Conduit
    Purchasers, the Committed Purchasers, the Agents, and Fleet
    National Bank.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10.66(19) |             |  | Maxtor Corporation Amended and Restated 1996
    Stock Option Plan.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.67(19) |             |  | Fifth Amendment to Amended and Restated
    Receivables Purchase Agreement, dated as of December 13,
    2002 by and among Registrant, Maxtor Receivables Corporation,
    the Committed Purchasers, and Fleet National Bank.                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10.68(19) |             |  | Repurchase Agreement dated as of
    December 31, 2002 by and among Registrant, Maxtor
    Receivables Corporation, the Purchasers, and Fleet National Bank.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.69(19) |             |  | Bank Guarantee Facility of SGD 17,250,000,
    Deletion of Consolidated Tangible Net Worth Covenant dated as of
    January 29, 2003, by and among the Bank of Nova Scotia and
    Maxtor Peripherals(s) Pte Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10.70(19) |             |  | Revolving Bank Guarantee Facility, Increase in
    limit from SGD 660,000 to SGD 1,200,000, and Deletion of
    Consolidated Tangible Net Worth Covenant dated as of
    January 29, 2003, by and among the Bank of Nova Scotia and
    Maxtor Peripherals(s) Pte Ltd.                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.71(19) |             |  | Extension of Master Business Agreement Dated
    April 30, 1998, between Registrant and Texas Instruments
    Incorporated, as accepted and agreed to on December 13,
    2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10.72(19) |             |  | Standard Volume Purchase Agreement between
    Registrant, Agere Systems, Inc., and Agere Systems Singapore
    Pte. Ltd., effective as of January 1, 2002.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.73(19) |             |  | Second Amendment to Purchase Agreement between
    Matsushita Kotobuki Electronics Industries, Ltd. and Registrant,
    dated February 5, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10.74(20) |             |  | Employment Offer Letter from Registrant to Paul
    J. Tufano, dated February 24, 2003.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10.75(20) |             |  | Master Financing Agreement between Maxtor
    Technology (Suzhou) Co., Ltd., Bank of China Suzhou Branch and
    Bank of China Suzhou Industrial Park Sub-branch, dated as of
    April 15, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                

104



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##### Table of Contents



|        |           |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- | --------- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |           |            
|Number  |           | Description
|        |           |            
|        | 10.76(20) |             |  | Contract for Transfer of the Right to the Use of
    Land in Respect to 222,700.82 Square Meters of Land Located at
    Su Hong Dong Road, Suzhou Industrial Park between
    China-Singapore Suzhou Industrial Park Development Co., Ltd. and
    Maxtor Technology (Suzhou) Co., Ltd., dated as of
    February 12, 2003.                                                                                                                                                                                                                                                                                    
|        | 10.77(21) |             |  | U.S. $100,000,000 Receivables Loan and Security
    Agreement among Maxtor Funding LLC, Registrant, Merrill Lynch
    Commercial Finance Corp., Radian Reinsurance Inc., and U.S. Bank
    National Association, dated as of May 9, 2003.                                                                                                                                                                                                                                                                                                                                                                      
|        | 10.78(21) |             |  | Purchase and Contribution Agreement between
    Registrant and Maxtor Funding Corporation LLC, dated as of
    May 9, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10.79(23) |             |  | Employment Offer Letter from Registrant to Keyur
    A. Patel, dated June 16, 2003.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10.80(22) |             |  | First Amendment to U.S. $100,000,000 Receivables
    Loan and Security Agreement among Maxtor Funding LLC,
    Registrant, Merrill Lynch Commercial Finance Corp., Merrill
    Lynch Commercial Finance Corp., Radian Reinsurance Inc., and
    U.S. Bank National Association, dated as of July 21, 2003.                                                                                                                                                                                                                                                                                                     
|        | 10.81(23) |             |  | Employment Offer Letter and related documentation
    from Registrant to Robert L. Edwards, dated July 23, 2003.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10.82(23) |             |  | Letter of Guarantee from Oversea-Chinese Banking
    Corporation Limited to Maxtor Peripherals (S) Pte Ltd,
    dated July 29, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.83(22) |             |  | Second Amendment to U.S. $100,000,000 Receivables
    Loan and Security Agreement among Maxtor Funding LLC,
    Registrant, Merrill Lynch Commercial Finance Corp., Merrill
    Lynch Commercial Finance Corp., Radian Reinsurance Inc., and
    U.S. Bank National Association, dated as of August 7, 2003.                                                                                                                                                                                                                                                                                                   
|        | 10.84(22) |             |  | First Amendment to Purchase and Contribution
    Agreement between Registrant and Maxtor Funding LLC, dated as of
    August 7, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10.85(23) |             |  | Form of Amendment of Restricted Stock Unit Award
    Agreement between Registrant and Pantelis S. Alexopoulos (70,000
    Restricted Stock Units), David L. Beaver (50,000 Restricted
    Stock Units), Michael Cordano (70,000 Restricted Stock Units),
    Phillip C. Duncan (50,000 Restricted Stock Units), Misha
    Rozenberg (50,000 Restricted Stock Units), Glenn H. Stevens
    (50,000 Restricted Stock Units), and K.H. Teh (70,000 Restricted
    Stock Units), and Paul J. Tufano (100,000 Restricted Stock
    Units; 140,000 Restricted Stock Units), each dated as of
    September 2, 2003.**
|        | 10.86(23) |             |  | Loan Agreement between Maxtor
    Peripherals (S) Pte Ltd and the Singapore Economic
    Development Board, dated September 3, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.87     |             |  | Maxtor Corporation Executive Retention and
    Severance Plan.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10.88     |             |  | Maxtor Corporation Restricted Stock Unit Plan (as
    amended and restated).**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10.89     |             |  | Forbearance Agreement dated as of March 10,
    2004 by and among Radian Reinsurance Inc., Maxtor Funding LLC,
    Registrant, Merrill Lynch Commercial Finance Corp. and U.S. Bank
    National Association.                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 12.1      |             |  | Statement regarding Computation of Ratio.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 21.1      |             |  | List of Subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 23.1      |             |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 31.1      |             |  | Certification of Paul J. Tufano, President and
    Chief Executive Officer of Registrant pursuant to
    Rule 13a-14 adopted under the Securities Exchange Act of
    1934, as amended, and Section 302 of the Sarbanes-Oxley Act
    of 2002.                                                                                                                                                                                                                                                                                                                                                                 

105



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##### Table of Contents



|        |      |             |  |                                                                                                                                                                                                                                
|------- | ---- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 31.2 |             |  | Certification of Robert L. Edwards, Chief
    Financial Officer of Registrant pursuant to Rule 13a-14
    adopted under the Securities Exchange Act of 1934, as amended,
    and Section 302 of the Sarbanes-Oxley Act of 2002.
|        | 32.1 |             |  | Certification of Paul J. Tufano, President and
    Chief Executive Officer of Registrant furnished pursuant to 18
    U.S.C. § 1350, as adopted pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002.                 
|        | 32.2 |             |  | Certification of Robert L. Edwards, Chief
    Financial Officer of Registrant furnished pursuant to
    18 U.S.C. § 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                            



---



| |   |                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | * | This exhibit (or portions thereof) has been filed
    separately with the Commission pursuant to an application for
    confidential treatment. The confidential portions of this
    Exhibit have been omitted and are marked by an asterisk.



| |    |                                                              
| | -- | -------------------------------------------------------------
| | ** | Management contract, or compensatory plan or
    arrangement.



| |     |                                                                                                                                              
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference to Schedule 14A
    filed July 14, 1995.                                                                           
|
| | (2) | Incorporated by reference to exhibits of
    Form 10-Q filed February 14, 1996.                                                              
|
| | (3) | Incorporated by reference to exhibits of
    Form 8-K filed June 28, 1996.                                                                   
|
| | (4) | Incorporated by reference to exhibits of
    Form 10-K filed March 27, 1997.                                                                 
|
| | (5) | Incorporated by reference to exhibits to
    registration statement on Form S-1, File
    No. 333-56099, filed June 5, 1998, as amended.     
|
| | (6) | Incorporated by reference to exhibits of
    Form 10-Q filed November 10, 1998.                                                              
|
| | (7) | Incorporated by reference to exhibits of
    registration statement on Form S-3, File
    No. 333-69307, filed December 21, 1998, as amended.
|
| | (8) | Incorporated by reference to exhibits of
    Form 10-Q filed November 16, 1999.                                                              
|
| | (9) | Incorporated by reference to exhibits of
    Form 10-K filed March 29, 2000.                                                                 



|     |                                                                                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to exhibits of
    registration statement on Form S-4, File
    No. 333-51592, filed December 11, 2000, as amended.
|    
|(11) | Incorporated by reference to exhibit of
    Form 8-K filed March 2, 2001.                                                                    
|    
|(12) | Incorporated by reference to exhibits of
    Form 10-K filed March 30, 2001, as amended.                                                     
|    
|(13) | Incorporated by reference to exhibits of
    Form 8-K filed April 17, 2001.                                                                  
|    
|(14) | Incorporated by reference to exhibits to
    registration statement on Form S-3, File
    No. 333-61770, filed May 29, 2001, as amended.     
|    
|(15) | Incorporated by reference to exhibits of
    Form 10-Q filed August 14, 2001, as amended.                                                    
|    
|(16) | Incorporated by reference to exhibits of
    Form 10-Q filed November 13, 2001.                                                              
|    
|(17) | Incorporated by reference to exhibits of
    Form 10-Q filed August 13, 2002.                                                                
|    
|(18) | Incorporated by reference to exhibits of
    Form 10-Q filed November 12, 2002.                                                              
|    
|(19) | Incorporated by reference to exhibits of
    Form 10-K filed March 28, 2003.                                                                 
|    
|(20) | Incorporated by reference to exhibits of
    Form 10-Q filed May 13, 2003.                                                                   
|    
|(21) | Incorporated by reference to exhibits of
    Form S-3 filed June 24, 2003.                                                                   
|    
|(22) | Incorporated by reference to exhibits of
    Form 10-Q filed August 12, 2003.                                                                
|    
|(23) | Incorporated by reference to exhibits of
    Form 10-Q filed November 12, 2003.                                                              

106