##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





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 31, 2005                                                 
|          
|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: 001-16447





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 $0.01 per share


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


5.75% Convertible Subordinated Debentures, due
March 1, 2012


þ o


o þ


þ o


S-K 10-K 10-K. o


12b-2


þ o o


12b-2 o þ




DOCUMENTS INCORPORATED BY REFERENCE


10-K,










---

TABLE OF CONTENTS



|                                                              |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                       
|                                                              | Item 1. Business                                                                             
|                                                              | Item 1A. Risk Factors                                                                        
|                                                              | Item 1B. Unresolved Staff Comments                                                           
|                                                              | 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                   
|CONSOLIDATED BALANCE SHEETS                                  
|CONSOLIDATED STATEMENTS OF OPERATIONS                        
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY              
|CONSOLIDATED STATEMENTS OF CASH FLOWS                        
|MAXTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM      
|                                                              | Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 
|                                                              | Item 9A. Controls and Procedures                                                             
|                                                              | Item 9B. Other Information                                                                   
|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                                             
|SIGNATURES                                                   
|SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS             
|INDEX TO EXHIBITS                                            
|EXHIBIT 3.2                                                  
|EXHIBIT 10.59                                                
|EXHIBIT 10.60                                                
|EXHIBIT 10.61                                                
|EXHIBIT 10.62                                                
|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




3.5-inch 3.5-inch






Pending Acquisition by Seagate Technology




Industry Background




Desktop Computing Market.




| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| |  | the rapid increase in digital data;                                        
|
| |  | the general growth of PC sales in the United States and Western
    Europe;

1



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| |   |                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the growth of non-branded desktop computers in emerging
    economies, specifically China and other parts of Asia, Russia,
    Eastern Europe and Latin America; and
|
| |  | larger file sizes created by multimedia-intensive applications.                                                                                                     



Enterprise Market.




e-mail


Consumer Electronics Market. 3.5-inch


Our Strategy




Rationalize Product Roadmap.


2



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##### Table of Contents



1.0-inch


Pursue Low-Cost Manufacturing.


Optimize Supply Chain and Ensure Access to Sufficient
Supply.


Pursue Opportunities in Growth Markets.


e-mail


Maintain Leading Presence With Core Computer Manufacturer,
Distribution and Retail Customers.


3



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Technology and Product Development


Hard Disk Drive Technology.








Product Development.






| |   |                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | create state-of-the art
    technologies to be used in our future products;                                                                                                  
|
| |  | develop early prototypes to ascertain the feasibility and
    manufacturability of our planned products; and                                                                 
|
| |  | analyze the latest head, disk, channel, motor and application
    specific integrated circuit technologies and designs to broaden
    and strengthen our technology platform.





4



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Products


3.5-inch


3.5-inch






|                                                      |  |          |         |  |          |                          |             |            |       |  |              |                                                       |  |                                                                                 
|----------------------------------------------------- |  | -------- | ------- |  | -------- | ------------------------ | ----------- | ---------- | ----- |  | ------------ | ----------------------------------------------------- |  | --------------------------------------------------------------------------------
|                                                      |  | Capacity |         |  | Product  |                          |             | Rotational |       |  |             
|                                                      |  | per Disk |         |  | Capacity |                          |             | Speed      |       |  |             
|Products                                              |  | (GB*)    |         |  | (GB*)    |                          |             | (RPM)      |       |  | Applications
|                                                      |  |          |         |  |          |                          |             |            |       |  |             
|DiamondMax Plus 8 & 8S                                |  |          | 40      |  |          |                          | 40          |            |       |  | 7,200        |                                                       |  | Entry-level Desktop PCs & Consumer Electronics with
    PATA and SATA interfaces
|DiamondMax 16                                         |  |          | 60/80   |  |          | 40/60/80/120 160/250/300 |             |            | 5,400 |  |              | Mainstream Desktop PCs & Consumer Electronics        
|DiamondMax Plus 9                                     |  |          | 60/80   |  |          | 60/80/120/160 200/250    |             |            | 7,200 |  |              | High-performance Desktop PCs & Workstations          
|DiamondMax 10                                         |  |          | 80/100  |  |          | 80/120/160 200/250/300   |             |            | 7,200 |  |              | High-performance Desktop PCs & Workstations with SATA
|DiamondMax 11                                         |  |          | 100/125 |  |          |                          | 400/500     |            |       |  | 7,200        |                                                       |  | High-performance Desktop PC & Workstations with SATA                            
|MaXLine III                                           |  |          | 80/100  |  |          |                          | 250/300     |            |       |  | 7,200        |                                                       |  | Near-line & Mid-line Storage                                                    
|MaXLine Pro 500                                       |  |          | 100/125 |  |          |                          | 400/500     |            |       |  | 7,200        |                                                       |  | Near-line & Mid-line Storage                                                    
|Atlas 10K                                             |  |          | 73.5    |  |          |                          | 73/147/300  |            |       |  | 10,000       |                                                       |  | Servers, Workstations & Storage Subsystems                                      
|Atlas 15K                                             |  |          | 36.7    |  |          |                          | 36/73/147   |            |       |  | 15,000       |                                                       |  | Servers, Workstations & Storage Subsystems                                      
|Maxtor OneTouch II External Hard Drive                |  |          | 100/125 |  |          | 100/200/250/ 300/500     |             |            | 7,200 |  |              | Personal Consumer Storage & Data Backup              
|Maxtor OneTouch III External Hard Drive Turbo Edition |  |          | 100/125 |  |          |                          | 600/1000    |            |       |  | 7,200        |                                                       |  | High Performance Consumer & Professional
    Storage & Backup                   
|Maxtor Shared Storage Plus                            |  |          | 100/125 |  |          |                          | 200/300/500 |            |       |  | 7,200        |                                                       |  | Home & Small Office Network                                                     






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

5



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Manufacturing


time-to








| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | better monitor and control process trends, resulting in improved
    product quality, faster
    time-to-volume
    production and 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 something
    closer 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.                                                                                                       





Materials and Supply Chain


state-of






6



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Customers and Sales Channels




Manufacturers.


Distributors.


Retailers.




Sales and Marketing




7



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Backlog


just-in just-in


Competition


3.5-inch


time-to time-to






Intellectual Property




8



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Employees


three-year


9



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Executive Officers




|                   |  |     |    |  |                           |                                                                             
|------------------ |  | --- | -- |  | ------------------------- | ----------------------------------------------------------------------------
|Name               |  | Age |    |  | Position with the Company
|                   |  |     |    |  |                          
|Dr. C.S. Park      |  |     | 58 |  |                           | Chairman and Chief Executive Officer                                        
|Michael J. Wingert |  |     | 45 |  |                           | President and Chief Operating Officer                                       
|Duston M. Williams |  |     | 47 |  |                           | Executive Vice President, Finance and
    Chief Financial Officer           
|Fariba Danesh      |  |     | 47 |  |                           | Executive Vice President, Operations                                        
|Kurt Richarz       |  |     | 45 |  |                           | Senior Vice President, Worldwide Sales                                      
|David L. Beaver    |  |     | 52 |  |                           | Senior Vice President, Worldwide Materials and Chief Procurement
    Officer
|William Sweeney    |  |     | 58 |  |                           | Vice President, General Counsel and Secretary                               

Dr. C.S. Park


Michael J. Wingert


Duston M. Williams


Fariba Danesh


10



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Kurt Richarz


David L. Beaver E-systems


William O. Sweeney


Available Information


10-K, 10-Q, 8-K 1-800-SEC-0330.







|         |             
|-------- | ------------
|Item 1A. | Risk Factors

Risks Related to Our Merger with Seagate Technology




| |                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | Failure to complete the merger with Seagate Technology
    could materially and adversely affect our results of operations
    and our stock price.





| |   |                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the market price of our common stock may decline to the extent
    that the current market price includes a market assumption that
    the merger will be completed;                                              
|
| |  | we will remain liable for significant transaction costs,
    including legal, accounting, financial advisory and other costs
    relating to the merger, and may not receive any termination fee
    from Seagate;
|
| |  | the deterioration of our business in the interim period may be
    significant and we may find it difficult to continue as a
    stand-alone entity;                                                              

11



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| |   |                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we may experience a negative reaction to the termination of the
    merger from our customers, suppliers, distributors or partners
    which may adversely impact our future operating results; and
|
| |  | under some circumstances, we may have to pay a termination fee
    to Seagate in the amount of $53 million or Seagates
    expenses.                                                              





| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Obtaining required approvals and satisfying closing
    conditions relating to the Seagate merger or other developments
    may delay or prevent completion of the merger.





| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | approval by our stockholders of the merger agreement;                                                                                                          
|
| |  | approval by the stockholders of Seagate of the issuance of its
    shares pursuant to the merger; and                                                          
|
| |  | Seagate and Maxtor obtaining necessary antitrust approvals under
    governmental authorities of the European Economic Area, Japan,
    South Korea and Taiwan.







| |                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Customer, supplier, distributor and partner uncertainty
    about the merger or general effects of the merger on our
    customer, supplier, distributor and partner relationships could
    harm us or the combined company, whether or not the merger is
    completed.





12



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| |                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Diversion of management attention to the merger and
    employee uncertainty regarding the merger could adversely affect
    our business, financial condition and operating results.





| |                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because our stockholders will receive a fixed ratio of
    0.37 of a share of Seagate common stock for each share of Maxtor
    common stock that they own at the closing of the merger, if
    Seagates stock price decreases for any reason, our
    stockholders will receive less value for their Maxtor
    shares.





| |                                                                                   
| | ----------------------------------------------------------------------------------
| | The combined company may not realize the anticipated
    benefits from the merger.





| |                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under the terms of the 2.375% Convertible Senior
    Notes due 2012, our merger with Seagate Technology will trigger
    conversion rights that, if exercised, may have an adverse effect
    on the liquidity of the combined company.



13



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Risks Related to Our Business




| |                                         
| | ----------------------------------------
| | We have a history of significant losses.





| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

end-of




| |                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

3.5-inch




| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | consolidate or establish strategic relationships to lower their
    product costs or to otherwise compete more effectively against
    us;

14



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| |   |                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;                                                                  
|
| |  | get to the market with the next generation product faster or
    ramp more effectively; 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.





| |                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to qualify as a supplier to computer
    manufacturers or their subcontractors, 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.

first-to first-to




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



15



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| |                                                                               
| | ------------------------------------------------------------------------------
| | If we do not expand into new hard drive markets, our
    revenues will suffer.





| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our efforts to improve operating efficiencies through
    restructuring activities may not be successful, and the actions
    we take to this end could limit our ability to compete
    effectively.





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



16



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| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | If we do not successfully introduce new products or avoid
    product quality problems, our revenues will suffer.





| |                                                                         
| | ------------------------------------------------------------------------
| | If we do not expand into new technologies, our revenues
    will suffer.





| |                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





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



17



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

build-to just-in




| |                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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, and these component shortages could result
    in delays of product shipments and damage our business and
    operating results.





| |                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We purchase most of our components from third party
    suppliers, and may have higher costs or more supply chain risks
    than our competitors who are more vertically integrated.





18



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| |                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we have difficulties with the transition of
    manufacturing to China or a disaster occurs at one of our
    plants, our business, financial condition and operating results
    could suffer.





| |                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.




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





| |   |                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;                                                                                                                              

19



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| |   |                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| |  | the availability and efficient use of manufacturing capacity;                                                                      
|
| |  | our ability to retain key personnel;                                                                                               
|
| |  | our inability to reduce a significant portion of our fixed costs
    due, in part, to ongoing capital expenditure requirements; and
|
| |  | our ability to procure and purchase critical components at
    competitive prices.                                                 





| |                                                                           
| | --------------------------------------------------------------------------
| | We face risks from our substantial international
    operations and sales.





| |   |                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 natural disasters
    such as tsunamis, earthquakes and hurricanes; 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;                                                                                                                                                                                                          
|
| |  | energy or fuel shortages or cost increases;                                                                                                                                                                               
|
| |  | 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;                                                                                                                                                

20



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| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | significant unexpected duties or taxes or other adverse tax
    consequences;                                                                                                     
|
| |  | difficulty in obtaining export licenses and other trade barriers;                                                                                                                 
|
| |  | increased transportation/shipping costs;                                                                                                                                          
|
| |  | credit and access to capital issues faced by our international
    customers; and                                                                                                 
|
| |  | compliance with European Union directives implementing strict
    mandates on electronic equipment waste and banning the use of
    certain materials in electronic manufacturing.





| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | Our operations and prospects in China are subject to
    significant political, economic and legal uncertainties.





21



---



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| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | We may need additional capital in the future which may not
    be available on favorable terms or at all.





| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | the rate of our sales growth;                                                                                                               
|
| |  | the level of our profits or losses;                                                                                                         
|
| |  | the timing and extent of our spending to expand manufacturing
    capacity, support facilities upgrades and product development
    efforts;
|
| |  | the timing and size of business or technology acquisitions;                                                                                 
|
| |  | the timing of introductions of new products and enhancements to
    our existing products; and                                              
|
| |  | the length of product life cycles.                                                                                                          





| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | The loss of key personnel or inability of our senior
    management team to work together effectively could harm our
    business.





22



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| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | We significantly increased our leverage as a result of the
    sale of convertible senior notes.





| |   |                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | semi-annual interest payments on each series of notes;                                                                                                                                                                                                                     
|
| |  | payment at the respective maturities of each series of notes;                                                                                                                                                                                                              
|
| |  | payment of the principal amount of the 2005 Notes upon
    conversion by the holders or upon demand by the holders
    following certain fundamental change events;                                                                                                        
|
| |  | payment of the principal amount of the 2003 Notes upon
    conversion (if we elect to satisfy a conversion in whole or in
    part, with cash rather than shares of our common stock) or upon
    demand by the holders following certain change of control
    events; and
|
| |  | future capital expenditures, investments and acquisitions,
    payments on our leases and loans, and any increased working
    capital requirements.                                                                                                                       





| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under the terms of the 2.375% Convertible Senior
    Notes due 2012, events that we do not control will trigger
    conversion rights that, if exercised, may have an adverse effect
    on our liquidity.





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



23



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









24



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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.





| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our customers are subject, and we are potentially subject,
    to new environmental legislation enacted by the European Union
    and, if we do not comply, our sales could be adversely
    impacted.





25



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| |                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | quarterly fluctuations in operating results;                                                                                
|
| |  | announcements of new products by us or our competitors such as
    products that address additional hard disk drive markets;
|
| |  | 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;                                                
|
| |  | announcement of a material transaction, such as our proposed
    combination with Seagate Technology;                       
|
| |  | general conditions in the semiconductor and electronic systems
    industries; and                                          
|
| |  | general economic conditions in the United States and abroad.                                                                



| |                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Decreased effectiveness of equity compensation could
    adversely affect our ability to attract and retain employees,
    and proposed changes in accounting for equity compensation could
    adversely affect earnings.





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



26



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##### Table of Contents





| |                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Provisions in the indentures governing our
    6.80% Convertible Senior Notes due 2010 and our
    2.375% Convertible Senior Notes due 2012 could discourage
    potential acquisitions or delay or prevent a change of
    control.





| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Conversion of our 2.375% Convertible Senior Notes due
    2012 or 6.80% Convertible Senior Notes 2012 will
    dilute the ownership interests of existing stockholders.





| |                                                                     
| | --------------------------------------------------------------------
| | Future Changes in Accounting and Taxation Standards or
    Practices



Share-Based Payment







|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments








|        |           
|------- | ----------
|Item 2. | Properties







27



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##### Table of Contents


















|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings







28



---



##### Table of Contents


















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



29



---



##### Table of Contents






PART II







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



|                           |  |      |       |  |     |  |      | 
|-------------------------- |  | ---- | ----- |  | --- |  | ---- | 
|                           |  | High |       |  | Low | 
|                           |  |      |       |  |     | 
|Fiscal 2005 Fourth Quarter |  |      | 7.10  |  |     |  | 3.28 | 
|Fiscal 2005 Third Quarter  |  |      | 6.04  |  |     |  | 4.23 | 
|Fiscal 2005 Second Quarter |  |      | 6.43  |  |     |  | 4.52 | 
|Fiscal 2005 First Quarter  |  |      | 5.95  |  |     |  | 4.30 | 
|Fiscal 2004 Fourth Quarter |  |      | 5.84  |  |     |  | 2.89 | 
|Fiscal 2004 Third Quarter  |  |      | 6.68  |  |     |  | 3.57 | 
|Fiscal 2004 Second Quarter |  |      | 8.53  |  |     |  | 6.50 | 
|Fiscal 2004 First Quarter  |  |      | 12.40 |  |     |  | 7.94 | 



Dividend Policy




30



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##### Table of Contents








|        |                                            
|------- | -------------------------------------------
|Item 6. | Selected Consolidated Financial Information



|                                                     |                         |                                         |         |       |               |   |         |              |   |   |              |      |  |              |         |       |   |   |         |       |  
|---------------------------------------------------- | ----------------------- | --------------------------------------- | ------- | ----- | ------------- | - | ------- | ------------ | - | - | ------------ | ---- |  | ------------ | ------- | ----- | - | - | ------- | ----- | -
|                                                     |                         | Fiscal Year                             |         |       | Fiscal Year   |   |         | Fiscal Year  |   |   | Fiscal Year  |      |  | Fiscal Year  |        
|                                                     |                         | Ended                                   |         |       | Ended         |   |         | Ended        |   |   | Ended        |      |  | Ended        |        
|                                                     |                         | December 29,                            |         |       | December 28,  |   |         | December 27, |   |   | December 25, |      |  | December 31, |        
|                                                     |                         | 2001(1)(2)(3)(4)                        |         |       | 2002(1)(3)(5) |   |         | 2003(1)(3)   |   |   | 2004(1)(6)   |      |  | 2005         |        
|                                                     |                         |                                         |         |       |               |   |         |              |   |   |              |      |  |              |        
|                                                     |                         | (In millions, except per share amounts) |        
|Consolidated Statements of Operations Data:          |                         |                                         |         |       |               |   |         |              |   |   |              |      |  |              |         |       |   |   |         |      
|Net revenues                                         |                         | $                                       | 3,765.5 |       |               | $ | 3,779.5 |              |   | $ | 4,086.4      |      |  | $            | 3,796.3 |       |   | $ | 3,890.2 |      
|Gross profit                                         |                         |                                         | 362.5   |       |               |   | 392.2   |              |   |   | 695.8        |      |  |              | 367.2   |       |   |   | 430.9   |      
|Amortization of goodwill and other intangible assets |                         |                                         | 176.0   |       |               |   | 82.2    |              |   |   | 85.3         |      |  |              | 36.0    |       |   |   | 0.9     |      
|Purchased in-process research and development        |                         |                                         | 95.2    |       |               |   |        |              |   |   |             |      |  |              |        |       |   |   |        |      
|Restructuring charges                                |                         |                                         |        |       |               |   | 9.5     |              |   |   |             |      |  |              | 33.2    |       |   |   | 18.6    |      
|Impairment charges                                   |                         |                                         |        |       |               |   |        |              |   |   |             |      |  |              | 32.0    |       |   |   |        |      
|                                                     |                         |                                         |         |       |               |   |         |              |   |   |              |      |  |              |        
|Total operating expenses                             |                         |                                         | 916.7   |       |               |   | 638.2   |              |   |   | 567.8        |      |  |              | 549.2   |       |   |   | 457.5   |      
|Income (loss) from operations                        |                         |                                         | (554.2  | )     |               |   | (246.0  | )            |   |   | 128.0        |      |  |              | (182.0  | )     |   |   | (26.6   | )    
|Income (loss) from continuing operations             |                         |                                         | (568.6  | )     |               |   | (262.4  | )            |   |   | 98.9         |      |  |              | (183.4  | )     |   |   | (43.3   | )    
|Income (loss) from discontinued operations           |                         |                                         | (48.2   | )     |               |   | (73.5   | )            |   |   | 2.2          |      |  |              |        |       |   |   |        |      
|                                                     |                         |                                         |         |       |               |   |         |              |   |   |              |      |  |              |        
|Net income (loss)                                    |                         | $                                       | (616.8  | )     |               | $ | (335.9  | )            |   | $ | 101.1        |      |  | $            | (183.4  | )     |   | $ | (43.3   | )    
|                                                     |                         |                                         |         |       |               |   |         |              |   |   |              |      |  |              |        
|Net income (loss) per share  basic                  |                         |                                         |         |       |               |   |         |              |   |   |              |      |  |              |         |       |   |   |         |      
|                                                     | Continuing operations   |                                         | $       | (2.75 | )             |   | $       | (1.10        | ) |   | $            | 0.41 |  |              | $       | (0.74 | ) |   | $       | (0.17 | )
|                                                     | Discontinued operations |                                         | $       | (0.23 | )             |   | $       | (0.31        | ) |   | $            | 0.01 |  |              | $       |      |   |   | $       |      |  
|                                                     |                         |                                         |         |       |               |   |         |              |   |   |              |      |  |              |        
|Total                                                |                         | $                                       | (2.98   | )     |               | $ | (1.40   | )*           |   | $ | 0.42         |      |  | $            | (0.74   | )     |   | $ | (0.17   | )    
|                                                     |                         |                                         |         |       |               |   |         |              |   |   |              |      |  |              |        
|Net income (loss) per share  diluted                |                         |                                         |         |       |               |   |         |              |   |   |              |      |  |              |         |       |   |   |         |      
|                                                     | Continuing operations   |                                         | $       | (2.75 | )             |   | $       | (1.10        | ) |   | $            | 0.39 |  |              | $       | (0.74 | ) |   | $       | (0.17 | )
|                                                     | Discontinued operations |                                         | $       | (0.23 | )             |   | $       | (0.31        | ) |   | $            | 0.01 |  |              | $       |      |   |   | $       |      |  
|                                                     |                         |                                         |         |       |               |   |         |              |   |   |              |      |  |              |        
|Total                                                |                         | $                                       | (2.98   | )     |               | $ | (1.40   | )*           |   | $ | 0.40         |      |  | $            | (0.74   | )     |   | $ | (0.17   | )    
|                                                     |                         |                                         |         |       |               |   |         |              |   |   |              |      |  |              |        
|Balance Sheet Data:                                  |                         |                                         |         |       |               |   |         |              |   |   |              |      |  |              |         |       |   |   |         |      
|Total assets                                         |                         | $                                       | 2,530.0 |       |               | $ | 2,175.3 |              |   | $ | 2,536.7      |      |  | $            | 2,107.7 |       |   | $ | 2,177.8 |      
|Long-term debt, net of current portion               |                         | $                                       | 244.5   |       |               | $ | 206.3   |              |   | $ | 355.8        |      |  | $            | 382.6   |       |   | $ | 575.8   |      
|Total stockholders equity                           |                         | $                                       | 929.8   |       |               | $ | 620.1   |              |   | $ | 746.7        |      |  | $            | 576.6   |       |   | $ | 553.0   |      






|    |                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*   | Does not add due to rounding                                                                                                                                                                                                                                                                                      
|   
|(1) | Certain items previously reported in specific financial
    statement captions have been reclassified to conform to the year
    ended December 31, 2005 presentation.                                                                                                                                            
|   
|(2) | Includes operations of Quantum HDD since April 2, 2001 and
    of MMC since September 2, 2001.                                                                                                                                                                                                                    
|   
|(3) | In August 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

31



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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Statement of Financial Accounting Standards No. 144,
    Accounting for the Impairment or Disposal of Long-Lived
    Assets (SFAS 144). Accordingly, the
    Companys financial statements have been presented to
    reflect Network Systems Group (NSG) as a
    discontinued operation for all periods presented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(4) | During fiscal 2001, the Company expensed in-process research and
    development costs of $94.7 million as a result of the
    Companys acquisition of Quantum HDD. Additionally, in
    connection with the acquisition of MMC in September 2001, the
    Company expensed in-process research and development costs of
    $0.5 million. The Company expensed these amounts because
    the acquired technology had not reached technological
    feasibility and had no future alternative uses.                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(5) | 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 4 of Notes to Consolidated Financial Statements.
|   
|(6) | The Company completed its impairment analysis on indefinite
    lived intangible assets as of December 25, 2004 and as a
    result recorded an impairment charge of $24.2 million
    related to acquired intangibles from the acquisition of the
    Quantum HDD business. See Note 4 of Notes to Consolidated
    Financial Statements. Additionally, during the year ended
    December 25, 2004, the Company classified a building in
    Louisville, Colorado as held for sale in accordance with the
    requirements of SFAS 144, resulting in an impairment charge
    of $7.8 million. See Note 13 of Notes to Consolidated
    Financial Statements.                                                                                                                                                                                                                                                           

32



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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 future revenue, gross profit, demand,
average selling prices, cost improvements, capital expenditures,
liquidity, depreciation and amortization charges, impacts of our
restructuring, our indemnification obligations, the results of
litigation, and development and product launch schedules. In
this report, the words anticipate,
believe, expect, intend,
may, will, should,
could, would, project,
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 section entitled Risk Factors and
elsewhere in this report.


Executive Overview






tm 13-15%


1-inch


33



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34



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##### Table of Contents



Critical Accounting Policies and Estimates








| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | revenue recognition;                                                          
|
| |  | sales returns, other sales allowances and allowance for doubtful
    accounts;
|
| |  | valuation of intangibles, long-lived assets and goodwill;                     
|
| |  | warranty;                                                                     
|
| |  | inventory valuation;                                                          
|
| |  | income taxes; and                                                             
|
| |  | restructuring liabilities, litigation and other contingencies.                



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



Revenue
Recognition.








35



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##### Table of Contents





build-to just-in




Revenue
Recognition When Right of Return Exists




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





36



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##### Table of Contents







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





| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | 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.                                                            









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



37



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##### Table of Contents







| |                                 
| | --------------------------------
| | (1) Expected future return rate:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We use proprietary statistical modeling software to help
    estimate the future failure rates by product. This statistical
    modeling software relies on historical product design/vintage
    data, field survival data and return data on the product and on
    similar products (early in the product life cycle). The Company
    has comprehensive processes in place to collect data from the
    design phase, in the factory during manufacturing and return
    data from the Companys Enterprise Resource Planning
    (ERP) system. This statistical modeling software
    provides us with an estimate of the total return rates over the
    warranty life of the product. We continue to update this
    estimate each period as we collect additional field survival and
    return data on each product. While we believe that this
    statistical analysis provides us with a reasonable estimate of
    our future return rates, the estimate can be impacted by
    unpredicted field quality issues over the life of the individual
    products. Variability in the estimate is measured in the changes
    in estimate due to changes in the annual return rate and changes
    in estimate due to expirations. In fiscal year 2005 these
    changes amounted to $3.5 million and $0.8 million,
    respectively.



| |                                                          
| | ---------------------------------------------------------
| | (2) Cost to replace the drive or make the customer whole:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | This represents an estimate of the future cost of replacing or
    making the customer whole for each drive expected to be returned
    in the future. This estimate is based on the historical cost of
    fulfilling the obligation to the customer. We continue to revise
    this cost estimate as changes occur in the repair/recovery
    process.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | We have continued to experience significant reductions to this
    cost per unit estimate due to ongoing improvements to the
    repair/recovery process. In fiscal year 2005, the change in
    estimate due to the reduction in the estimated cost of future
    repair was $44.3 million. This was primarily the result of
    increased repair yields, which resulted in increased volume of
    refurbished units available for use as replacements or for
    disposal as refurbished product. We increased our focus on the
    process for the disposal of excess refurbished units in 2005 and
    significantly increased the recovery value in 2005; although we
    will continue to focus on this process in 2006, we do not expect
    to achieve the same level of improvement in 2006. We have also
    continued to benefit from improvements in the overall pricing
    structure with third party vendors as new repair facilities in
    Mexico and Hungary are optimized.



| |                                                                    
| | -------------------------------------------------------------------
| | (3) The product installed base (number of drives in the
    field):



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | This is transactional in nature and is calculated based on
    shipment data extracted from the Companys ERP system and
    represents the current in-warranty installed base.
    The impact of changes to the in-warranty installed base is
    reflected in the charges to operations number. For example, in
    fiscal year 2005 the Company increased its net charges to
    operations by $1.8 million as compared to fiscal year 2004.
    This increase was due to increased shipments in 2005 which more
    than offset improvements in the cost of repair and expected
    annual return rate.
|
| | As new products are sold into the market, we must initially
    exercise considerable judgment in estimating the expected
    failure rates. This estimating process is based on our
    historical experience with similar products as well as design or
    assembly complexities specific to these new products.                                                                                                                                                                                                                                                                                          
|
| | As outlined above, should actual experience of product returns
    or cost of repair differ from our estimates, revisions to the
    estimated warranty liability would be required and could have a
    material effect on our future results of operations.                                                                                                                                                                                                                                                                                                                                                
|
| | From time to time, we may be subject to additional costs related
    to non-standard warranty claims from our customers. If and when
    this occurs, we generally must make further judgments 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 accrual would be recorded in the                                                                                   

38



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| |                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | determination of net income in the period in which the
    additional cost was identified. In fiscal year 2005, the Company
    recorded additional costs of $21.4 million related to
    non-standard warranty claims from customers.



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

first-in,




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

Accounting for Income
Taxes.






| |              
| | -------------
| | Restructuring





| |                                   
| | ----------------------------------
| | Litigation and Other Contingencies

Accounting for Contingencies


39



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##### Table of Contents







| |                      
| | ---------------------
| | Results of Operations



|                                                             |                                     |                          |         |       |              |   |         |              |       |   |         |       |       | 
|------------------------------------------------------------ | ----------------------------------- | ------------------------ | ------- | ----- | ------------ | - | ------- | ------------ | ----- | - | ------- | ----- | ----- | 
|                                                             |                                     | Years Ended              |        
|                                                             |                                     |                          |        
|                                                             |                                     | December 27,             |         |       | December 25, |   |         | December 31, |      
|                                                             |                                     | 2003                     |         |       | 2004         |   |         | 2005         |      
|                                                             |                                     |                          |         |       |              |   |         |              |      
|                                                             |                                     | (In millions)            |        
|Consolidated Statements of Operations Data:                  |                                     |                          |         |       |              |   |         |              |       |   |         |      
|Net revenues                                                 |                                     | $                        | 4,086.4 |       |              | $ | 3,796.3 |              |       | $ | 3,890.2 |      
|Cost of revenues                                             |                                     |                          | 3,390.6 |       |              |   | 3,429.1 |              |       |   | 3,459.3 |      
|                                                             |                                     |                          |         |       |              |   |         |              |      
|                                                             | Gross profit                        |                          |         | 695.8 |              |   |         | 367.2        |       |   |         | 430.9 |      
|                                                             |                                     |                          |         |       |              |   |         |              |      
|Operating expenses:                                          |                                     |                          |         |       |              |   |         |              |       |   |         |      
|                                                             | Research and development            |                          |         | 348.3 |              |   |         | 317.6        |       |   |         | 293.5 |      
|                                                             | Selling, general and administrative |                          |         | 134.2 |              |   |         | 130.4        |       |   |         | 144.5 |      
|                                                             | Amortization of intangible assets   |                          |         | 85.3  |              |   |         | 36.0         |       |   |         | 0.9   |      
|                                                             | Restructuring charge                |                          |         |      |              |   |         | 33.2         |       |   |         | 18.6  |      
|                                                             | Impairment charge                   |                          |         |      |              |   |         | 32.0         |       |   |         |      |      
|                                                             |                                     |                          |         |       |              |   |         |              |      
|                                                             |                                     | Total operating expenses |         |       | 567.8        |   |         |              | 549.2 |   |         |       | 457.5 | 
|                                                             |                                     |                          |         |       |              |   |         |              |      
|Income (loss) from operations                                |                                     |                          | 128.0   |       |              |   | (182.0  | )            |       |   | (26.6   | )    
|Interest expense                                             |                                     |                          | (30.2   | )     |              |   | (31.8   | )            |       |   | (34.4   | )    
|Interest income                                              |                                     |                          | 5.2     |       |              |   | 5.2     |              |       |   | 11.9    |      
|Income from litigation                                       |                                     |                          |        |       |              |   | 24.8    |              |       |   |        |      
|Other gain (loss)                                            |                                     |                          | (0.6    | )     |              |   | 0.1     |              |       |   | 7.9     |      
|                                                             |                                     |                          |         |       |              |   |         |              |      
|Income (loss) from continuing operations before income taxes |                                     |                          | 102.4   |       |              |   | (183.7  | )            |       |   | (41.2   | )    
|Provision for (benefit from) income taxes                    |                                     |                          | 3.5     |       |              |   | (0.3    | )            |       |   | 2.1     |      
|                                                             |                                     |                          |         |       |              |   |         |              |      
|Income (loss) from continuing operations                     |                                     |                          | 98.9    |       |              |   | (183.4  | )            |       |   | (43.3   | )    
|Income from discontinued operations                          |                                     |                          | 2.2     |       |              |   |        |              |       |   |        |      
|                                                             |                                     |                          |         |       |              |   |         |              |      
|Net income (loss)                                            |                                     | $                        | 101.1   |       |              | $ | (183.4  | )            |       | $ | (43.3   | )    
|                                                             |                                     |                          |         |       |              |   |         |              |      

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##### Table of Contents



|                                                             |                                     |                          |       |      |              |  |       |              |      |  |       |      |      | 
|------------------------------------------------------------ | ----------------------------------- | ------------------------ | ----- | ---- | ------------ |  | ----- | ------------ | ---- |  | ----- | ---- | ---- | 
|                                                             |                                     | December 27,             |       |      | December 25, |  |       | December 31, |     
|                                                             |                                     | 2003                     |       |      | 2004         |  |       | 2005         |     
|                                                             |                                     |                          |       |      |              |  |       |              |     
|As a Percentage of Revenue:                                  |                                     |                          |       |      |              |  |       |              |      |  |       |     
|Net revenues                                                 |                                     |                          | 100.0 | %    |              |  | 100.0 | %            |      |  | 100.0 | %   
|Cost of revenues                                             |                                     |                          | 83.0  |      |              |  | 90.3  |              |      |  | 88.9  |     
|                                                             |                                     |                          |       |      |              |  |       |              |     
|                                                             | Gross profit                        |                          |       | 17.0 |              |  |       | 9.7          |      |  |       | 11.1 |     
|                                                             |                                     |                          |       |      |              |  |       |              |     
|Operating expenses:                                          |                                     |                          |       |      |              |  |       |              |      |  |       |     
|                                                             | Research and development            |                          |       | 8.5  |              |  |       | 8.5          |      |  |       | 7.6  |     
|                                                             | Selling, general and administrative |                          |       | 3.3  |              |  |       | 3.4          |      |  |       | 3.7  |     
|                                                             | Amortization of intangible assets   |                          |       | 2.1  |              |  |       | 0.9          |      |  |       | 0.0  |     
|                                                             | Restructuring charge                |                          |       | 0.0  |              |  |       | 0.9          |      |  |       | 0.5  |     
|                                                             | Impairment charge                   |                          |       | 0.0  |              |  |       | 0.8          |      |  |       | 0.0  |     
|                                                             |                                     |                          |       |      |              |  |       |              |     
|                                                             |                                     | Total operating expenses |       |      | 13.9         |  |       |              | 14.5 |  |       |      | 11.8 | 
|                                                             |                                     |                          |       |      |              |  |       |              |     
|Income (loss) from operations                                |                                     |                          | 3.1   |      |              |  | (4.8  | )            |      |  | (0.7  | )   
|Interest expense                                             |                                     |                          | (0.7  | )    |              |  | (0.8  | )            |      |  | (0.9  | )   
|Interest income                                              |                                     |                          | 0.1   |      |              |  | 0.1   |              |      |  | 0.3   |     
|Income from litigation                                       |                                     |                          | 0.0   |      |              |  | 0.7   |              |      |  | 0.0   |     
|Other gain (loss)                                            |                                     |                          | 0.0   |      |              |  | 0.0   |              |      |  | 0.2   |     
|                                                             |                                     |                          |       |      |              |  |       |              |     
|Income (loss) from continuing operations before income taxes |                                     |                          | 2.5   |      |              |  | (4.8  | )            |      |  | (1.1  | )   
|Provision for (benefit from) income taxes                    |                                     |                          | 0.0   |      |              |  | 0.0   |              |      |  | 0.1   |     
|                                                             |                                     |                          |       |      |              |  |       |              |     
|Income (loss) from continuing operations                     |                                     |                          | 2.5   |      |              |  | (4.8  | )            |      |  | (1.1  | )   
|Income from discontinued operations                          |                                     |                          | 0.0   |      |              |  | 0.0   |              |      |  | 0.0   |     
|                                                             |                                     |                          |       |      |              |  |       |              |     
|Net income (loss)                                            |                                     |                          | 2.5   | %    |              |  | (4.8  | )%           |      |  | (1.1  | )%  
|                                                             |                                     |                          |       |      |              |  |       |              |     



| |                                                
| | -----------------------------------------------
| | Fiscal Year 2005 Compared With Fiscal Year 2004

Net Revenues.








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Net Revenues by Geography


|                                 |  |                     |       |   |              |  |       |        |  |  |      |   
|-------------------------------- |  | ------------------- | ----- | - | ------------ |  | ----- | ------ |  |  | ---- | --
|                                 |  | Twelve Months Ended |      
|                                 |  |                     |      
|                                 |  | December 31,        |       |   | December 25, |  |       |       
|                                 |  | 2005                |       |   | 2004         |  |       | Change | 
|                                 |  |                     |       |   |              |  |       |        | 
|As a Percentage of Net Revenues: |  |                     |       |   |              |  |       |        |  |  |      |   
|United States and Canada         |  |                     | 32.0  | % |              |  | 32.1  | %      |  |  | (0.1 | )%
|Europe, Middle East and Africa   |  |                     | 35.7  | % |              |  | 36.2  | %      |  |  | (0.5 | )%
|Asia Pacific and Japan           |  |                     | 30.3  | % |              |  | 29.9  | %      |  |  | 0.4  | % 
|Other                            |  |                     | 2.0   | % |              |  | 1.8   | %      |  |  | 0.2  | % 
|Total                            |  |                     | 100.0 | % |              |  | 100.0 | %      |  |  |      |   

|                                       |  |                |      | 
|-------------------------------------- |  | -------------- | ---- | 
|                                       |  | Change Between |     
|                                       |  | 2005 and 2004  |     
|                                       |  |                |     
|Percentage Change in Absolute Dollars: |  |                |      | 
|United States and Canada               |  |                | 2.3% | 
|Europe, Middle East and Africa         |  |                | 1.0% | 
|Asia Pacific and Japan                 |  |                | 3.6% | 









Cost of Revenues; Gross Profit.






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| |                   
| | ------------------
| | Operating Expenses

Research and Development. (R&D).


Selling, General and Administrative
(SG&A).


Costs related to Pending Seagate Acquisition.


Restructuring and Impairment Charges.






reduction-in


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Amortization of Goodwill and Other Intangible Assets.






Interest Expense.


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Interest Income.


Other Gain (Loss).


Provision for (Benefit from) Income Taxes.








| |                                                
| | -----------------------------------------------
| | Fiscal Year 2004 Compared With Fiscal Year 2003

Net Revenues.


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Cost of Revenues; Gross Profit.




| |                   
| | ------------------
| | Operating Expenses

Research and Development. (R&D).


Selling, General and Administrative
(SG&A).


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Restructuring and Impairment Charges.








Stock-based Compensation.




| |   |                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                                                                                           



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|                                       |  |               |     |  |              |   |     | 
|-------------------------------------- |  | ------------- | --- |  | ------------ | - | --- | 
|                                       |  | Years Ended   |    
|                                       |  |               |    
|                                       |  | December 27,  |     |  | December 25, |  
|                                       |  | 2003          |     |  | 2004         |  
|                                       |  |               |     |  |              |  
|                                       |  | (In millions) |    
|Research and development               |  | $             | 0.7 |  |              | $ | 0.2 | 
|Selling, general and administrative    |  |               | 0.2 |  |              |   |    | 
|                                       |  |               |     |  |              |  
|Total stock-based compensation expense |  | $             | 0.9 |  |              | $ | 0.2 | 
|                                       |  |               |     |  |              |  

Amortization of Goodwill and Other Intangible Assets.








Interest Expense.




Interest Income.


Income from Litigation Settlement.


Other Gain (Loss).


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Provision for (Benefit from) Income Taxes.






Loss from Discontinued Operations. tm Accounting for the Impairment or Disposal
of Long-Lived Assets




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



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|                                                    |  |                     |       |   |              |   |        |  
|--------------------------------------------------- |  | ------------------- | ----- | - | ------------ | - | ------ | -
|                                                    |  | Twelve Months Ended |      
|                                                    |  |                     |      
|                                                    |  | December 31,        |       |   | December 25, |  
|                                                    |  | 2005                |       |   | 2004         |  
|                                                    |  |                     |       |   |              |  
|                                                    |  | (In millions)       |      
|Net cash provided by (used in) operating activities |  | $                   | 54.6  |   |              | $ | (5.2   | )
|Net cash used in investing activities               |  | $                   | (66.1 | ) |              | $ | (199.0 | )
|Net cash provided by financing activities           |  | $                   | 130.9 |   |              | $ | 51.4   |  
|                                                    |  |                     |       |   |              |  
|Net change in cash and cash equivalents             |  | $                   | 119.4 |   |              | $ | (152.8 | )













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| |                        
| | -----------------------
| | Contractual Obligations



|                          |                   |       |           |           |        |   |         |           |  |   |                 |        |  |               |         |        |  |   |         |        | 
|------------------------- | ----------------- | ----- | --------- | --------- | ------ | - | ------- | --------- |  | - | --------------- | ------ |  | ------------- | ------- | ------ |  | - | ------- | ------ | 
|                          |                   |       |           | Less Than |        |   |         |           |  |   | More Than       |       
|                          |                   | Total |           |           | 1 Year |   |         | 1-3 Years |  |   | 3-5 Years(1)(2) |        |  | 5 Years(1)(2) |        
|                          |                   |       |           |           |        |   |         |           |  |   |                 |        |  |               |        
|Long-term Debt            |                   | $     | 580,760   |           |        | $ | 5,000   |           |  | $ | 10,000          |        |  | $             | 205,729 |        |  | $ | 360,031 |       
|                          | Interest Payments |       |           | 133,921   |        |   |         | 25,229    |  |   |                 | 49,592 |  |               |         | 38,933 |  |   |         | 20,167 | 
|Capital Lease Obligations |                   |       | 881       |           |        |   | 868     |           |  |   | 10              |        |  |               | 3       |        |  |   |        |       
|                          | Interest Payments |       |           | 14        |        |   |         | 13        |  |   |                 | 1      |  |               |         |       |  |   |         |       | 
|Operating Leases(3)       |                   |       | 269,894   |           |        |   | 41,805  |           |  |   | 78,088          |        |  |               | 68,907  |        |  |   | 81,094  |       
|Purchase Obligations(4)   |                   |       | 831,904   |           |        |   | 828,611 |           |  |   | 3,293           |        |  |               |        |        |  |   |        |       
|                          |                   |       |           |           |        |   |         |           |  |   |                 |        |  |               |        
|Total                     |                   | $     | 1,817,374 |           |        | $ | 901,526 |           |  | $ | 140,984         |        |  | $             | 313,572 |        |  | $ | 461,292 |       
|                          |                   |       |           |           |        |   |         |           |  |   |                 |        |  |               |        






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Does not include $73 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 bear interest
    at LIBOR plus 50 basis points (bps) to Libor
    plus 100 bps.                                                                                                                                                                                                                                                                          
|   
|(2) | Does not include $17 million which we may be obligated to
    contribute to our China subsidiary to allow drawdown under the
    facilities described under footnote (1).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(3) | Includes future minimum annual rental commitments, including
    amounts accrued as restructuring liabilities as of
    December 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(4) | 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.



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Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities.




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| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

Share-Based Payment Accounting for Stock
Compensation Statement of Cash Flows,


Accounting for Conditional Asset Retirement
Obligations  an interpretation of FASB Statement
No. 143 Accounting for
Asset Retirement Obligations,


Accounting Changes and Error Corrections Accounting Changes Reporting Accounting Changes
in Interim Financial Statements  An Amendment of
APB Opinion No. 28.


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143-1, Accounting for Electronic Equipment Waste
Obligations 143-1) 143-1 143-1


Accounting for Purchases and Sales of
Inventory with the Same Counterparty 04-13). 04-13 Accounting for Nonmonetary Transactions Exchanges of Nonmonetary Assets, an
Amendment of APB 29


13-1, Accounting for Rental Costs Incurred During a
Construction Period 13-1) 13-1


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SUPPLEMENTAL FINANCIAL INFORMATION


Unaudited Quarterly Results of Operations


|                                      |  |                                                    |             |  |            |   |             |               |  |   |               |   |  |          |             |   |         |   |             |            |  |   |              |  |  |   |             |   |  |   |             |  
|------------------------------------- |  | -------------------------------------------------- | ----------- |  | ---------- | - | ----------- | ------------- |  | - | ------------- | - |  | -------- | ----------- | - | ------- | - | ----------- | ---------- |  | - | ------------ |  |  | - | ----------- | - |  | - | ----------- | -
|                                      |  | Three Months Ended                                 |            
|                                      |  |                                                    |            
|                                      |  | March 27,                                          |             |  | June 26,   |   |             | September 25, |  |   | December 25,  |   |  | April 2, |             |   | July 2, |   |             | October 1, |  |   | December 31, | 
|                                      |  | 2004(1)                                            |             |  | 2004(1)(2) |   |             | 2004(1)       |  |   | 2004(1)(3)(4) |   |  | 2005(1)  |             |   | 2005    |   |             | 2005       |  |   | 2005         | 
|                                      |  |                                                    |             |  |            |   |             |               |  |   |               |   |  |          |             |   |         |   |             |            |  |   |              | 
|                                      |  | (In thousands, except share and per share amounts) |            
|Net revenues                          |  | $                                                  | 1,019,688   |  |            | $ | 818,254     |               |  | $ | 927,204       |   |  | $        | 1,031,182   |   |         | $ | 1,069,601   |            |  | $ | 924,729      |  |  | $ | 926,485     |   |  | $ | 969,422     |  
|Gross profit                          |  |                                                    | 153,760     |  |            |   | 72,483      |               |  |   | 58,221        |   |  |          | 82,703      |   |         |   | 116,404     |            |  |   | 121,793      |  |  |   | 102,877     |   |  |   | 89,839      |  
|Net income (loss)                     |  | $                                                  | 8,730       |  |            | $ | (26,451     | )             |  | $ | (95,146       | ) |  | $        | (70,572     | ) |         | $ | (20,161     | )          |  | $ | 9,444        |  |  | $ | (16,950     | ) |  | $ | (15,665     | )
|                                      |  |                                                    |             |  |            |   |             |               |  |   |               |   |  |          |             |   |         |   |             |            |  |   |              | 
|Net income (loss) per share:          |  |                                                    |             |  |            |   |             |               |  |   |               |   |  |          |             |   |         |   |             |            |  |   |              |  |  |   |             |   |  |   |             |  
|Basic                                 |  | $                                                  | 0.04        |  |            | $ | (0.11       | )             |  | $ | (0.38         | ) |  | $        | (0.28       | ) |         | $ | (0.08       | )          |  | $ | 0.04         |  |  | $ | (0.07       | ) |  | $ | (0.06       | )
|Diluted                               |  | $                                                  | 0.03        |  |            | $ | (0.11       | )             |  | $ | (0.38         | ) |  | $        | (0.28       | ) |         | $ | (0.08       | )          |  | $ | 0.04         |  |  | $ | (0.07       | ) |  | $ | (0.06       | )
|Shares used in per share calculation: |  |                                                    |             |  |            |   |             |               |  |   |               |   |  |          |             |   |         |   |             |            |  |   |              |  |  |   |             |   |  |   |             |  
|Basic                                 |  |                                                    | 246,590,255 |  |            |   | 247,367,176 |               |  |   | 248,728,113   |   |  |          | 250,026,784 |   |         |   | 251,595,181 |            |  |   | 253,310,023  |  |  |   | 253,668,613 |   |  |   | 254,114,823 |  
|Diluted                               |  |                                                    | 256,960,154 |  |            |   | 247,367,176 |               |  |   | 248,728,113   |   |  |          | 250,026,784 |   |         |   | 251,595,181 |            |  |   | 255,543,219  |  |  |   | 253,668,613 |   |  |   | 254,114,823 |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Certain items previously reported in specific financial
    statement captions have been reclassified to conform to the year
    ended December 31, 2005 presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(2) | On April 28, 2004, in connection with our suit against
    Koninklijke Philips Electronics N.V. and several other
    Philips-related companies in the Superior Court of California,
    County of Santa Clara whereby the Company alleged that an
    integrated circuit chip supplied by Philips was defective and
    caused significant levels of failure of certain Quantum legacy
    products acquired as part of our acquisition of the Quantum HDD
    business, we entered into a settlement agreement with the other
    parties pursuant to which the parties dismissed the lawsuit with
    prejudice and the Company received a cash payment of
    $24.8 million, which was recorded as litigation settlement
    income in fiscal year 2004.
|   
|(3) | The Company completed its impairment analysis of indefinite
    lived intangible assets as of December 25, 2004 and as a
    result recorded an impairment charge of $24.2 million
    related to acquired intangibles from the acquisition of the
    Quantum HDD business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(4) | During the year ended December 25, 2004, the Company
    classified a building owned by Maxtor in Louisville, Colorado as
    held for sale in accordance with the requirements of
    SFAS 144, resulting in an impairment charge of
    $7.8 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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

Derivatives




Investments






|                      |  |          |        |    |          |   |        |              |  |   |        |    |  |         |        |  |          |   |        |          |  |   |        |   |  |   |        |  
|--------------------- |  | -------- | ------ | -- | -------- | - | ------ | ------------ |  | - | ------ | -- |  | ------- | ------ |  | -------- | - | ------ | -------- |  | - | ------ | - |  | - | ------ | -
|                      |  |          |        |    |          |   |        | Fair Value   |  |   |        |    |  |         |       
|                      |  |          |        |    |          |   |        | as of        |  |   |        |    |  |         |       
|                      |  |          |        |    |          |   |        | December 31, |  |   |        |    |  |         |       
|                      |  | +150 bps |        |    | +100 bps |   |        | +50 bps      |  |   | 2005   |    |  | -50 bps |        |  | -100 bps |   |        | -150 bps | 
|                      |  |          |        |    |          |   |        |              |  |   |        |    |  |         |        |  |          |   |        |          | 
|                      |  | ($000)   |       
|Financial Instruments |  | $        | 67,350 |    |          | $ | 67,475 |              |  | $ | 67,597 |    |  | $       | 67,722 |  |          | $ | 67,846 |          |  | $ | 67,975 |   |  | $ | 68,100 |  
|% Change              |  |          | (0.55  | )% |          |   | (0.36  | )%           |  |   | (0.18  | )% |  |         |        |  |          |   | 0.18   | %        |  |   | 0.37   | % |  |   | 0.56   | %

|                      |  |          |         |    |          |   |         |              |  |   |         |    |  |         |         |  |          |   |         |          |  |   |         |   |  |   |         |  
|--------------------- |  | -------- | ------- | -- | -------- | - | ------- | ------------ |  | - | ------- | -- |  | ------- | ------- |  | -------- | - | ------- | -------- |  | - | ------- | - |  | - | ------- | -
|                      |  |          |         |    |          |   |         | Fair Value   |  |   |         |    |  |         |        
|                      |  |          |         |    |          |   |         | as of        |  |   |         |    |  |         |        
|                      |  |          |         |    |          |   |         | December 25, |  |   |         |    |  |         |        
|                      |  | +150 bps |         |    | +100 bps |   |         | +50 bps      |  |   | 2004    |    |  | -50 bps |         |  | -100 bps |   |         | -150 bps | 
|                      |  |          |         |    |          |   |         |              |  |   |         |    |  |         |         |  |          |   |         |          | 
|                      |  | ($000)   |        
|Financial Instruments |  | $        | 102,806 |    |          | $ | 103,192 |              |  | $ | 103,578 |    |  | $       | 103,969 |  |          | $ | 104,359 |          |  | $ | 104,761 |   |  | $ | 105,158 |  
|% Change              |  |          | (1.12   | )% |          |   | (0.75   | )%           |  |   | (0.38   | )% |  |         |         |  |          |   | 0.38    | %        |  |   | 0.76    | % |  |   | 1.14    | %



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|                             |  |                                |       |       |              |   |       |                                |  |   |       |    |  |   |       |  |  |   |       |   |  |   |       |   |  |   |       |  
|---------------------------- |  | ------------------------------ | ----- | ----- | ------------ | - | ----- | ------------------------------ |  | - | ----- | -- |  | - | ----- |  |  | - | ----- | - |  | - | ----- | - |  | - | ----- | -
|                             |  |                                |       |       |              |   |       | Fair Value                     |  |   |       |    |  |   |      
|                             |  |                                |       | as of |              |   |      
|                             |  | Valuation of Security Given X% |       |       | December 31, |   |       | Valuation of Security Given X% | 
|                             |  | Decrease in the Security Price |       |       | 2005         |   |       | Increase in the Security Price | 
|                             |  |                                |       |       |              |   |       |                                | 
|                             |  | ($000)                         |      
|Corporate equity investments |  | $                              | 1,100 |       |              | $ | 1,650 |                                |  | $ | 1,870 |    |  | $ | 2,200 |  |  | $ | 2,530 |   |  | $ | 2,750 |   |  | $ | 3,300 |  
|% Change                     |  |                                | (50   | )%    |              |   | (25   | )%                             |  |   | (15   | )% |  |   |       |  |  |   | 15    | % |  |   | 25    | % |  |   | 50    | %

|                             |  |                                |       |       |              |   |       |                                |  |   |       |    |  |   |        |  |  |   |        |   |  |   |        |   |  |   |        |  
|---------------------------- |  | ------------------------------ | ----- | ----- | ------------ | - | ----- | ------------------------------ |  | - | ----- | -- |  | - | ------ |  |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                             |  |                                |       |       |              |   |       | Fair Value                     |  |   |       |    |  |   |       
|                             |  |                                |       | as of |              |   |      
|                             |  | Valuation of Security Given X% |       |       | December 25, |   |       | Valuation of Security Given X% | 
|                             |  | Decrease in the Security Price |       |       | 2004         |   |       | Increase in the Security Price | 
|                             |  |                                |       |       |              |   |       |                                | 
|                             |  |                                |       |       |              |   |       |                                |  |  
|                             |  | ($000)                         |      
|Corporate equity investments |  | $                              | 5,021 |       |              | $ | 7,532 |                                |  | $ | 8,536 |    |  | $ | 10,042 |  |  | $ | 11,548 |   |  | $ | 12,553 |   |  | $ | 15,063 |  
|% 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 25, 2004
    and December 31, 2005                                                               |  |      | 60  | 
|Consolidated Statements of Operations  Fiscal years
    ended December 27, 2003, December 25, 2004 and
    December 31, 2005           |  |      | 61  | 
|Consolidated Statements of Stockholders Equity 
    Fiscal years ended December 27, 2003, December 25,
    2004 and December 31, 2005 |  |      | 62  | 
|Consolidated Statements of Cash Flows  Fiscal years
    ended December 27, 2003, December 25, 2004 and
    December 31, 2005           |  |      | 63  | 
|Notes to Consolidated Financial Statements                                                                                              |  |      | 64  | 
|Report of Independent Registered Public Accounting Firm                                                                                 |  |      | 100 | 

Financial Statement Schedule:




|                                              |  |    
|--------------------------------------------- |  | ---
|Schedule II Valuation and Qualifying Accounts |  | 107



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MAXTOR CORPORATION







CONSOLIDATED BALANCE SHEETS


|                                                                                                                           |                                                                                                                                                                                                                                                       |                                            |            |         |              |  |            |         |           | 
|-------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | ------- | ------------ |  | ---------- | ------- | --------- | 
|                                                                                                                           |                                                                                                                                                                                                                                                       | December 25,                               |            |         | December 31, | 
|                                                                                                                           |                                                                                                                                                                                                                                                       | 2004                                       |            |         | 2005         | 
|                                                                                                                           |                                                                                                                                                                                                                                                       |                                            |            |         |              | 
|                                                                                                                           |                                                                                                                                                                                                                                                       | (In thousands, except share and            |           
|                                                                                                                           |                                                                                                                                                                                                                                                       | per share amounts)                         |           
|ASSETS                                                                                                                    
|Current assets:                                                                                                            |                                                                                                                                                                                                                                                       |                                            |            |         |              |  |            |        
|                                                                                                                           | Cash and cash equivalents                                                                                                                                                                                                                             |                                            | $          | 378,065 |              |  | $          | 497,509 |          
|                                                                                                                           | Marketable securities                                                                                                                                                                                                                                 |                                            |            | 103,969 |              |  |            | 67,722  |          
|                                                                                                                           | Restricted cash                                                                                                                                                                                                                                       |                                            |            | 24,561  |              |  |            | 16,055  |          
|                                                                                                                           | Accounts receivable, net of allowance of doubtful accounts of
    $8,228 at December 25, 2004 and $12,961 at
    December 31, 2005                                                                                                                    |                                            |            | 425,528 |              |  |            | 396,077 |          
|                                                                                                                           | Other receivables                                                                                                                                                                                                                                     |                                            |            | 40,838  |              |  |            | 21,904  |          
|                                                                                                                           | Inventories                                                                                                                                                                                                                                           |                                            |            | 229,410 |              |  |            | 240,462 |          
|                                                                                                                           | Prepaid expenses and other                                                                                                                                                                                                                            |                                            |            | 36,336  |              |  |            | 89,813  |          
|                                                                                                                           |                                                                                                                                                                                                                                                       |                                            |            |         |              | 
|                                                                                                                           |                                                                                                                                                                                                                                                       | Total current assets                       |            |         | 1,238,707    |  |            |         | 1,329,542 | 
|Property, plant and equipment, net                                                                                         |                                                                                                                                                                                                                                                       |                                            | 347,934    |         |              |  | 335,336    |        
|Goodwill                                                                                                                   |                                                                                                                                                                                                                                                       |                                            | 489,482    |         |              |  | 489,482    |        
|Other intangible assets, net                                                                                               |                                                                                                                                                                                                                                                       |                                            | 1,450      |         |              |  | 580        |        
|Other assets                                                                                                               |                                                                                                                                                                                                                                                       |                                            | 30,168     |         |              |  | 22,832     |        
|                                                                                                                           |                                                                                                                                                                                                                                                       |                                            |            |         |              | 
|                                                                                                                           |                                                                                                                                                                                                                                                       | Total assets                               |            | $       | 2,107,741    |  |            | $       | 2,177,772 | 
|                                                                                                                           |                                                                                                                                                                                                                                                       |                                            |            |         |              | 
|                                                                                                                          
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                      
|Current liabilities:                                                                                                       |                                                                                                                                                                                                                                                       |                                            |            |         |              |  |            |        
|                                                                                                                           | Short-term borrowings, including current portion of long-term
    debt                                                                                                                                                                                |                                            | $          | 82,561  |              |  | $          | 5,868   |          
|                                                                                                                           | Accounts payable                                                                                                                                                                                                                                      |                                            |            | 674,947 |              |  |            | 677,288 |          
|                                                                                                                           | Accrued and other liabilities                                                                                                                                                                                                                         |                                            |            | 324,369 |              |  |            | 300,758 |          
|                                                                                                                           |                                                                                                                                                                                                                                                       |                                            |            |         |              | 
|                                                                                                                           |                                                                                                                                                                                                                                                       | Total current liabilities                  |            |         | 1,081,877    |  |            |         | 983,914   | 
|Long-term debt, net of current portion                                                                                     |                                                                                                                                                                                                                                                       |                                            | 382,570    |         |              |  | 575,773    |        
|Other liabilities                                                                                                          |                                                                                                                                                                                                                                                       |                                            | 66,695     |         |              |  | 65,113     |        
|                                                                                                                           |                                                                                                                                                                                                                                                       |                                            |            |         |              | 
|                                                                                                                           |                                                                                                                                                                                                                                                       | Total liabilities                          |            |         | 1,531,142    |  |            |         | 1,624,800 | 
|Commitments and contingencies (Note 9)                                                                                     |                                                                                                                                                                                                                                                       |                                            |            |         |              |  |            |        
|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; 263,413,578 shares issued and
    250,167,840 shares outstanding at December 25, 2004
    and 269,542,593 shares issued and 256,293,975 shares
    outstanding at December 31, 2005 |                                            |            | 2,634   |              |  |            | 2,695   |          
|Additional paid-in capital                                                                                                 |                                                                                                                                                                                                                                                       |                                            | 2,429,551  |         |              |  | 2,451,946  |        
|Deferred stock-based compensation                                                                                          |                                                                                                                                                                                                                                                       |                                            |           |         |              |  |           |        
|Accumulated deficit                                                                                                        |                                                                                                                                                                                                                                                       |                                            | (1,795,183 | )       |              |  | (1,838,515 | )      
|Cumulative other comprehensive income                                                                                      |                                                                                                                                                                                                                                                       |                                            | 4,536      |         |              |  | 1,795      |        
|Treasury stock (13,245,738 and 13,248,618 shares at
    December 25, 2004 and December 31, 2005, respectively)
    at cost |                                                                                                                                                                                                                                                       |                                            | (64,939    | )       |              |  | (64,949    | )      
|                                                                                                                           |                                                                                                                                                                                                                                                       |                                            |            |         |              | 
|                                                                                                                           |                                                                                                                                                                                                                                                       | Total stockholders equity                 |            |         | 576,599      |  |            |         | 552,972   | 
|                                                                                                                           |                                                                                                                                                                                                                                                       |                                            |            |         |              | 
|                                                                                                                           |                                                                                                                                                                                                                                                       | Total liabilities and stockholders equity |            | $       | 2,107,741    |  |            | $       | 2,177,772 | 
|                                                                                                                           |                                                                                                                                                                                                                                                       |                                            |            |         |              | 



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MAXTOR CORPORATION







CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                             |                                     |                                                    |           |             |              |   |           |              |         |   |           |             |         | 
|------------------------------------------------------------ | ----------------------------------- | -------------------------------------------------- | --------- | ----------- | ------------ | - | --------- | ------------ | ------- | - | --------- | ----------- | ------- | 
|                                                             |                                     | Years Ended                                        |          
|                                                             |                                     |                                                    |          
|                                                             |                                     | December 27,                                       |           |             | December 25, |   |           | December 31, |        
|                                                             |                                     | 2003                                               |           |             | 2004         |   |           | 2005         |        
|                                                             |                                     |                                                    |           |             |              |   |           |              |        
|                                                             |                                     | (In thousands, except share and per share amounts) |          
|Net revenues                                                 |                                     | $                                                  | 4,086,443 |             |              | $ | 3,796,328 |              |         | $ | 3,890,237 |            
|Cost of revenues                                             |                                     |                                                    | 3,390,556 |             |              |   | 3,429,161 |              |         |   | 3,459,324 |            
|                                                             |                                     |                                                    |           |             |              |   |           |              |        
|                                                             | Gross profit                        |                                                    |           | 695,887     |              |   |           | 367,167      |         |   |           | 430,913     |        
|Operating expenses:                                          |                                     |                                                    |           |             |              |   |           |              |         |   |           |            
|                                                             | Research and development            |                                                    |           | 348,421     |              |   |           | 317,573      |         |   |           | 293,559     |        
|                                                             | Selling, general and administrative |                                                    |           | 134,185     |              |   |           | 130,456      |         |   |           | 144,480     |        
|                                                             | Amortization of intangible assets   |                                                    |           | 85,279      |              |   |           | 35,994       |         |   |           | 870         |        
|                                                             | Restructuring charges               |                                                    |           |            |              |   |           | 33,197       |         |   |           | 18,625      |        
|                                                             | Impairment charges                  |                                                    |           |            |              |   |           | 31,951       |         |   |           |            |        
|                                                             |                                     |                                                    |           |             |              |   |           |              |        
|                                                             |                                     | Total operating expenses                           |           |             | 567,885      |   |           |              | 549,171 |   |           |             | 457,534 | 
|                                                             |                                     |                                                    |           |             |              |   |           |              |        
|Income (loss) from operations                                |                                     |                                                    | 128,002   |             |              |   | (182,004  | )            |         |   | (26,621   | )          
|Interest expense                                             |                                     |                                                    | (30,144   | )           |              |   | (31,782   | )            |         |   | (34,384   | )          
|Interest income                                              |                                     |                                                    | 5,160     |             |              |   | 5,255     |              |         |   | 11,928    |            
|Income from litigation                                       |                                     |                                                    |          |             |              |   | 24,750    |              |         |   |          |            
|Other gain (loss)                                            |                                     |                                                    | (613      | )           |              |   | 81        |              |         |   | 7,898     |            
|                                                             |                                     |                                                    |           |             |              |   |           |              |        
|Income (loss) from continuing operations before income taxes |                                     |                                                    | 102,405   |             |              |   | (183,700  | )            |         |   | (41,179   | )          
|Provision for (benefit from) income taxes                    |                                     |                                                    | 3,504     |             |              |   | (261      | )            |         |   | 2,153     |            
|                                                             |                                     |                                                    |           |             |              |   |           |              |        
|Income (loss) from continuing operations                     |                                     |                                                    | 98,901    |             |              |   | (183,439  | )            |         |   | (43,332   | )          
|Income from discontinued operations                          |                                     |                                                    | 2,211     |             |              |   |          |              |         |   |          |            
|                                                             |                                     |                                                    |           |             |              |   |           |              |        
|Net income (loss)                                            |                                     | $                                                  | 101,112   |             |              | $ | (183,439  | )            |         | $ | (43,332   | )          
|                                                             |                                     |                                                    |           |             |              |   |           |              |        
|Net income (loss) per share  basic                          |                                     |                                                    |           |             |              |   |           |              |         |   |           |            
|Continuing operations                                        |                                     | $                                                  | 0.41      |             |              | $ | (0.74     | )            |         | $ | (0.17     | )          
|Discontinued operations                                      |                                     | $                                                  | 0.01      |             |              | $ |          |              |         | $ |          |            
|                                                             |                                     |                                                    |           |             |              |   |           |              |        
|Total                                                        |                                     | $                                                  | 0.42      |             |              | $ | (0.74     | )            |         | $ | (0.17     | )          
|                                                             |                                     |                                                    |           |             |              |   |           |              |        
|Net income (loss) per share  diluted                        |                                     |                                                    |           |             |              |   |           |              |         |   |           |            
|Continuing operations                                        |                                     | $                                                  | 0.39      |             |              | $ | (0.74     | )            |         | $ | (0.17     | )          
|Discontinued operations                                      |                                     | $                                                  | 0.01      |             |              | $ |          |              |         | $ |          |            
|                                                             |                                     |                                                    |           |             |              |   |           |              |        
|Total                                                        |                                     | $                                                  | 0.40      |             |              | $ | (0.74     | )            |         | $ | (0.17     | )          
|                                                             |                                     |                                                    |           |             |              |   |           |              |        
|Shares used in per share calculation                         |                                     |                                                    |           |             |              |   |           |              |         |   |           |            
|                                                             |  basic                             |                                                    |           | 243,022,694 |              |   |           | 247,671,870  |         |   |           | 253,177,580 |        
|                                                             |  diluted                           |                                                    |           | 251,135,683 |              |   |           | 247,671,870  |         |   |           | 253,177,580 |        



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MAXTOR CORPORATION







CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                                                                            |                      |                                      |             |  |            |   |       |             |  |            |              |   |       |               |        |   |          |       |            |               |               |   |        |   |  |        |         |   |  |   |          |   |  |   |          |          |  
|--------------------------------------------------------------------------- | -------------------- | ------------------------------------ | ----------- |  | ---------- | - | ----- | ----------- |  | ---------- | ------------ | - | ----- | ------------- | ------ | - | -------- | ----- | ---------- | ------------- | ------------- | - | ------ | - |  | ------ | ------- | - |  | - | -------- | - |  | - | -------- | -------- | -
|                                                                            |                      |                                      |             |  |            |   |       |             |  | 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) |        
|                                                                            |                      |                                      |             |  |            |   |       |             |  |            |              |   |       |               |        |   |          |       |            |               |               |   |        |   |  |        |        
|                                                                            |                      | (In thousands, except share amounts) |            
|Balance, December 28, 2002                                                  |                      |                                      | 247,507,244 |  |            | $ | 2,475 |             |  | $          | 2,349,253    |   |       | $             | (1,193 | ) |          | $     | (1,712,856 | )             |               | $ | 2,377  |   |  | $      | (20,000 | ) |  | $ | 620,056  |   |  |   |          |         
|Net income                                                                  |                      |                                      |            |  |            |   |      |             |  |            |             |   |       |               |       |   |          |       | 101,112    |               |               |   |       |   |  |        |        |   |  |   | 101,112  |   |  | $ | 101,112  |         
|Unrealized gain on investments in marketable debt and equity
    securities |                      |                                      |            |  |            |   |      |             |  |            |             |   |       |               |       |   |          |       |           |               |               |   | 8,427  |   |  |        |        |   |  |   | 8,427    |   |  |   | 8,427    |         
|                                                                            |                      |                                      |             |  |            |   |       |             |  |            |              |   |       |               |        |   |          |       |            |               |               |   |        |   |  |        |        
|                                                                            | Comprehensive income |                                      |             |  |            |   |       |             |  |            |              |   |       |               |        |   |          |       |            |               |               |   |        |   |  |        |         |   |  |   |          |   |  |   | $        | 109,539  |  
|                                                                            |                      |                                      |             |  |            |   |       |             |  |            |              |   |       |               |        |   |          |       |            |               |               |   |        |   |  |        |        
|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   | ) |          |       | (1,611,744 | )             |               |   | 10,804 |   |  |        | (64,939 | ) |  |   | 746,685  |   |  |   |          |         
|Net loss                                                                    |                      |                                      |            |  |            |   |      |             |  |            |             |   |       |               |       |   |          |       | (183,439   | )             |               |   |       |   |  |        |        |   |  |   | (183,439 | ) |  | $ | (183,439 | )       
|Unrealized loss on investments in marketable debt and equity
    securities |                      |                                      |            |  |            |   |      |             |  |            |             |   |       |               |       |   |          |       |           |               |               |   | (6,268 | ) |  |        |        |   |  |   | (6,268   | ) |  |   | (6,268   | )       
|                                                                            |                      |                                      |             |  |            |   |       |             |  |            |              |   |       |               |        |   |          |       |            |               |               |   |        |   |  |        |        
|                                                                            | Comprehensive loss   |                                      |             |  |            |   |       |             |  |            |              |   |       |               |        |   |          |       |            |               |               |   |        |   |  |        |         |   |  |   |          |   |  |   | $        | (189,707 | )
|                                                                            |                      |                                      |             |  |            |   |       |             |  |            |              |   |       |               |        |   |          |       |            |               |               |   |        |   |  |        |        
|Issuance of stock under stock option plan and related benefit
    plans     |                      |                                      | 4,166,759   |  |            |   | 42    |             |  |            | 19,343       |   |       |               |       |   |          |       |           |               |               |   |       |   |  |        |        |   |  |   | 19,385   |   |  |   |          |         
|Stock-based compensation                                                    |                      |                                      |            |  |            |   |      |             |  |            | 126          |   |       |               | 110    |   |          |       |           |               |               |   |       |   |  |        |        |   |  |   | 236      |   |  |   |          |         
|                                                                            |                      |                                      |             |  |            |   |       |             |  |            |              |   |       |               |        |   |          |       |            |               |               |   |        |   |  |        |        
|Balance, December 25, 2004                                                  |                      |                                      | 263,413,578 |  |            |   | 2,634 |             |  |            | 2,429,551    |   |       |               |       |   |          |       | (1,795,183 | )             |               |   | 4,536  |   |  |        | (64,939 | ) |  |   | 576,599  |   |  |   |          |         
|Net loss                                                                    |                      |                                      |            |  |            |   |      |             |  |            |             |   |       |               |       |   |          |       | (43,332    | )             |               |   |       |   |  |        |        |   |  |   | (43,332  | ) |  | $ | (43,332  | )       
|Unrealized loss on investments in marketable debt and equity
    securities |                      |                                      |            |  |            |   |      |             |  |            |             |   |       |               |       |   |          |       |           |               |               |   | (2,741 | ) |  |        |        |   |  |   | (2,741   | ) |  |   | (2,741   | )       
|                                                                            |                      |                                      |             |  |            |   |       |             |  |            |              |   |       |               |        |   |          |       |            |               |               |   |        |   |  |        |        
|                                                                            | Comprehensive loss   |                                      |             |  |            |   |       |             |  |            |              |   |       |               |        |   |          |       |            |               |               |   |        |   |  |        |         |   |  |   |          |   |  |   | $        | (46,073  | )
|                                                                            |                      |                                      |             |  |            |   |       |             |  |            |              |   |       |               |        |   |          |       |            |               |               |   |        |   |  |        |        
|Issuance of stock under stock option plan and related benefit
    plans     |                      |                                      | 6,129,015   |  |            |   | 61    |             |  |            | 22,088       |   |       |               |       |   |          |       |           |               |               |   |       |   |  |        |        |   |  |   | 22,149   |   |  |   |          |         
|Stock-based compensation                                                    |                      |                                      |            |  |            |   |      |             |  |            | 307          |   |       |               |       |   |          |       |           |               |               |   |       |   |  |        |        |   |  |   | 307      |   |  |   |          |         
|Treasury shares, repurchased at cost                                        |                      |                                      |            |  |            |   |      |             |  |            |             |   |       |               |       |   |          |       |           |               |               |   |       |   |  |        | (10     | ) |  |   | (10      | ) |  |   |          |         
|                                                                            |                      |                                      |             |  |            |   |       |             |  |            |              |   |       |               |        |   |          |       |            |               |               |   |        |   |  |        |        
|Balance, December 31, 2005                                                  |                      |                                      | 269,542,593 |  |            | $ | 2,695 |             |  | $          | 2,451,946    |   |       | $             |       |   |          | $     | (1,838,515 | )             |               | $ | 1,795  |   |  | $      | (64,949 | ) |  | $ | 552,972  |   |  |   |          |         
|                                                                            |                      |                                      |             |  |            |   |       |             |  |            |              |   |       |               |        |   |          |       |            |               |               |   |        |   |  |        |        



62



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MAXTOR CORPORATION







CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                                                                      |                                                                                     |                                   |                                                                                    |         |              |          |          |              |          |          |          |         |         |         |  
|------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | --------------------------------- | ---------------------------------------------------------------------------------- | ------- | ------------ | -------- | -------- | ------------ | -------- | -------- | -------- | ------- | ------- | ------- | -
|                                                                                                                                      |                                                                                     | Years Ended                       |                                                                                   
|                                                                                                                                      |                                                                                     |                                   |                                                                                   
|                                                                                                                                      |                                                                                     | December 27,                      |                                                                                    |         | December 25, |          |          | December 31, |         
|                                                                                                                                      |                                                                                     | 2003                              |                                                                                    |         | 2004         |          |          | 2005         |         
|                                                                                                                                      |                                                                                     |                                   |                                                                                    |         |              |          |          |              |         
|                                                                                                                                      |                                                                                     | (In thousands)                    |                                                                                   
|Cash Flows from Operating Activities:                                                                                                 |                                                                                     |                                   |                                                                                    |         |              |          |          |              |          |          |          |        
|Net income (loss) from continuing operations                                                                                          |                                                                                     | $                                 | 98,901                                                                             |         |              | $        | (183,439 | )            |          | $        | (43,332  | )      
|Adjustments to reconcile net income (loss) from continuing
    operations to net cash provided by (used in) operating
    activities: |                                                                                     |                                   |                                                                                    |         |              |          |          |              |          |          |          |        
|                                                                                                                                      | Depreciation and amortization                                                       |                                   |                                                                                    | 156,639 |              |          |          | 146,020      |          |          |          | 152,669 |        
|                                                                                                                                      | Amortization of intangible assets                                                   |                                   |                                                                                    | 85,279  |              |          |          | 35,994       |          |          |          | 870     |        
|                                                                                                                                      | Amortization of bond issuance costs                                                 |                                   |                                                                                    | 691     |              |          |          | 1,045        |          |          |          | 439     |        
|                                                                                                                                      | Write-off of unamortized issuance cost on convertible senior
    notes repurchase   |                                   |                                                                                    |        |              |          |          |             |          |          |          | 1,875   |        
|                                                                                                                                      | Intangible asset impairment                                                         |                                   |                                                                                    |        |              |          |          | 24,175       |          |          |          |        |        
|                                                                                                                                      | Stock-based compensation expense                                                    |                                   |                                                                                    | 923     |              |          |          | 236          |          |          |          | 307     |        
|                                                                                                                                      | Restructuring charge, net                                                           |                                   |                                                                                    |        |              |          |          | 24,502       |          |          |          | 18,625  |        
|                                                                                                                                      | Loss on sale of property, plant and equipment                                       |                                   |                                                                                    | 3,235   |              |          |          | 1,729        |          |          |          | 1,010   |        
|                                                                                                                                      | Impairment of long-lived asset held for sale                                        |                                   |                                                                                    |        |              |          |          | 7,776        |          |          |          |        |        
|                                                                                                                                      | Loss on program cancellation                                                        |                                   |                                                                                    |        |              |          |          | 780          |          |          |          | 477     |        
|                                                                                                                                      | Gain on retirement of bond                                                          |                                   |                                                                                    | (163    | )            |          |          |             |          |          |          | (434    | )      
|                                                                                                                                      | Loss on redemption of pro rata portion of Quantum
    Corporations bond            |                                   |                                                                                    | 951     |              |          |          |             |          |          |          |        |        
|                                                                                                                                      | Gain on sale of equity investments                                                  |                                   |                                                                                    |        |              |          |          |             |          |          |          | (1,913  | )      
|                                                                                                                                      | Other                                                                               |                                   |                                                                                    |        |              |          |          |             |          |          |          | 376     |        
|                                                                                                                                      | Change in assets and liabilities:                                                   |                                   |                                                                                    |         |              |          |          |              |          |          |          |         |        
|                                                                                                                                      |                                                                                     | Accounts receivable               |                                                                                    |         | (216,068     | )        |          |              | 115,415  |          |          |         | 29,451  |        
|                                                                                                                                      |                                                                                     | Other receivables                 |                                                                                    |         | 825          |          |          |              | (2,874   | )        |          |         | 18,934  |        
|                                                                                                                                      |                                                                                     | Inventories                       |                                                                                    |         | (42,466      | )        |          |              | (11,399  | )        |          |         | (11,052 | )      
|                                                                                                                                      |                                                                                     | Prepaid expenses and other assets |                                                                                    |         | 10,667       |          |          |              | 10,475   |          |          |         | (58,007 | )      
|                                                                                                                                      |                                                                                     | Accounts payable                  |                                                                                    |         | 89,040       |          |          |              | (54,021  | )        |          |         | (11,850 | )      
|                                                                                                                                      |                                                                                     | Accrued and other liabilities     |                                                                                    |         | (28,389      | )        |          |              | (120,810 | )        |          |         | (43,801 | )      
|                                                                                                                                      |                                                                                     |                                   |                                                                                    |         |              |          |          |              |         
|                                                                                                                                      |                                                                                     |                                   | Net cash provided by (used in) operating activities from
    continuing operations |         |              | 160,065  |          |              |          | (4,396   | )        |         |         | 54,644  |  
|                                                                                                                                      |                                                                                     |                                   | Net cash used in discontinued operations                                           |         |              | (7,948   | )        |              |          | (798     | )        |         |         |        |  
|                                                                                                                                      |                                                                                     |                                   |                                                                                    |         |              |          |          |              |         
|                                                                                                                                      |                                                                                     |                                   | Net cash provided by (used in) operating activities                                |         |              | 152,117  |          |              |          | (5,194   | )        |         |         | 54,644  |  
|Cash Flows from Investing Activities:                                                                                                 |                                                                                     |                                   |                                                                                    |         |              |          |          |              |          |          |          |        
|Proceeds from sale of property, plant and equipment                                                                                   |                                                                                     |                                   | 348                                                                                |         |              |          | 755      |              |          |          | 25,229   |        
|Purchase of property, plant and equipment                                                                                             |                                                                                     |                                   | (131,876                                                                           | )       |              |          | (171,579 | )            |          |          | (160,850 | )      
|Change in restricted assets                                                                                                           |                                                                                     |                                   | 19,593                                                                             |         |              |          | (8,983   | )            |          |          | 26,605   |        
|Maturities and sales of marketable securities                                                                                         |                                                                                     |                                   | 55,953                                                                             |         |              |          | 57,969   |              |          |          | 93,704   |        
|Purchase of marketable securities                                                                                                     |                                                                                     |                                   | (56,911                                                                            | )       |              |          | (77,113  | )            |          |          | (57,597  | )      
|Proceeds from sale of equity investments                                                                                              |                                                                                     |                                   |                                                                                   |         |              |          |         |              |          |          | 6,777    |        
|                                                                                                                                      |                                                                                     |                                   |                                                                                    |         |              |          |          |              |         
|                                                                                                                                      |                                                                                     |                                   | Net cash used in investing activities                                              |         |              | (112,893 | )        |              |          | (198,951 | )        |         |         | (66,132 | )
|                                                                                                                                      |                                                                                     |                                   |                                                                                    |         |              |          |          |              |         
|Cash Flows from Financing Activities:                                                                                                 |                                                                                     |                                   |                                                                                    |         |              |          |          |              |          |          |          |        
|Proceeds from issuance of debt, including short-term borrowings                                                                       |                                                                                     |                                   | 259,428                                                                            |         |              |          | 54,655   |              |          |          |         |        
|Borrowings under convertible senior notes, net of issuance costs                                                                      |                                                                                     |                                   |                                                                                   |         |              |          |         |              |          |          | 317,849  |        
|Principal payments of debt including short-term borrowings                                                                            |                                                                                     |                                   | (107,148                                                                           | )       |              |          | (6,686   | )            |          |          | (27,428  | )      
|Repayment of mortgages                                                                                                                |                                                                                     |                                   | (1,445                                                                             | )       |              |          | (1,582   | )            |          |          | (32,582  | )      
|Repurchase of convertible senior notes                                                                                                |                                                                                     |                                   |                                                                                   |         |              |          |         |              |          |          | (93,837  | )      
|Principal payments under capital lease obligations                                                                                    |                                                                                     |                                   | (29,677                                                                            | )       |              |          | (14,126  | )            |          |          | (5,209   | )      
|Purchase of treasury stock at cost                                                                                                    |                                                                                     |                                   | (44,939                                                                            | )       |              |          |         |              |          |          | (10      | )      
|Net proceeds from receivable-backed borrowing                                                                                         |                                                                                     |                                   | 47,823                                                                             |         |              |          | 49,748   |              |          |          |         |        
|Repayment of receivable-backed borrowing                                                                                              |                                                                                     |                                   |                                                                                   |         |              |          | (50,000  | )            |          |          | (50,000  | )      
|Proceeds from issuance of common stock from employee stock
    purchase plan and stock options exercised                              |                                                                                     |                                   | 61,106                                                                             |         |              |          | 19,385   |              |          |          | 22,149   |        
|                                                                                                                                      |                                                                                     |                                   |                                                                                    |         |              |          |          |              |         
|                                                                                                                                      |                                                                                     |                                   | Net cash provided by financing activities                                          |         |              | 185,148  |          |              |          | 51,394   |          |         |         | 130,932 |  
|                                                                                                                                      |                                                                                     |                                   |                                                                                    |         |              |          |          |              |         
|Net change in cash and cash equivalents                                                                                               |                                                                                     |                                   | 224,372                                                                            |         |              |          | (152,751 | )            |          |          | 119,444  |        
|Cash and cash equivalents at beginning of year                                                                                        |                                                                                     |                                   | 306,444                                                                            |         |              |          | 530,816  |              |          |          | 378,065  |        
|                                                                                                                                      |                                                                                     |                                   |                                                                                    |         |              |          |          |              |         
|Cash and cash equivalents at end of year                                                                                              |                                                                                     | $                                 | 530,816                                                                            |         |              | $        | 378,065  |              |          | $        | 497,509  |        
|                                                                                                                                      |                                                                                     |                                   |                                                                                    |         |              |          |          |              |         
|Supplemental Disclosures of Cash Flow Information:                                                                                    |                                                                                     |                                   |                                                                                    |         |              |          |          |              |          |          |          |        
|                                                                                                                                      | Cash paid during the period for:                                                    |                                   |                                                                                    |         |              |          |          |              |          |          |          |         |        
|                                                                                                                                      |                                                                                     | Interest                          |                                                                                    | $       | 28,805       |          |          | $            | 28,154   |          |          | $       | 20,980  |        
|                                                                                                                                      |                                                                                     | Income taxes                      |                                                                                    | $       | 1,628        |          |          | $            | 3,685    |          |          | $       | 1,853   |        
|Schedule of Non-Cash Investing and Financing Activities:                                                                              |                                                                                     |                                   |                                                                                    |         |              |          |          |              |          |          |          |        
|                                                                                                                                      | Purchase of property, plant and equipment financed by accounts
    payable          |                                   | $                                                                                  | 5,868   |              |          | $        | 4,780        |          |          | $        | 18,971  |        
|                                                                                                                                      | Retirement of debt in exchange for bond redemption                                  |                                   | $                                                                                  | 5,000   |              |          | $        | 5,000        |          |          | $        | 5,000   |        
|                                                                                                                                      | Change in unrealized gain (loss) on investments                                     |                                   | $                                                                                  | 8,427   |              |          | $        | (6,268       | )        |          | $        | (2,741  | )      
|                                                                                                                                      | Purchase of property, plant and equipment financed by capital
    lease obligations |                                   | $                                                                                  | 7,373   |              |          | $        | 24           |          |          | $        |        |        



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                                                                           
|-- | --------------------------------------------------------------------------
|1. | Description of Business and Summary of Significant Accounting
    Policies



| |                        
| | -----------------------
| | Description of Business





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







| |             
| | ------------
| | Fiscal Years





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





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





| |                
| | ---------------
| | Restricted Cash





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



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                 |                                                                          |                   |         |             |                   |   |       |           |  |   |             |     |  |               |         |        |           |   |        |        |  |   |            |   |  |   |     |     |  |   |        |        | 
|-------------------------------- | ------------------------------------------------------------------------ | ----------------- | ------- | ----------- | ----------------- | - | ----- | --------- |  | - | ----------- | --- |  | ------------- | ------- | ------ | --------- | - | ------ | ------ |  | - | ---------- | - |  | - | --- | --- |  | - | ------ | ------ | 
|                                 |                                                                          | December 25, 2004 |         |             | December 31, 2005 |  
|                                 |                                                                          |                   |         |             |                   |  
|                                 |                                                                          |                   |         | Accumulated |                   |   |       |           |  |   | Accumulated |     |  |              
|                                 |                                                                          |                   |         | Other       |                   |   |       |           |  |   | Other       |     |  |              
|                                 |                                                                          | Amortized         |         |             | Comprehensive     |   |       | Estimated |  |   | Amortized   |     |  | Comprehensive |         |        | Estimated |  
|                                 |                                                                          | Cost              |         |             | Gains             |   |       | Losses    |  |   | Fair Value  |     |  | Cost          |         |        | Gains     |   |        | Losses |  |   | Fair Value |  
|                                 |                                                                          |                   |         |             |                   |   |       |           |  |   |             |     |  |               |         |        |           |   |        |        |  |   |            |  
|Debt Investments:                |                                                                          |                   |         |             |                   |   |       |           |  |   |             |     |  |               |         |        |           |   |        |        |  |   |            |   |  |   |     |     |  |   |        |       
|                                 | U.S. Treasury securities and obligations of
    U.S. government agencies |                   | $       | 72,899      |                   |   | $     |          |  |   | $           | 435 |  |               | $       | 72,464 |           |   | $      | 51,118 |  |   | $          |  |  |   | $   | 272 |  |   | $      | 50,846 | 
|                                 | U.S. corporate debt securities                                           |                   |         | 21,734      |                   |   |       |          |  |   |             | 39  |  |               |         | 21,695 |           |   |        | 9,221  |  |   |            |  |  |   |     | 16  |  |   |        | 9,205  | 
|                                 | Asset backed securities                                                  |                   |         | 9,862       |                   |   |       |          |  |   |             | 52  |  |               |         | 9,810  |           |   |        | 7,713  |  |   |            |  |  |   |     | 42  |  |   |        | 7,671  | 
|Mutual Funds                     |                                                                          |                   |        |             |                   |   |      |           |  |   |            |     |  |               |        |        |           |   | 4,288  |        |  |   | 40         |   |  |   |    |     |  |   | 4,328  |       
|Money Market Funds               |                                                                          |                   |        |             |                   |   |      |           |  |   |            |     |  |               |        |        |           |   | 727    |        |  |   |           |   |  |   |    |     |  |   | 727    |       
|Investments in Equity Securities |                                                                          |                   | 4,980   |             |                   |   | 5,062 |           |  |   |            |     |  |               | 10,042  |        |           |   | 115    |        |  |   | 2,085      |   |  |   |    |     |  |   | 2,200  |       
|                                 |                                                                          |                   |         |             |                   |   |       |           |  |   |             |     |  |               |         |        |           |   |        |        |  |   |            |  
|Total Investments                |                                                                          | $                 | 109,475 |             |                   | $ | 5,062 |           |  | $ | 526         |     |  | $             | 114,011 |        |           | $ | 73,182 |        |  | $ | 2,125      |   |  | $ | 330 |     |  | $ | 74,977 |       
|                                 |                                                                          |                   |         |             |                   |   |       |           |  |   |             |     |  |               |         |        |           |   |        |        |  |   |            |  



|                                     |  |      |         |  |      |   |        | 
|------------------------------------ |  | ---- | ------- |  | ---- | - | ------ | 
|                                     |  | 2004 |         |  | 2005 |  
|                                     |  |      |         |  |      |  
|Marketable securities                |  | $    | 103,969 |  |      | $ | 67,722 | 
|Investments in equity securities     |  |      | 10,042  |  |      |   | 2,200  | 
|Deferred compensation plan           |  |      |        |  |      |   | 5,055  | 
|                                     |  |      |         |  |      |  
|Investments, at estimated fair value |  | $    | 114,011 |  |      | $ | 74,977 | 
|                                     |  |      |         |  |      |  





|                                      |  |                |        |  |       |   |        | 
|------------------------------------- |  | -------------- | ------ |  | ----- | - | ------ | 
|                                      |  | Gross          |        |  |      
|                                      |  | Amortized      |        |  | Fair  |  
|                                      |  | Cost           |        |  | Value |  
|                                      |  |                |        |  |       |  
|                                      |  | (In thousands) |       
|Due in one year or less               |  | $              | 65,989 |  |       | $ | 65,676 | 
|Due after one year through five years |  |                | 2,063  |  |       |   | 2,046  | 
|                                      |  |                |        |  |       |  
|                                      |  | $              | 68,052 |  |       | $ | 67,722 | 
|                                      |  |                |        |  |       |  

65



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                  |                                                                          |                      |        |        |                      |   |     |       |       |   |            |       |  |       |    |    |            |   |        |        |  |   |     |     | 
|----------------- | ------------------------------------------------------------------------ | -------------------- | ------ | ------ | -------------------- | - | --- | ----- | ----- | - | ---------- | ----- |  | ----- | -- | -- | ---------- | - | ------ | ------ |  | - | --- | --- | 
|                  |                                                                          | In Loss Position for |        |        | In Loss Position for |   |     |      
|                  |                                                                          | Less Than 12 Months  |        |        | More Than 12 Months  |   |     | Total |      
|                  |                                                                          |                      |        |        |                      |   |     |       |      
|                  |                                                                          |                      |        | Gross  |                      |   |     |       | Gross |   |            |       |  | Gross |   
|                  |                                                                          | Fair                 |        |        | Unrealized           |   |     | Fair  |       |   | Unrealized |       |  | Fair  |    |    | Unrealized |  
|                  |                                                                          | Value                |        |        | Losses               |   |     | Value |       |   | Losses     |       |  | Value |    |    | Losses     |  
|                  |                                                                          |                      |        |        |                      |   |     |       |       |   |            |       |  |       |    |    |            |  
|Debt Investments: |                                                                          |                      |        |        |                      |   |     |       |       |   |            |       |  |       |    |    |            |   |        |        |  |   |     |    
|                  | U.S. Treasury securities and obligations of
    U.S. government agencies |                      | $      | 48,800 |                      |   | $   | 255   |       |   | $          | 2,046 |  |       | $  | 17 |            |   | $      | 50,846 |  |   | $   | 272 | 
|                  | U.S. corporate debt securities                                           |                      |        | 9,205  |                      |   |     | 16    |       |   |            |      |  |       |    |   |            |   |        | 9,205  |  |   |     | 16  | 
|                  | Asset backed securities                                                  |                      |        | 7,671  |                      |   |     | 42    |       |   |            |      |  |       |    |   |            |   |        | 7,671  |  |   |     | 42  | 
|                  |                                                                          |                      |        |        |                      |   |     |       |       |   |            |       |  |       |    |    |            |  
|Total Investments |                                                                          | $                    | 65,676 |        |                      | $ | 313 |       |       | $ | 2,046      |       |  | $     | 17 |    |            | $ | 67,722 |        |  | $ | 330 |    
|                  |                                                                          |                      |        |        |                      |   |     |       |       |   |            |       |  |       |    |    |            |  





| |                         
| | ------------------------
| | Allowances for Bad Debts





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

first-in,




| |                                
| | -------------------------------
| | Long-Lived Assets Held for Sale



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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







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





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

Accounting for the Impairment and
Disposal of Long-Lived Assets


Goodwill
and Other Intangible Assets


67



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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







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

Recognition
of Liabilities in Connection with a Purchase Business
Combination Accounting for Costs Associated with Exist or Disposal
Activities 94-3), Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring), Accounting for Contingencies.




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





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



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Accounting for Derivative Instruments and Hedging
Activities.




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



Revenue Recognition.










build-to just-in




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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Revenue Recognition When
Right of Return Exists.






| |                                 
| | --------------------------------
| | Research and Development Expense





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





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





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

Share-Based Payment Accounting for Stock Issued to Employees


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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Accounting for Stock-Based Compensation 
Transition and Disclosure  an amendment of
SFAS 123


|                                                                                                              |                             |              |         |        |              |   |          |              |   |   |         |         |  
|------------------------------------------------------------------------------------------------------------- | --------------------------- | ------------ | ------- | ------ | ------------ | - | -------- | ------------ | - | - | ------- | ------- | -
|                                                                                                              |                             | Years Ended  |        
|                                                                                                              |                             |              |        
|                                                                                                              |                             | December 27, |         |        | December 25, |   |          | December 31, |  
|                                                                                                              |                             | 2003         |         |        | 2004         |   |          | 2005         |  
|                                                                                                              |                             |              |         |        |              |   |          |              |  
|Net income (loss), as reported                                                                                |                             | $            | 101,112 |        |              | $ | (183,439 | )            |   | $ | (43,332 | )      
|Add: Stock-based employee compensation expense included in net
    income (loss)                              |                             |              | 923     |        |              |   | 236      |              |   |   | 307     |        
|Deduct: Total stock-based employee compensation expense
    determined under fair value method for all awards |                             |              | 27,913  |        |              |   | 22,664   |              |   |   | 16,715  |        
|                                                                                                              |                             |              |         |        |              |   |          |              |  
|                                                                                                              | Pro forma net income (loss) |              | $       | 74,122 |              |   | $        | (205,867     | ) |   | $       | (59,740 | )
|                                                                                                              |                             |              |         |        |              |   |          |              |  
|Net income (loss) per share                                                                                   |                             |              |         |        |              |   |          |              |   |   |         |        
|                                                                                                              | As reported  basic         |              | $       | 0.42   |              |   | $        | (0.74        | ) |   | $       | (0.17   | )
|                                                                                                              | Pro forma  basic           |              | $       | 0.31   |              |   | $        | (0.83        | ) |   | $       | (0.24   | )
|                                                                                                              | As reported  diluted       |              | $       | 0.40   |              |   | $        | (0.74        | ) |   | $       | (0.17   | )
|                                                                                                              | Pro forma  diluted         |              | $       | 0.30   |              |   | $        | (0.83        | ) |   | $       | (0.24   | )





| |                   
| | ------------------
| | Earnings Per Share

Earnings per Share The Effect of Contingently Convertible Debt on Diluted
Earnings Per Share.




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



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                             |  |              |         |  |              |   |          |              |  |   |         |  
|-------------------------------------------------------------------------------------------- |  | ------------ | ------- |  | ------------ | - | -------- | ------------ |  | - | ------- | -
|                                                                                             |  | Years Ended  |        
|                                                                                             |  |              |        
|                                                                                             |  | December 27, |         |  | December 25, |   |          | December 31, | 
|                                                                                             |  | 2003         |         |  | 2004         |   |          | 2005         | 
|                                                                                             |  |              |         |  |              |   |          |              | 
|Net income (loss)                                                                            |  | $            | 101,112 |  |              | $ | (183,439 | )            |  | $ | (43,332 | )
|Unrealized gain (loss) on investments in debt and equity
    securities                      |  |              | 8,567   |  |              |   | (6,234   | )            |  |   | (869    | )
|Less: reclassification adjustment for realized gain (loss)
    included in net income (loss) |  |              | 140     |  |              |   | 34       |              |  |   | 1,872   |  
|                                                                                             |  |              |         |  |              |   |          |              | 
|Comprehensive income (loss)                                                                  |  | $            | 109,539 |  |              | $ | (189,707 | )            |  | $ | (46,073 | )
|                                                                                             |  |              |         |  |              |   |          |              | 



| |                  
| | -----------------
| | Reclassifications





| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

Share-Based Payment Accounting for Stock
Compensation Statement of Cash Flows,


Accounting for Conditional Asset Retirement
Obligations  an interpretation of FASB Statement
No. 143 Accounting for
Asset Retirement Obligations,


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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Accounting Changes and Error Corrections Accounting Changes Reporting Accounting Changes
in Interim Financial Statements  An Amendment of APB
Opinion No. 28.


143-1, Accounting for Electronic Equipment Waste
Obligations 143-1) 143-1 143-1


Accounting for Purchases and Sales of
Inventory with the Same Counterparty 04-13). 04-13 Accounting for Nonmonetary Transactions Exchanges of Nonmonetary Assets, an
Amendment of APB 29


13-1, Accounting for Rental Costs Incurred During a
Construction Period 13-1) 13-1




|   |                                 
|-- | --------------------------------
|2. | Certain Risks and Concentrations



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)
















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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                      
|-- | ---------------------
|3. | Balance Sheet Details

|                                               |                                                 |                |           |         |              |   |          |         | 
|---------------------------------------------- | ----------------------------------------------- | -------------- | --------- | ------- | ------------ | - | -------- | ------- | 
|                                               |                                                 | December 25,   |           |         | December 31, |  
|                                               |                                                 | 2004           |           |         | 2005         |  
|                                               |                                                 |                |           |         |              |  
|                                               |                                                 | (In thousands) |          
|Inventories:                                   |                                                 |                |           |         |              |   |          |        
|                                               | Raw materials                                   |                | $         | 79,904  |              |   | $        | 55,400  | 
|                                               | Work-in-process                                 |                |           | 49,313  |              |   |          | 53,118  | 
|                                               | Finished goods                                  |                |           | 100,193 |              |   |          | 131,944 | 
|                                               |                                                 |                |           |         |              |  
|                                               |                                                 | $              | 229,410   |         |              | $ | 240,462  |        
|                                               |                                                 |                |           |         |              |  
|Prepaid expenses and other:                    |                                                 |                |           |         |              |   |          |        
|                                               | Prepayment to supplier                          |                | $         |        |              |   | $        | 37,500  | 
|                                               | Supplier payment                                |                |           |        |              |   |          | 12,500  | 
|                                               | Vendor down payment                             |                |           |        |              |   |          | 12,062  | 
|                                               | Prepaid expenses                                |                |           | 11,913  |              |   |          | 8,959   | 
|                                               | Long-lived assets held for sale                 |                |           | 8,200   |              |   |          | 8,047   | 
|                                               | Investments in equity securities, at fair value |                |           | 10,042  |              |   |          | 2,200   | 
|                                               | Other                                           |                |           | 6,181   |              |   |          | 8,545   | 
|                                               |                                                 |                |           |         |              |  
|                                               |                                                 | $              | 36,336    |         |              | $ | 89,813   |        
|                                               |                                                 |                |           |         |              |  
|Property, plant and equipment, at cost:        |                                                 |                |           |         |              |   |          |        
|                                               | Buildings                                       |                | $         | 155,172 |              |   | $        | 139,009 | 
|                                               | Machinery and equipment                         |                |           | 659,324 |              |   |          | 607,339 | 
|                                               | Software                                        |                |           | 86,014  |              |   |          | 85,154  | 
|                                               | Furniture and fixtures                          |                |           | 27,604  |              |   |          | 29,522  | 
|                                               | Leasehold improvements                          |                |           | 91,571  |              |   |          | 90,090  | 
|                                               |                                                 |                |           |         |              |  
|                                               |                                                 | $              | 1,019,685 |         |              | $ | 951,114  |        
|Less accumulated depreciation and amortization |                                                 |                | (671,751  | )       |              |   | (615,778 | )      
|                                               |                                                 |                |           |         |              |  
|Property, plant and equipment, net             |                                                 | $              | 347,934   |         |              | $ | 335,336  |        
|                                               |                                                 |                |           |         |              |  
|Accrued and other liabilities:                 |                                                 |                |           |         |              |   |          |        
|                                               | Accrued warranty                                |                | $         | 185,940 |              |   | $        | 161,464 | 
|                                               | Accrued payroll and payroll-related expenses    |                |           | 59,524  |              |   |          | 51,928  | 
|                                               | Accrued supplier payment                        |                |           |        |              |   |          | 12,500  | 
|                                               | Restructuring liabilities, short-term           |                |           | 9,707   |              |   |          | 13,296  | 
|                                               | Income taxes payable                            |                |           | 7,605   |              |   |          | 8,225   | 
|                                               | Bond interest payable                           |                |           | 3,856   |              |   |          | 5,592   | 
|                                               | Accrued expenses                                |                |           | 57,737  |              |   |          | 47,753  | 
|                                               |                                                 |                |           |         |              |  
|                                               |                                                 | $              | 324,369   |         |              | $ | 300,758  |        
|                                               |                                                 |                |           |         |              |  
|Other liabilities:                             |                                                 |                |           |         |              |   |          |        
|                                               | Tax indemnification liability                   |                | $         | 8,760   |              |   | $        | 8,760   | 
|                                               | Restructuring liabilities, long-term            |                |           | 43,911  |              |   |          | 37,264  | 
|                                               | Other                                           |                |           | 14,024  |              |   |          | 19,089  | 
|                                               |                                                 |                |           |         |              |  
|                                               |                                                 | $              | 66,695    |         |              | $ | 65,113   |        
|                                               |                                                 |                |           |         |              |  

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                                     
|-- | ------------------------------------
|4. | Goodwill and Other Intangible Assets





|                              |                      |          |  |                   |          |   |                |              |                   |   |            |         |          |     |         |          |        |   |             |              |   |       |            |        |         |     |          |         |          |   |         |         |   |   |         |     |   | 
|----------------------------- | -------------------- | -------- |  | ----------------- | -------- | - | -------------- | ------------ | ----------------- | - | ---------- | ------- | -------- | --- | ------- | -------- | ------ | - | ----------- | ------------ | - | ----- | ---------- | ------ | ------- | --- | -------- | ------- | -------- | - | ------- | ------- | - | - | ------- | --- | - | 
|                              |                      |          |  | December 25, 2004 |          |   |                |              | December 31, 2005 |   |            |        
|                              |                      |          |  |                   |          |   |                |              |                   |   |            |        
|                              |                      | Useful   |  |                   | Gross    |   |                |              |                   |   |            | Gross   |          |     |         |          |       
|                              |                      | Life     |  |                   | Carrying |   |                | Accumulated  |                   |   | Asset      |         |          |     |         | Carrying |        |   | Accumulated |              |   | Asset |            |        |        
|                              |                      | (Years)  |  |                   | Amount   |   |                | Amortization |                   |   | Impairment |         |          | Net |         |          | Amount |   |             | Amortization |   |       | Impairment |        |         | Net |         
|                              |                      |          |  |                   |          |   |                |              |                   |   |            |         |          |     |         |          |        |   |             |              |   |       |            |        |         |     |         
|                              |                      |          |  | (In thousands)    |          |   | (In thousands) |             
|Goodwill                      |                      |          |  |                   |          | $ | 489,482        |              |                   |   |           |         |          |     |        |          |        | $ | 489,482     |              |   | $     | 489,482    |        |         |     |         |         |          |   |        |         |   | $ | 489,482 |    
|                              |                      |          |  |                   |          |   |                |              |                   |   |            |         |          |     |         |          |        |   |             |              |   |       |            |        |         |     |         
|Quantum HDD                   |                      |          |  |                   |          |   |                |              |                   |   |            |         |          |     |         |          |        |   |             |              |   |       |            |        |         |     |          |         |          |   |         |         |   |   |         |    
|Existing Technology           |                      |          |  |                   |          |   |                |              |                   |   |            |         |          |     |         |          |        |   |             |              |   |       |            |        |         |     |          |         |          |   |         |         |   |   |         |    
|                              | Core technology      |          |  | 5                 |          |   | $              | 96,700       |                   |   | $          | (72,525 | )        |     | $       | (24,175  | )      |   | $           |             |   |       | $          | 96,700 |         |     | $        | (72,525 | )        |   | $       | (24,175 | ) |   | $       |    |  
|                              | Consumer electronics |          |  | 3                 |          |   |                | 8,900        |                   |   |            | (8,900  | )        |     |         |         |        |   |             |             |   |       |            | 8,900  |         |     |          | (8,900  | )        |   |         |        |   |   |         |    |  
|                              |                      | High-end |  |                   | 3        |   |                |              | 75,500            |   |            |         | (75,500  | )   |         |          |       |   |             |              |  |       |            |        | 75,500  |     |          |         | (75,500  | ) |         |         |  |   |         |     |  | 
|                              |                      | Desktop  |  |                   | 3        |   |                |              | 105,000           |   |            |         | (105,000 | )   |         |          |       |   |             |              |  |       |            |        | 105,000 |     |          |         | (105,000 | ) |         |         |  |   |         |     |  | 
|MMC Technology                |                      |          |  |                   |          |   |                |              |                   |   |            |         |          |     |         |          |        |   |             |              |   |       |            |        |         |     |          |         |          |   |         |         |   |   |         |    
|                              | Existing technology  |          |  | 5                 |          |   |                | 4,350        |                   |   |            | (2,900  | )        |     |         |         |        |   |             | 1,450        |   |       |            | 4,350  |         |     |          | (3,770  | )        |   |         |        |   |   |         | 580 |  
|                              |                      |          |  |                   |          |   |                |              |                   |   |            |         |          |     |         |          |        |   |             |              |   |       |            |        |         |     |         
|Total other intangible assets |                      |          |  |                   |          | $ | 290,450        |              |                   | $ | (264,825   | )       |          | $   | (24,175 | )        |        | $ | 1,450       |              |   | $     | 290,450    |        |         | $   | (265,695 | )       |          | $ | (24,175 | )       |   | $ | 580     |    
|                              |                      |          |  |                   |          |   |                |              |                   |   |            |         |          |     |         |          |        |   |             |              |   |       |            |        |         |     |         



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




e.g.




|   |                                         
|-- | ----------------------------------------
|5. | Short-term Borrowings and Long-term Debt



|                                                    |  |              |         |   |              |   |         |  
|--------------------------------------------------- |  | ------------ | ------- | - | ------------ | - | ------- | -
|                                                    |  | December 25, |         |   | December 31, |  
|                                                    |  | 2004         |         |   | 2005         |  
|                                                    |  |              |         |   |              |  
|6.8% Convertible Senior Notes due April 30, 2010    |  | $            | 230,000 |   |              | $ | 135,729 |  
|5.75% Subordinated Debentures due March 1, 2012     |  |              | 59,311  |   |              |   | 59,031  |  
|2.375% Convertible Senior Notes due August 15, 2012 |  |              |        |   |              |   | 326,000 |  
|Economic Development Board of Singapore Loans       |  |              | 27,148  |   |              |   |        |  
|Manufacturing facility Loan, Suzhou China           |  |              | 60,000  |   |              |   | 60,000  |  
|Mortgages                                           |  |              | 32,582  |   |              |   |        |  
|Equipment Loans and Capital Leases                  |  |              | 6,090   |   |              |   | 881     |  
|Receivables-backed Borrowings                       |  |              | 50,000  |   |              |   |        |  
|                                                    |  |              |         |   |              |  
|                                                    |  |              | 465,131 |   |              |   | 581,641 |  
|Less amounts due within one year                    |  |              | (82,561 | ) |              |   | (5,868  | )
|                                                    |  |              |         |   |              |  
|                                                    |  | $            | 382,570 |   |              | $ | 575,773 |  
|                                                    |  |              |         |   |              |  

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                   |  |                |         | 
|------------------ |  | -------------- | ------- | 
|Fiscal Year Ending |  |               
|                   |  | (In thousands) |        
|2006               |  | $              | 5,868   | 
|2007               |  |                | 5,005   | 
|2008               |  |                | 5,005   | 
|2009               |  |                | 65,003  | 
|2010               |  |                | 140,729 | 
|Thereafter         |  |                | 360,031 | 
|                   |  |                |        
|Total              |  | $              | 581,641 | 
|                   |  |                |        









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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








dilution-to dilution-to dilution-to dilution-to-


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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




U.S.-dollar






10-year






|   |                      
|-- | ---------------------
|6. | Financial Instruments



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



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                             |  |                   |         |  |                   |   |         |          |  |   |            |  |  |   |         | 
|-------------------------------------------- |  | ----------------- | ------- |  | ----------------- | - | ------- | -------- |  | - | ---------- |  |  | - | ------- | 
|                                             |  | December 25, 2004 |         |  | December 31, 2005 |  
|                                             |  |                   |         |  |                   |  
|                                             |  | Carrying          |         |  | Estimated         |   |         | Carrying |  |   | Estimated  | 
|                                             |  | Amount            |         |  | Fair Value        |   |         | Amount   |  |   | Fair Value | 
|                                             |  |                   |         |  |                   |   |         |          |  |   |            | 
|2.375% Convertible Senior Notes              |  | $                 |        |  |                   | $ |        |          |  | $ | 326,000    |  |  | $ | 397,720 | 
|6.8% Convertible Senior Notes                |  |                   | 230,000 |  |                   |   | 232,587 |          |  |   | 135,279    |  |  |   | 139,801 | 
|5.75% Subordinated Debentures                |  |                   | 59,311  |  |                   |   | 51,007  |          |  |   | 59,031     |  |  |   | 53,128  | 
|Manufacturing Facility Loan  Suzhou, China  |  |                   | 60,000  |  |                   |   | 60,000  |          |  |   | 60,000     |  |  |   | 60,000  | 
|Mortgages                                    |  |                   | 32,582  |  |                   |   | 32,391  |          |  |   |           |  |  |   |        | 
|Economic Development Board of Singapore Loan |  |                   | 27,148  |  |                   |   | 27,148  |          |  |   |           |  |  |   |        | 
|Receivable-backed Borrowing                  |  |                   | 50,000  |  |                   |   | 50,000  |          |  |   |           |  |  |   |        | 



|   |           
|-- | ----------
|7. | Guarantees



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





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



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                               |  |              |          |   |              |   |          |  
|------------------------------ |  | ------------ | -------- | - | ------------ | - | -------- | -
|                               |  | Years Ended  |         
|                               |  |              |         
|                               |  | December 25, |          |   | December 31, |  
|                               |  | 2004         |          |   | 2005         |  
|                               |  |              |          |   |              |  
|Balance at beginning of period |  | $            | 209,426  |   |              | $ | 185,940  |  
|Charges to operations          |  |              | 180,032  |   |              |   | 181,821  |  
|Settlements(1)                 |  |              | (190,208 | ) |              |   | (179,104 | )
|Changes in estimates(2)        |  |              | (13,310  | ) |              |   | (27,193  | )
|                               |  |              |          |   |              |  
|Balance at end of period       |  | $            | 185,940  |   |              | $ | 161,464  |  
|                               |  |              |          |   |              |  






|    |                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents aggregate reductions in the liability for payments
    made (in cash or in kind) under the warranty.                                                                                                              
|   
|(2) | Comprises changes in the estimated cost of repair; changes in
    expected return rates; changes due to product expirations and
    changes in estimates related to specific non-standard claims
    received from customers.









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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |             
|-- | ------------
|8. | Income Taxes



|         |         |                |   |       |              |  |   |              |      |   |   |       |       | 
|-------- | ------- | -------------- | - | ----- | ------------ |  | - | ------------ | ---- | - | - | ----- | ----- | 
|         |         | Years Ended    |  
|         |         |                |  
|         |         | December 27,   |   |       | December 25, |  |   | December 31, |     
|         |         | 2003           |   |       | 2004         |  |   | 2005         |     
|         |         |                |   |       |              |  |   |              |     
|         |         | (In thousands) |  
|Current: |         |                |   |       |              |  |   |              |      |   |   |      
|         | U.S.    |                | $ | 2,477 |              |  | $ | (1,152       | )    |   | $ | 415   |      
|         | Foreign |                |   | 1,027 |              |  |   | 891          |      |   |   | 1,738 |      
|         |         |                |   |       |              |  |   |              |     
|         |         | Total          |   | $     | 3,504        |  |   | $            | (261 | ) |   | $     | 2,153 | 
|         |         |                |   |       |              |  |   |              |     



|        |       |                |         |         |              |   |          |              |   |   |          |         |  
|------- | ----- | -------------- | ------- | ------- | ------------ | - | -------- | ------------ | - | - | -------- | ------- | -
|        |       | Years Ended    |        
|        |       |                |        
|        |       | December 27,   |         |         | December 25, |   |          | December 31, |  
|        |       | 2003           |         |         | 2004         |   |          | 2005         |  
|        |       |                |         |         |              |   |          |              |  
|        |       | (In thousands) |        
|U.S.    |       | $              | (56,895 | )       |              | $ | (221,641 | )            |   | $ | (101,965 | )      
|Foreign |       |                | 161,511 |         |              |   | 37,941   |              |   |   | 60,786   |        
|        |       |                |         |         |              |   |          |              |  
|        | Total |                | $       | 104,616 |              |   | $        | (183,700     | ) |   | $        | (41,179 | )
|        |       |                |         |         |              |   |          |              |  





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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                    |       |                |         |       |              |   |         |              |   |   |         |       | 
|--------------------------------------------------- | ----- | -------------- | ------- | ----- | ------------ | - | ------- | ------------ | - | - | ------- | ----- | 
|                                                    |       | Years Ended    |        
|                                                    |       |                |        
|                                                    |       | December 27,   |         |       | December 25, |   |         | December 31, |  
|                                                    |       | 2003           |         |       | 2004         |   |         | 2005         |  
|                                                    |       |                |         |       |              |   |         |              |  
|                                                    |       | (In thousands) |        
|Income tax expense (benefit) at U.S. statutory rate |       | $              | 36,436  |       |              | $ | (64,374 | )            |   | $ | (14,413 | )    
|State tax                                           |       |                | 1,212   |       |              |   | 491     |              |   |   | 413     |      
|Losses not providing current tax benefit            |       |                |        |       |              |   | 63,043  |              |   |   | 12,911  |      
|Utilization of NOL carryforward                     |       |                | (35,370 | )     |              |   |        |              |   |   |        |      
|Foreign earnings subject to U.S. tax                |       |                | 1,050   |       |              |   | 1,239   |              |   |   | 2,427   |      
|Other                                               |       |                | 176     |       |              |   | (660    | )            |   |   | 815     |      
|                                                    |       |                |         |       |              |   |         |              |  
|                                                    | Total |                | $       | 3,504 |              |   | $       | (261         | ) |   | $       | 2,153 | 
|                                                    |       |                |         |       |              |   |         |              |  



|                                            |                                                            |                                |          |         |              |   |          |         |         | 
|------------------------------------------- | ---------------------------------------------------------- | ------------------------------ | -------- | ------- | ------------ | - | -------- | ------- | ------- | 
|                                            |                                                            | December 25,                   |          |         | December 31, |  
|                                            |                                                            | 2004                           |          |         | 2005         |  
|                                            |                                                            |                                |          |         |              |  
|Deferred tax assets:                        |                                                            |                                |          |         |              |   |          |        
|                                            | Inventory reserves and accruals                            |                                | $        | 2,601   |              |   | $        | 3,907   |        
|                                            | Depreciation                                               |                                |          | 34,795  |              |   |          | 32,134  |        
|                                            | Sales related reserves                                     |                                |          | 35,970  |              |   |          | 18,467  |        
|                                            | Net operating loss carry-forwards                          |                                |          | 422,088 |              |   |          | 485,445 |        
|                                            | Tax credit carry-forwards                                  |                                |          | 59,032  |              |   |          | 61,179  |        
|                                            | Capitalized research and development                       |                                |          | 22,671  |              |   |          | 13,056  |        
|                                            | Restructuring allowance                                    |                                |          | 3,803   |              |   |          | 3,104   |        
|                                            | Acquisition related items                                  |                                |          | 18,738  |              |   |          | 17,395  |        
|                                            | Other                                                      |                                |          | 27,397  |              |   |          | 31,950  |        
|                                            |                                                            |                                |          |         |              |  
|                                            |                                                            | Total deferred tax assets      |          |         | 627,095      |   |          |         | 666,637 | 
|Valuation allowance for deferred tax assets |                                                            |                                | (315,864 | )       |              |   | (311,167 | )      
|                                            |                                                            |                                |          |         |              |  
|Net deferred tax assets                     |                                                            | $                              | 311,231  |         |              | $ | 355,470  |        
|                                            |                                                            |                                |          |         |              |  
|Deferred tax liabilities:                   |                                                            |                                |          |         |              |   |          |        
|                                            | Unremitted earnings of certain foreign entities            |                                |          | 309,481 |              |   |          | 354,778 |        
|                                            | Unrealized gain (loss) on investments in equity securities |                                |          | 1,750   |              |   |          | 692     |        
|                                            |                                                            |                                |          |         |              |  
|                                            |                                                            | Total deferred tax liabilities |          |         | 311,231      |   |          |         | 355,470 | 
|                                            |                                                            |                                |          |         |              |  
|Net deferred tax liabilities                |                                                            | $                              |         |         |              | $ |         |        
|                                            |                                                            |                                |          |         |              |  



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                              
|-- | -----------------------------
|9. | Commitments and Contingencies



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





|                   |  |                  |         |  |                |   |         |              |  |   |         | 
|------------------ |  | ---------------- | ------- |  | -------------- | - | ------- | ------------ |  | - | ------- | 
|                   |  | Non-Cancelable   |         |  | Non-Cancelable |   |         |             
|Fiscal Year Ending |  | Operating Leases |         |  | Subleases      |   |         | Net Payments | 
|                   |  |                  |         |  |                |   |         |              | 
|2006               |  | $                | 41,805  |  |                | $ | (2,795  | )            |  | $ | 39,010  | 
|2007               |  |                  | 40,504  |  |                |   | (1,285  | )            |  |   | 39,219  | 
|2008               |  |                  | 37,584  |  |                |   | (1,306  | )            |  |   | 36,278  | 
|2009               |  |                  | 37,244  |  |                |   | (1,329  | )            |  |   | 35,915  | 
|2010               |  |                  | 31,663  |  |                |   | (1,352  | )            |  |   | 30,311  | 
|Thereafter         |  |                  | 81,094  |  |                |   | (3,958  | )            |  |   | 77,136  | 
|                   |  |                  |         |  |                |   |         |              | 
|Total              |  | $                | 269,894 |  |                | $ | (12,025 | )            |  | $ | 257,869 | 
|                   |  |                  |         |  |                |   |         |              | 





|                                        |  |              |      |  
|--------------------------------------- |  | ------------ | ---- | -
|                                        |  | December 31, |     
|Fiscal Year Ending                      |  | 2005         |     
|                                        |  |              |     
|2006                                    |  | $            | 881  |  
|2007                                    |  |              | 6    |  
|Thereafter                              |  |              | 8    |  
|                                        |  |              |     
|Total minimum lease payments            |  | $            | 895  |  
|Imputed interest                        |  |              | (14  | )
|                                        |  |              |     
|Present value of minimum lease payments |  |              | 881  |  
|Current portion                         |  |              | (868 | )
|                                        |  |              |     
|Non-current portion                     |  | $            | 13   |  
|                                        |  |              |     



| |                      
| | ---------------------
| | Investment Commitment



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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













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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|    |                     
|--- | --------------------
|10. | Stockholders Equity



| |               
| | --------------
| | Treasury Stock







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



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








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





| |                
| | ---------------
| | 1996 Stock Plan







| |                                
| | -------------------------------
| | 2005 Performance Incentive Plan



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                        
| | -----------------------
| | Quantum HDD Merger Plan

00-23 Issues Related to the Accounting for Stock Based
Compensation under APB Opinion No. 25


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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                |                                            |               |            |                     |        |  |                  |            |   |   |      |      | 
|------------------------------- | ------------------------------------------ | ------------- | ---------- | ------------------- | ------ |  | ---------------- | ---------- | - | - | ---- | ---- | 
|                                |                                            |               |            | Options Outstanding |       
|                                |                                            |               |            |                     |       
|                                |                                            | Shares        |            |                     |        |  | Weighted Average |           
|                                |                                            | Available for |            |                     |        |  | Exercise Price   |           
|                                |                                            | 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 |     
|                                | Options granted                            |               |            | (4,832,200          | )      |  |                  | 4,832,200  |   |   |      | 5.83 | 
|                                | Restricted stock granted                   |               |            | (29,669             | )      |  |                  |           |   |   |      |     | 
|                                | Options exercised                          |               |            |                    |        |  |                  | (960,821   | ) |   |      | 4.57 | 
|                                | Options canceled  1996 stock option plan  |               |            | 4,342,079           |        |  |                  | (4,342,079 | ) |   |      | 6.66 | 
|                                | Options canceled  Quantum assumed options |               |            |                    |        |  |                  | (130,107   | ) |   |      | 6.45 | 
|                                | Restricted stock canceled                  |               |            |                    |        |  |                  |           |   |   |      |     | 
|                                |                                            |               |            |                     |        |  |                  |            |  
|Balance as of December 25, 2004 |                                            |               | 5,004,123  |                     |        |  | 26,222,654       |            |   | $ | 6.36 |     
|                                | 2005 Plan                                  |               |            | 22,000,000          |        |  |                  |           |   |   |      |      | 
|                                | Options granted                            |               |            | (8,725,238          | )      |  |                  | 8,725,238  |   |   |      | 5.03 | 
|                                | Restricted stock granted                   |               |            | (352,000            | )      |  |                  |           |   |   |      |     | 
|                                | Options exercised                          |               |            |                    |        |  |                  | (2,051,415 | ) |   |      | 4.46 | 
|                                | Options canceled  1996 stock option plan  |               |            | 8,095,915           |        |  |                  | (8,095,915 | ) |   |      | 7.10 | 
|                                | Options canceled  Quantum assumed options |               |            |                    |        |  |                  | (189,001   | ) |   |      | 6.51 | 
|                                | Restricted stock canceled                  |               |            | 40,000              |        |  |                  |           |   |   |      |     | 
|                                |                                            |               |            |                     |        |  |                  |            |  
|Balance as of December 31, 2005 |                                            |               | 26,062,800 |                     |        |  | 24,611,561       |            |   | $ | 5.80 |     
|                                |                                            |               |            |                     |        |  |                  |            |  

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                        |  |                     |            |           |                     |  |          |          |  |   |             |          |  |          |            |  |  |   |       | 
|----------------------- |  | ------------------- | ---------- | --------- | ------------------- |  | -------- | -------- |  | - | ----------- | -------- |  | -------- | ---------- |  |  | - | ----- | 
|                        |  | 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    |           
|                        |  |                     |            |           |                     |  |          |          |  |   |             |          |  |          |           
|$1.4316 - $   3.58      |  |                     | 2,521,457  |           |                     |  | 6.29     |          |  | $ | 3.51        |          |  |          | 2,135,811  |  |  | $ | 3.53  | 
|$3.6233 - $   4.36      |  |                     | 2,734,322  |           |                     |  | 8.35     |          |  |   | 3.97        |          |  |          | 989,944    |  |  |   | 3.89  | 
|$  4.38 - $   5.33      |  |                     | 10,278,989 |           |                     |  | 8.11     |          |  |   | 4.92        |          |  |          | 3,208,782  |  |  |   | 4.83  | 
|$  5.37 - $   6.00      |  |                     | 3,022,912  |           |                     |  | 6.70     |          |  |   | 5.74        |          |  |          | 1,167,253  |  |  |   | 5.84  | 
|$6.0625 - $ 7.8125      |  |                     | 3,627,727  |           |                     |  | 4.62     |          |  |   | 7.35        |          |  |          | 3,426,484  |  |  |   | 7.39  | 
|$  7.92 - $   9.00      |  |                     | 306,816    |           |                     |  | 6.78     |          |  |   | 8.41        |          |  |          | 202,794    |  |  |   | 8.43  | 
|$  9.18 - $  11.00      |  |                     | 586,155    |           |                     |  | 7.05     |          |  |   | 9.92        |          |  |          | 367,926    |  |  |   | 10.00 | 
|$ 11.31 - $13.1875      |  |                     | 1,411,566  |           |                     |  | 3.45     |          |  |   | 13.00       |          |  |          | 1,337,496  |  |  |   | 13.04 | 
|$ 13.25 - $15.0625      |  |                     | 97,617     |           |                     |  | 6.22     |          |  |   | 13.91       |          |  |          | 69,417     |  |  |   | 14.02 | 
|$16.875 - $19.3113      |  |                     | 24,000     |           |                     |  | 3.09     |          |  |   | 16.90       |          |  |          | 24,000     |  |  |   | 16.90 | 
|                        |  |                     |            |           |                     |  |          |          |  |   |             |          |  |          |           
|                        |  |                     | 24,611,561 |           |                     |  | 6.94     |          |  | $ | 5.80        |          |  |          | 12,929,907 |  |  | $ | 6.44  | 
|                        |  |                     |            |           |                     |  |          |          |  |   |             |          |  |          |           





|                               |  |              |           |   |              |  |           |              |  |  |           |  
|------------------------------ |  | ------------ | --------- | - | ------------ |  | --------- | ------------ |  |  | --------- | -
|                               |  | Years Ended  |          
|                               |  |              |          
|                               |  | December 27, |           |   | December 25, |  |           | December 31, | 
|                               |  | 2003         |           |   | 2004         |  |           | 2005         | 
|                               |  |              |           |   |              |  |           |              | 
|Risk-free interest rate        |  |              | 3.17      | % |              |  | 3.28      | %            |  |  | 3.97      | %
|Weighted average expected life |  |              | 4.5 years |   |              |  | 4.5 years |              |  |  | 4.5 years |  
|Volatility                     |  |              | 73        | % |              |  | 75        | %            |  |  | 73        | %
|Dividend yield                 |  |              |          |   |              |  |          |              |  |  |          |  



|                               |  |              |           |   |              |  |           |              |  |  |           |  
|------------------------------ |  | ------------ | --------- | - | ------------ |  | --------- | ------------ |  |  | --------- | -
|                               |  | Years Ended  |          
|                               |  |              |          
|                               |  | December 27, |           |   | December 25, |  |           | December 31, | 
|                               |  | 2003         |           |   | 2004         |  |           | 2005         | 
|                               |  |              |           |   |              |  |           |              | 
|Risk-free interest rate        |  |              | 1.08      | % |              |  | 2.06      | %            |  |  | 3.50      | %
|Weighted average expected life |  |              | 0.5 years |   |              |  | 0.5 years |              |  |  | 0.5 years |  
|Volatility                     |  |              | 73        | % |              |  | 75        | %            |  |  | 70        | %
|Dividend yield                 |  |              |          |   |              |  |          |              |  |  |          |  





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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|    |                        
|--- | -----------------------
|11. | Discontinued Operations

tm




|    |              
|--- | -------------
|12. | Restructuring





reduction-in


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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


reduction-in






|                             |              |               |      |       |               |   |     |       |   |   |      |       |  
|---------------------------- | ------------ | ------------- | ---- | ----- | ------------- | - | --- | ----- | - | - | ---- | ----- | -
|                             |              | Facilities-   |      |       | Severance and |   |     |      
|                             |              | Related       |      |       | Benefits      |   |     | Total |  
|                             |              |               |      |       |               |   |     |       |  
|                             |              | (In millions) |     
|Provision at April 1, 2001   |              | $             | 45.3 |       |               | $ |    |       |   | $ | 45.3 |      
|Amounts paid                 |              |               | (0.9 | )     |               |   |    |       |   |   | (0.9 | )    
|                             |              |               |      |       |               |   |     |       |  
|Balance at December 29, 2001 |              |               | 44.4 |       |               |   |    |       |   |   | 44.4 |      
|Amounts paid                 |              |               | (4.5 | )     |               |   |    |       |   |   | (4.5 | )    
|2002 accrual                 |              |               | 8.9  |       |               |   |    |       |   |   | 8.9  |      
|                             |              |               |      |       |               |   |     |       |  
|Balance at December 28, 2002 |              |               | 48.8 |       |               |   |    |       |   |   | 48.8 |      
|                             | Amounts paid |               |      | (10.0 | )             |   |     |      |   |   |      | (10.0 | )
|                             |              |               |      |       |               |   |     |       |  
|Balance at December 27, 2003 |              |               | 38.8 |       |               |   |    |       |   |   | 38.8 |      
|                             | Amounts paid |               |      | (7.8  | )             |   |     | (10.7 | ) |   |      | (18.5 | )
|                             | Accruals     |               |      | 20.3  |               |   |     | 12.9  |   |   |      | 33.2  |  
|                             |              |               |      |       |               |   |     |       |  
|Balance at December 25, 2004 |              |               | 51.3 |       |               |   | 2.2 |       |   |   | 53.5 |      
|                             | Amounts paid |               |      | (6.0  | )             |   |     | (15.6 | ) |   |      | (21.6 | )
|                             | Adjustments  |               |      |      |               |   |     | 3.3   |   |   |      | 3.3   |  
|                             | Accruals     |               |      |      |               |   |     | 15.3  |   |   |      | 15.3  |  
|                             |              |               |      |       |               |   |     |       |  
|Balance at December 31, 2005 |              | $             | 45.3 |       |               | $ | 5.2 |       |   | $ | 50.5 |      
|                             |              |               |      |       |               |   |     |       |  

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                
|--- | -------------------------------
|13. | Long-Lived Assets Held for Sale







|    |                  
|--- | -----------------
|14. | Other Gain (Loss)



|                                                                      |  |                |      |   |              |   |    |              |  |   |       |  
|--------------------------------------------------------------------- |  | -------------- | ---- | - | ------------ | - | -- | ------------ |  | - | ----- | -
|                                                                      |  | December 27,   |      |   | December 25, |   |    | December 31, | 
|                                                                      |  | 2003           |      |   | 2004         |   |    | 2005         | 
|                                                                      |  |                |      |   |              |   |    |              | 
|                                                                      |  | (In thousands) |     
|Sale of long-lived asset held for sale                                |  | $              |     |   |              | $ |   |              |  | $ | 5,848 |  
|Sale of equity securities                                             |  |                |     |   |              |   |   |              |  |   | 2,180 |  
|Redemption of the pro rata portion of Quantum Corporations
    bonds |  |                | (958 | ) |              |   |   |              |  |   |      |  
|Other                                                                 |  |                | 345  |   |              |   | 81 |              |  |   | (130  | )
|                                                                      |  |                |      |   |              |   |    |              | 
|Total                                                                 |  | $              | (613 | ) |              | $ | 81 |              |  | $ | 7,898 |  
|                                                                      |  |                |      |   |              |   |    |              | 

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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                   
|--- | ------------------
|15. | Earnings Per Share

Earnings per
Share,


|                                                   |                                         |              |             |           |              |   |             |              |  |   |             |   | 
|-------------------------------------------------- | --------------------------------------- | ------------ | ----------- | --------- | ------------ | - | ----------- | ------------ |  | - | ----------- | - | 
|                                                   |                                         | Years Ended  |            
|                                                   |                                         |              |            
|                                                   |                                         | December 27, |             |           | December 25, |   |             | December 31, | 
|                                                   |                                         | 2003         |             |           | 2004         |   |             | 2005         | 
|                                                   |                                         |              |             |           |              |   |             |              | 
|Numerator  Basic and Diluted                      |                                         |              |             |           |              |   |             |              |  |   |             |  
|Income (loss) from continuing operations           |                                         | $            | 98,901      |           |              | $ | (183,439    | )            |  | $ | (43,332     | )
|Income from discontinued operations                |                                         | $            | 2,211       |           |              | $ |            |              |  | $ |            |  
|                                                   |                                         |              |             |           |              |   |             |              | 
|Net income (loss)                                  |                                         | $            | 101,112     |           |              | $ | (183,439    | )            |  | $ | (43,332     | )
|                                                   |                                         |              |             |           |              |   |             |              | 
|Net income (loss) available to common stockholders |                                         | $            | 101,112     |           |              | $ | (183,439    | )            |  | $ | (43,332     | )
|                                                   |                                         |              |             |           |              |   |             |              | 
|Denominator                                        |                                         |              |             |           |              |   |             |              |  |   |             |  
|Basic weighted average common shares outstanding   |                                         |              | 243,022,694 |           |              |   | 247,671,870 |              |  |   | 253,177,580 |  
|Effect of dilutive securities:                     |                                         |              |             |           |              |   |             |              |  |   |             |  
|                                                   | Common stock options                    |              |             | 8,044,949 |              |   |             |             |  |   |             |  | 
|                                                   | Restricted shares subject to repurchase |              |             | 68,040    |              |   |             |             |  |   |             |  | 
|                                                   |                                         |              |             |           |              |   |             |              | 
|Diluted weighted average common shares             |                                         |              | 251,135,683 |           |              |   | 247,671,870 |              |  |   | 253,177,580 |  
|                                                   |                                         |              |             |           |              |   |             |              | 
|Net income (loss) per share  basic                |                                         |              |             |           |              |   |             |              |  |   |             |  
|Continuing operations                              |                                         | $            | 0.41        |           |              | $ | (0.74       | )            |  | $ | (0.17       | )
|Discontinued operations                            |                                         | $            | 0.01        |           |              | $ |            |              |  | $ |            |  
|                                                   |                                         |              |             |           |              |   |             |              | 
|Total                                              |                                         | $            | 0.42        |           |              | $ | (0.74       | )            |  | $ | (0.17       | )
|                                                   |                                         |              |             |           |              |   |             |              | 
|Net income (loss) per share  diluted              |                                         |              |             |           |              |   |             |              |  |   |             |  
|Continuing operations                              |                                         | $            | 0.39        |           |              | $ | (0.74       | )            |  | $ | (0.17       | )
|Discontinued operations                            |                                         | $            | 0.01        |           |              | $ |            |              |  | $ |            |  
|                                                   |                                         |              |             |           |              |   |             |              | 
|Total                                              |                                         | $            | 0.40        |           |              | $ | (0.74       | )            |  | $ | (0.17       | )
|                                                   |                                         |              |             |           |              |   |             |              | 



|                                             |                                                                                                |              |        |        |              |  |        |              |  |  |        |        | 
|-------------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------ | ------ | ------ | ------------ |  | ------ | ------------ |  |  | ------ | ------ | 
|                                             |                                                                                                | Years Ended  |       
|                                             |                                                                                                |              |       
|                                             |                                                                                                | December 27, |        |        | December 25, |  |        | December 31, | 
|                                             |                                                                                                | 2003         |        |        | 2004         |  |        | 2005         | 
|                                             |                                                                                                |              |        |        |              |  |        |              | 
|Stock options outstanding:                   |                                                                                                |              |        |        |              |  |        |              |  |  |        |       
|                                             | In-the-money options                                                                           |              |        |       |              |  |        | 4,340        |  |  |        | 1,571  | 
|                                             | Out-of-the-money options                                                                       |              |        | 3,111  |              |  |        | 12,032       |  |  |        | 13,266 | 
|Unvested common shares subject to repurchase |                                                                                                |              |       |        |              |  | 11     |              |  |  | 163    |       
|6.8% Convertible Senior Notes due 2010       |                                                                                                |              | 11,723 |        |              |  | 18,756 |              |  |  | 15,873 |       
|2.375% Convertible Senior Notes due 2012     |                                                                                                |              |       |        |              |  |       |              |  |  | 1,102  |       
|                                             |                                                                                                |              |        |        |              |  |        |              | 
|                                             | Total potential shares of common stock excluded from the
    computation of earnings per share |              |        | 14,834 |              |  |        | 35,139       |  |  |        | 31,975 | 

96



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




(In-the (Out-of




|    |                                        
|--- | ---------------------------------------
|16. | Segment and Major Customers Information

Disclosure
about Segments of an Enterprise and Related
Information,




|                               |  |                   |           |            |                   |   |           |                   |            |   |           |  |  |            |         |  |        |   |           |  |  |   |         | 
|------------------------------ |  | ----------------- | --------- | ---------- | ----------------- | - | --------- | ----------------- | ---------- | - | --------- |  |  | ---------- | ------- |  | ------ | - | --------- |  |  | - | ------- | 
|                               |  | Year Ended        |           |            | Year Ended        |   |           | Year Ended        |           
|                               |  | December 27, 2003 |           |            | December 25, 2004 |   |           | December 31, 2005 |           
|                               |  |                   |           |            |                   |   |           |                   |           
|                               |  |                   |           | Long-Lived |                   |   |           |                   | Long-Lived |   |           |  |  | Long-Lived |        
|                               |  | Revenue           |           |            | Assets            |   |           | Revenue           |            |   | Assets    |  |  | Revenue    |         |  | Assets |  
|                               |  |                   |           |            |                   |   |           |                   |            |   |           |  |  |            |         |  |        |  
|                               |  | (In thousands)    |          
|United States                  |  | $                 | 1,375,663 |            |                   | $ | 916,401   |                   |            | $ | 1,205,724 |  |  | $          | 696,317 |  |        | $ | 1,200,339 |  |  | $ | 680,833 | 
|Asia Pacific and Japan         |  |                   | 1,259,801 |            |                   |   | 129,380   |                   |            |   | 1,136,769 |  |  |            | 172,002 |  |        |   | 1,178,055 |  |  |   | 166,769 | 
|Europe, Middle East and Africa |  |                   | 1,354,421 |            |                   |   | 731       |                   |            |   | 1,373,806 |  |  |            | 444     |  |        |   | 1,388,017 |  |  |   | 628     | 
|Latin America and other        |  |                   | 96,558    |            |                   |   | 157       |                   |            |   | 80,029    |  |  |            | 271     |  |        |   | 123,826   |  |  |   |        | 
|                               |  |                   |           |            |                   |   |           |                   |            |   |           |  |  |            |         |  |        |  
|Total                          |  | $                 | 4,086,443 |            |                   | $ | 1,046,669 |                   |            | $ | 3,796,328 |  |  | $          | 869,034 |  |        | $ | 3,890,237 |  |  | $ | 848,230 | 
|                               |  |                   |           |            |                   |   |           |                   |            |   |           |  |  |            |         |  |        |  





97



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                       
|--- | ----------------------
|17. | Employee Benefit Plans



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





| |                           
| | --------------------------
| | Deferred Compensation Plan

Accounting for Deferred Compensation
Arrangements Where Amounts Earned are Held in a Rabbi Trust and
Invested




|    |                      
|--- | ---------------------
|18. | Litigation Settlement





|    |                 
|--- | ----------------
|19. | Rescission Offer



98



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MAXTOR CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                               
|--- | ------------------------------
|20. | Merger with Seagate Technology

inter
alia






|    |                 
|--- | ----------------
|21. | Subsequent Event

Recognition of Liabilities in
Connection with a Purchase Business Combination.


99



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##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






Consolidated financial statements and financial statement
schedule




Internal control over financial reporting


Internal Control  Integrated
Framework




100



---



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101



---



##### Table of Contents








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








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

Managements Report on Assessment of Internal Control
Over Financial Reporting


13a-15(f)


Internal Control 
Integrated Framework




Remediation of Material Weakness






| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lack of accounting personnel with sufficient skills and
    experience to ensure the accounting for complex, non-routine
    transactions is in compliance with GAAP; and         
|
| |  | Insufficient formalized procedures to assure that complex,
    non-routine transactions are reviewed by management or
    accounting personnel with technical accounting expertise

10-K/A 10-Q


10-K/A




| |   |                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Supplementing the Companys staff with additional
    accounting personnel and outside contractors with the technical
    accounting expertise necessary to evaluate and document complex,
    non-routine transactions,
|
| |  | Reorganizing the accounting and finance department, and                                                                                                                                                                 

102



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| |   |                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Revising processes and procedures to assure the review by senior
    management of the accounting and related documentation for
    complex, non-routine transactions (purchase accounting entries
    relating to deferred taxes, goodwill and leases, and severance
    and facility accruals in connection with the establishment of
    restructuring reserves).





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | During the quarter ended December 25, 2004, the Company
    filled the then vacant position of Chief Financial Officer and
    appointed an Operations Controller to provide leadership and
    review in the accounting function. The Company also established
    the previously outsourced internal audit function in-house, led
    by a senior executive.                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | During the first quarter of 2005, the Company appointed a
    Corporate Controller and Principal Accounting Officer to replace
    the former Corporate Controller who resigned. The Company also
    effected a reorganization of its accounting and finance
    department and implemented revised policies and procedures to
    ensure early involvement and adequate evaluation of complex,
    non-routine transactions (any purchase accounting entries
    relating to deferred taxes, goodwill and leases, and severance
    and facility accruals in connection with the establishment of
    restructuring reserves) by accounting personnel with technical
    expertise and review by senior management of the results of the
    accounting evaluation and documentation.
|
| |  | In the second quarter of 2005, the Company continued to enhance
    its accounting staffing, including the hiring of key accounting
    personnel with requisite technical accounting expertise. The
    addition of the accounting staff in the second quarter of 2005
    completed the planned remediation steps.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | In the third and fourth quarters of 2005, the Company continued
    to monitor the effectiveness of these remediation measures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

Changes in Internal Control Over Financial Reporting




Evaluation of Effectiveness of Disclosure Controls and
Procedures


13a-15(e)







|         |                  
|-------- | -----------------
|Item 9B. | Other Information



103



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PART III







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

S-K







|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation



104



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|         |                                                                   
|-------- | ------------------------------------------------------------------
|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





| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1)-(2) Financial Statements and Financial Statement
    Schedules  See Index to Consolidated Financial
    Statements under Item 8 on page 59 of this report.
|
| | (3) Exhibits. See Index to Exhibits on pages 108 to
    112 hereof.                                                                                            

105



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SIGNATURES






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



| |     |              
| | --- | -------------
| | By: | /s/ C.S. PARK

| | 
| | 
| | 



| |                                     
| | ------------------------------------
| | Dr. C.S. Park                       
| | Chairman and Chief Executive Officer



|                                                   |  |                                                                                        |  |                   |  | 
|-------------------------------------------------- |  | -------------------------------------------------------------------------------------- |  | ----------------- |  | 
|Signature                                          |  | Title                                                                                  |  | Date             
|                                                   |  |                                                                                        |  |                  
|                                                  
|/s/ C.S. ParkDr. C.S. Park                         |  | Chairman and Chief Executive Officer (Principal Executive
    Officer)                 |  | February 21, 2006
|                                                  
|/s/ Duston M. WilliamsDuston M. Williams           |  | Executive Vice President and Chief Financial Officer
    (Principal Financial Officer) |  | February 21, 2006
|                                                  
|/s/ Kimberly AlexyKimberly Alexy                   |  | Director                                                                               |  | February 21, 2006
|                                                  
|/s/ Richard E. AllenRichard E. Allen               |  | Director                                                                               |  | February 21, 2006
|                                                  
|/s/ Charles M.
    BoesenbergCharles M. Boesenberg |  | Director                                                                               |  | February 21, 2006
|                                                  
|/s/ Michael R. CannonMichael R. Cannon             |  | Director                                                                               |  | February 21, 2006
|                                                  
|/s/ Charles F. ChristCharles F. Christ             |  | Director                                                                               |  | February 21, 2006
|                                                  
|/s/ Charles HillCharles Hill                       |  | Director                                                                               |  | February 21, 2006
|                                                  
|/s/ Gregory E. MyersGregory E. Myers               |  | Director                                                                               |  | February 21, 2006
|                                                  
|/s/ Nancy BushNancy Bush                           |  | Vice President, Corporate Controller (Principal Accounting
    Officer)                |  | February 21, 2006

106



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MAXTOR CORPORATION







SCHEDULE II  VALUATION AND QUALIFYING
ACCOUNTS


|                  |                                             |                |   |         |                   |  |   |                  |   |            |        |         |   |  |   |         | 
|----------------- | ------------------------------------------- | -------------- | - | ------- | ----------------- |  | - | ---------------- | - | ---------- | ------ | ------- | - |  | - | ------- | 
|                  |                                             | Balance at     |   |         | Additions Charged |  |   |                  |   | Balance at |       
|                  |                                             | Beginning      |   |         | to Cost and       |  |   |                  |   | End of     |       
|Fiscal Year Ended |                                             | of Period      |   |         | Expenses          |  |   | Deductions(1)(2) |   |            | Period |        
|                  |                                             |                |   |         |                   |  |   |                  |   |            |        |        
|                  |                                             | (In thousands) |  
|2005              |                                             |                |   |         |                   |  |   |                  |   |            |        |         |   |  |   |        
|                  | Allowance for doubtful accounts             |                | $ | 8,228   |                   |  | $ | 4,520            |   |            | $      | (213    | ) |  | $ | 12,961  | 
|                  | Revenue reserves                            |                | $ | 85,315  |                   |  | $ | 351,400          |   |            | $      | 348,240 |   |  | $ | 88,475  | 
|                  | Valuation allowance for deferred tax assets |                | $ | 315,864 |                   |  | $ | (4,697           | ) |            | $      |        |   |  | $ | 311,167 | 
|2004              |                                             |                |   |         |                   |  |   |                  |   |            |        |         |   |  |   |        
|                  | Allowance for doubtful accounts             |                | $ | 11,220  |                   |  | $ | (433             | ) |            | $      | 2,559   |   |  | $ | 8,228   | 
|                  | Revenue reserves                            |                | $ | 82,809  |                   |  | $ | 398,486          |   |            | $      | 395,980 |   |  | $ | 85,315  | 
|                  | Valuation allowance for deferred tax assets |                | $ | 181,177 |                   |  | $ | 134,687          |   |            | $      |        |   |  | $ | 315,864 | 
|2003              |                                             |                |   |         |                   |  |   |                  |   |            |        |         |   |  |   |        
|                  | Allowance for doubtful accounts             |                | $ | 18,320  |                   |  | $ | (2,000           | ) |            | $      | 5,100   |   |  | $ | 11,220  | 
|                  | Revenue reserves                            |                | $ | 82,878  |                   |  | $ | 525,329          |   |            | $      | 525,398 |   |  | $ | 82,809  | 
|                  | Valuation allowance for deferred tax assets |                | $ | 186,980 |                   |  | $ | (5,803           | ) |            | $      |        |   |  | $ | 181,177 | 






|    |                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Deductions for allowance for doubtful accounts represent
    recoveries of previously reserved balances and write-offs of
    fully reserved balances for which collection efforts have been
    exhausted.
|   
|(2) | Deductions for revenue reserves represent actual returns and
    allowances.                                                                                                                               

107



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##### Table of Contents






INDEX TO EXHIBITS


|        |    |             |  |                                                                                                                                                                                                                                                                                                                  
|------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 2  | .1(29)      |  | Agreement and Plan of Merger, dated as of December 20,
    2005, by and among Seagate, MD Merger Corporation and
    Maxtor Corporation.                                                                                                                                                                         
|       
|        | 3  | .1(5)       |  | Restated Certificate of Incorporation of Registrant.                                                                                                                                                                                                                                                             
|       
|        | 3  | .2          |  | Amended and Restated Bylaws of Registrant, dated
    February 18, 2005.                                                                                                                                                                                                                                          
|       
|        | 4  | .1(11)      |  | Indenture between Registrant and U.S. Bank National
    Association, dated as of May 7, 2003.                                                                                                                                                                                                                    
|       
|        | 4  | .2(11)      |  | Resale Registration Rights Agreement between Registrant, Banc of
    America Securities LLC and Merrill Lynch, Pierce,
    Fenner & Smith Incorporated, dated as of May 7,
    2003.                                                                                                                             
|       
|        | 4  | .3(28)      |  | Indenture between Maxtor Corporation and U.S. Bank National
    Association, dated August 15, 2005.                                                                                                                                                                                                              
|       
|        | 4  | .4(28)      |  | Registration Rights Agreement among Maxtor Corporation,
    Citigroup Global Markets Inc., Merrill Lynch, Pierce
    Fenner & Smith Incorporated and Goldman Sachs and Co.,
    dated August 15, 2005.                                                                                                           
|       
|        | 10 | .1(1)       |  | Form of Indemnification Agreement between Registrant and
    Registrants directors and officers.**                                                                                                                                                                                                              
|       
|        | 10 | .2(1)       |  | Indenture dated as of March 1, 1987 between Registrant and
    Security Pacific National Bank, as Trustee.                                                                                                                                                                                                       
|       
|        | 10 | .3(1)       |  | Land Lease between Housing Development Board and Maxtor
    Singapore Limited dated as of March 8, 1991.                                                                                                                                                                                                         
|       
|        | 10 | .4(2)       |  | 1998 Restricted Stock Plan.**                                                                                                                                                                                                                                                                                    
|       
|        | 10 | .5(2)       |  | Form of Restricted Stock Grant Agreement.**                                                                                                                                                                                                                                                                      
|       
|        | 10 | .6(3)       |  | 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 | .7(4)       |  | Form of Tax Opinion Insurance Policy.                                                                                                                                                                                                                                                                            
|       
|        | 10 | .8(6)       |  | Separation and Redemption Agreement dated as of April 2,
    2001 among Quantum Corporation, Insula Corporation and
    Registrant.                                                                                                                                                                              
|       
|        | 10 | .9(6)       |  | Tax Sharing and Indemnity Agreement dated as of April 2,
    2001 among Quantum Corporation, Insula Corporation and
    Registrant.                                                                                                                                                                              
|       
|        | 10 | .10(6)      |  | Intellectual Property Agreement dated as of April 2, 2001
    by and between Quantum Corporation and Insula Corporation.                                                                                                                                                                                         
|       
|        | 10 | .11(6)      |  | Indemnification Agreement dated as of April 2, 2001 among
    Quantum Corporation, Insula Corporation and Registrant.                                                                                                                                                                                            
|       
|        | 10 | .12(6)      |  | Real Estate Matters Agreement dated as of April 2, 2001
    among Quantum Corporation, Insula Corporation and Registrant.                                                                                                                                                                                        
|       
|        | 10 | .13(6)      |  | General Assignment and Assumption Agreement dated as of
    April 2, 2001 among Quantum Corporation, Insula Corporation
    and Registrant.                                                                                                                                                                      
|       
|        | 10 | .14(7)      |  | Form of Tax Opinion Insurance Policy Rider.                                                                                                                                                                                                                                                                      
|       
|        | 10 | .15(8)      |  | 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 | .16(9)      |  | Maxtor Corporation Amended and Restated 1996 Stock Option Plan.**                                                                                                                                                                                                                                                
|       
|        | 10 | .17(9)      |  | Standard Volume Purchase Agreement between Registrant, Agere
    Systems, Inc., and Agere Systems Singapore Pte. Ltd., effective
    as of January 1, 2002.*                                                                                                                                                     
|       
|        | 10 | .18(10)     |  | 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.                                                                                                                    
|       
|        | 10 | .19(10)     |  | 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., and Maxtor Technology (Suzhou
    Co., Ltd., dated as of February 12, 2003.

108



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                          
|------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|       
|        | 10 | .20(12)     |  | Letter of Guarantee from Oversea-Chinese Banking Corporation
    Limited to Maxtor Peripherals (S) Pte Ltd, dated July 29,
    2003.                                                                                                     
|       
|        | 10 | .21(12)     |  | Form of Amendment of Restricted Stock Unit Award Agreement
    between Registrant and David L. Beaver (50,000
    Restricted Stock Units) dated as of September 2, 2003.**                                                               
|       
|        | 10 | .22(12)     |  | Loan Agreement between Maxtor Peripherals (S) Pte Ltd and the
    Singapore Economic Development Board, dated September 3,
    2003.                                                                                                     
|       
|        | 10 | .23(14)     |  | Supplementary Agreement on Amendment of Foreign Exchange
    Loan Contract between Maxtor Technology (Suzhou) Co., Ltd.
    and Bank of China SIP Sub-branch, dated March 24, 2004.                                                      
|       
|        | 10 | .24(15)     |  | U.S. $100,000,000 Receivables Loan and Security Agreement
    dated as of June 24, 2004 among Maxtor Receivables LLC,
    Maxtor Corporation, Merrill Lynch Commercial Finance Corp. and
    U.S. Bank National Association.             
|       
|        | 10 | .25(15)     |  | Purchase and Contribution Agreement dated as of June 24,
    2004 between Maxtor Corporation and Maxtor Receivables LLC.                                                                                                                 
|       
|        | 10 | .26(24)     |  | First Amendment Agreement to the Receivables Loan and Security
    Agreement dated December 22, 2004 among Maxtor Receivables
    LLC, Maxtor Corporation, Merrill Lynch Commercial Finance Corp.
    and U.S. Bank National Association.
|       
|        | 10 | .27(24)     |  | Second Amendment Agreement to the Receivables Loan and Security
    Agreement dated March 4, 2005 among Maxtor Receivables LLC,
    Maxtor Corporation, Merrill Lynch Commercial Finance Corp. and
    U.S. Bank National Association.   
|       
|        | 10 | .28(15)     |  | Amendment No. 1 to Maxtor Standard Volume Purchase
    Agreement dated as of July 1, 2004 between Maxtor
    Corporation and Agere Systems Inc.*                                                                                         
|       
|        | 10 | .29(15)     |  | Agreement dated as of July 19, 2004 between Maxtor
    Corporation and Mr. Phillip C. Duncan.**                                                                                                                                          
|       
|        | 10 | .30(15)     |  | Employment Offer Letter dated as of July 19, 2004 from
    Maxtor Corporation to Mr. John Viera.**                                                                                                                                       
|       
|        | 10 | .31(16)     |  | Employment Offer Letter dated as of August 23, 2004 from
    Maxtor Corporation to Mr. Michael A. Bless.**                                                                                                                               
|       
|        | 10 | .32(17)     |  | Employment Offer Letter dated as of September 30, 2004 from
    Maxtor Corporation to Ms. Fariba Danesh.**                                                                                                                               
|       
|        | 10 | .33(18)     |  | Foreign Exchange Loan Agreement No. YZDZ (2003) NO. 197 between
    Maxtor Technology (Suzhou) Co., Ltd. and Bank of China Suzhou
    Industrial Park Sub-branch, dated October 10, 2003.                                                
|       
|        | 10 | .34(18)     |  | Letter of Guarantee by Maxtor International S.à r.l. to and
    for the benefit of Bank of China Suzhou Branch regarding Foreign
    Exchange Loan Agreement No. YZDZ (2003) NO. 197 made as of
    August 16, 2004.                     
|       
|        | 10 | .35(18)     |  | Foreign Exchange Loan Agreement No. YZDZ (2004) NO. 089 between
    Maxtor Technology (Suzhou) Co., Ltd. and Bank of China Suzhou
    Industrial Park Sub-branch, dated August 16, 2004.                                                 
|       
|        | 10 | .36(18)     |  | Letter of Guarantee by Maxtor International S.à r.l. to and
    for the benefit of Bank of China Suzhou Branch regarding Foreign
    Exchange Loan Agreement No. YZDZ (2004) NO. 089 made as of
    August 16, 2004.                     
|       
|        | 10 | .37(19)     |  | Employment Offer Letter dated as of November 12, 2004 from
    Maxtor Corporation to Dr. C.S. Park.**                                                                                                                                    
|       
|        | 10 | .38(20)     |  | Employment Offer Letter dated as of November 17, 2004 from
    Maxtor Corporation to Mr. Michael J. Wingert.**                                                                                                                           
|       
|        | 10 | .39(21)     |  | Employment Offer Letter dated as of December 3, 2004 from
    Maxtor Corporation to Mr. Duston M. Williams.**                                                                                                                            
|       
|        | 10 | .40(22)     |  | Amendment to the Employment Offer Letter dated as of
    February 7, 2004 from Maxtor Corporation to Dr. C.S.
    Park.**                                                                                                                
|       
|        | 10 | .41(23)     |  | Amendment to the Employment Offer Letter dated as of
    February 7, 2004 from Maxtor Corporation to
    Mr. Michael J. Wingert.**                                                                                                       

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|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|       
|        | 10 | .42(23)     |  | Employment Offer Letter dated as of February 18, 2005 from
    Maxtor Corporation to Mr. Kurt Richarz.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       
|        | 10 | .43(24)     |  | Mutual General Release and Global Settlement Agreement between
    Registrants and Quantum Corporation dated as of
    December 23, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       
|        | 10 | .44(24)     |  | Forbearance Agreement by and among Maxtor Receivables LLC,
    Maxtor Corporation and Merrill Lynch Commercial Finance
    Corporation, dated as of February 11, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|       
|        | 10 | .45(25)     |  | Amended and Restated Executive Deferred Compensation Plan,
    effective January 1, 2005.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       
|        | 10 | .46(25)     |  | Executive Retention and Severance Plan adopted October 30,
    2003, amended and restated effective March 7, 2005,
    including forms of: (i) Agreement to Participate,
    (ii) General Release of Claims, and (iii) Restrictive
    Covenants Agreement.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       
|        | 10 | .47(25)     |  | Forms of Agreement to Participate in the Maxtor Corporation
    Executive Retention and Severance Plan, effective March 14,
    2005, by: (i) Dr. C. S. Park; (ii) Michael J. Wingert;
    (iii) Duston M. Williams; (iv) Fariba Danesh;
    (v) David Beaver; and (vi) Kurt Richarz.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|       
|        | 10 | .48(25)     |  | Restricted Stock Unit Plan, as amended and restated through
    March 7, 2005, including forms of:(i) Standard Form of
    Award Agreement and (ii) Designation of Beneficiary.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|       
|        | 10 | .49(25)     |  | Forms of Restated Restricted Stock Unit Award Agreement,
    effective March 14, 2005, by: (i) Dr. C. S. Park;
    (ii) Michael J. Wingert; (iii) Duston M. Williams;
    (iv) Fariba Danesh; (v) David Beaver; and
    (vi) Kurt Richarz.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|       
|        | 10 | .50(25)     |  | Form of Nonstatutory Stock Option Agreement under the Maxtor
    Corporation Amended and Restated 1996 Stock Option Plan.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       
|        | 10 | .51(12)     |  | Form of Restricted Stock Unit Award Agreement between Registrant
    and Fariba Danesh (45,000 Restricted Stock Units), dated as of
    September 30, 2004.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       
|        | 10 | .52(13)     |  | Form of Executive Retention and Severance Participation
    Agreement between Registrant and Fariba Danesh, dated as of
    September 30, 2004.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|       
|        | 10 | .53(1)      |  | Form of Indemnification Agreement between Registrant and Fariba
    Danesh, dated as of September 30, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       
|        | 10 | .54(26)     |  | 1998 Employee Stock Purchase Plan, as amended by the Board of
    Directors through March 7, 2005**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       
|        | 10 | .55(27)     |  | 2005 Performance Incentive Plan effective May 13, 2005,
    including forms of: (i) Restricted Stock Agreement for
    Section 16 Insiders; (ii) Restricted Stock Agreement
    for Non-Section 16 Insiders; (iii) Restricted Stock
    Units Agreement for Non-US Participants; (iv) Restricted
    Stock Units Agreement for US Participants; (v) Restricted
    Stock Units Agreement for Section 16 Insiders;
    (vi) Stock Option Agreement; (vii) Stock Option
    Agreement for Non-US Participants; (viii) Notice of Grant of
    Stock Option for Non-US Participants; (ix) Notice of Grant
    of Stock Option; (x) Notice of Grant of Restricted Stock;
    (xi) Notice of Grant of Restricted Stock Units for Non-US
    Participants; and (xii) Notice of Grant of Restricted Stock
    Units.**
|       
|        | 10 | .56(27)     |  | Supply Agreement dated October 6, 2003 between Maxtor
    Corporation and Komag, Inc. as amended by Addendum to Business
    Agreement dated July 8, 2005.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       
|        | 10 | .57(28)     |  | US $300,000,000 Purchase Agreement between Maxtor
    Corporation and Citigroup Global Markets Inc. as Representative
    of the several Initial Purchasers dated as of August 9,
    2005, as amended by Amendment to Purchase Agreement dated as of
    August 26, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       
|        | 10 | .58(29)     |  | Form of Voting Agreement, dated December 20, 2005, by and
    among Maxtor Corporation and the persons listed on Schedule I
    thereto.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       
|        | 10 | .59         |  | Retention Bonus Program, as amended.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|       
|        | 10 | .60         |  | Executive Incentive Program in which the following executive
    officers at the indicated maximum target bonus levels may
    participate: Michael J. Wingert ($300,000); Duston M. Williams
    ($250,000); Kurt Richarz ($250,000); and Fariba Danesh
    ($250,000).**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

110



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|       
|        | 10 | .61         |  | Lease Agreements made between Quantum Corporation, John
    Arrillaga, Trustee, or his Successor Trustee, UTA dated
    July 7, 1977 and Richard T. Peery, Trustee, or his
    Successor Trustee, UTA dated July 7, 1997 for the following
    properties located in Milpitas, California:
    (i) Building 1, located at the corner of Bellew Drive
    and Magnolia Drive, made October 31, 1989, as amended,
    (ii) Building 2, located at the corner of Bellew Drive
    and McCarthy Boulevard made October 31, 1989, as amended,
    (iii) Building 3, located at 900 Sumac Drive, made
    April 10, 1992, as amended, (iv) Building 4,
    located at 1000 Sumac Drive, made September 17, 1990, as
    amended, (v) Building 5, located at 100 Sumac Drive,
    made March 23, 1994, as amended and
    (vi) Building 6, located at Sumac Drive, made
    April 16, 1997, as amended.
|       
|        | 10 | .62         |  | 2006 Annual Incentive Plan, in which the following executive
    officers at the indicated target bonus levels, if the 100%
    target payout is achieved, may participate: C.S. Park
    ($700,000); Michael J. Wingert ($600,000); Duston M. Williams
    ($270,000); Kurt Richarz ($162,500); and Fariba Danesh
    ($240,000).**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|       
|        | 12 | .1          |  | Statement regarding Computation of Ratios.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       
|        | 21 | .1          |  | List of Subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       
|        | 23 | .1          |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       
|        | 31 | .1          |  | Certification of Dr. C.S. Park, Chairman 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|       
|        | 31 | .2          |  | Certification of Duston M. Williams, Executive Vice President,
    Finance and 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 Dr. C.S. Park, Chairman 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 Duston M. Williams, Executive Vice President,
    Finance and 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 exhibits to registration statement
    on Form S-1, SEC
    file
    No. 333-56099,
    filed on June 5, 1998.    
|
| | (2) | Incorporated by reference to exhibits to registration statement
    on Form S-1/ A,
    SEC file
    No. 333-56099,
    filed on June 29, 1998.
|
| | (3) | Incorporated by reference to exhibits of
    Form 10-K filed
    March 29, 2000.                                                               
|
| | (4) | Incorporated by reference to exhibits of registration statement
    on Form S-4/ A
    filed January 23, 2001.                                 
|
| | (5) | Incorporated by reference to Exhibit A of Exhibit 3.1
    of Form 8-K filed
    April 17, 2001.                                                
|
| | (6) | Incorporated by reference to exhibits of
    Form 8-K filed
    April 17, 2001.                                                                
|
| | (7) | Incorporated by reference to exhibits to registration statement
    on Form S-3, File
    No. 333-61770,
    filed May 29, 2001.               
|
| | (8) | Incorporated by reference to exhibits of
    Form 10-Q filed
    November 13, 2001.                                                            
|
| | (9) | Incorporated by reference to exhibits of
    Form 10-K filed
    March 28, 2003.                                                               



|     |                                                                                    
|---- | -----------------------------------------------------------------------------------
|(10) | Incorporated by reference to exhibits of
    Form 10-Q filed
    May 13, 2003.     
|    
|(11) | Incorporated by reference to exhibits of
    Form 10-Q filed
    August 12, 2003.  
|    
|(12) | Incorporated by reference to exhibits of
    Form 10-Q filed
    November 12, 2003.

111



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##### Table of Contents





|     |                                                                                   
|---- | ----------------------------------------------------------------------------------
|(13) | Incorporated by reference to exhibits of
    Form 10-K filed
    March 11, 2004.  
|    
|(14) | Incorporated by reference to exhibits of
    Form 10-Q filed
    May 5, 2004.     
|    
|(15) | Incorporated by reference to exhibits of
    Form 10-Q filed
    August 2, 2004.  
|    
|(16) | Incorporated by reference to exhibits of
    Form 8-K filed
    August 24, 2004.  
|    
|(17) | Incorporated by reference to exhibits of
    Form 8-K filed
    October 4, 2004.  
|    
|(18) | Incorporated by reference to exhibits of
    Form 10-Q filed
    November 4, 2004.
|    
|(19) | Incorporated by reference to exhibits of
    Form 8-K filed
    November 18, 2004.
|    
|(20) | Incorporated by reference to exhibits of
    Form 8-K filed
    November 23, 2004.
|    
|(21) | Incorporated by reference to exhibits of
    Form 8-K filed
    December 9, 2004. 
|    
|(22) | Incorporated by reference to exhibits of
    Form 8-K filed
    February 11, 2005.
|    
|(23) | Incorporated by reference to exhibits of
    Form 8-K filed
    February 25, 2005.
|    
|(24) | Incorporated by reference to exhibits of
    Form 10-K filed
    March 10, 2005.  
|    
|(25) | Incorporated by reference to exhibits of
    Form 10-Q filed
    May 13, 2005.    
|    
|(26) | Incorporated by reference to exhibit of
    Form 8-K filed
    May 19, 2005.      
|    
|(27) | Incorporated by reference to exhibits of
    Form 10-Q filed
    August 4, 2005.  
|    
|(28) | Incorporated by reference to exhibits of
    Form 10-Q filed
    November 4, 2005.
|    
|(29) | Incorporated by reference to exhibits of
    Form 8-K filed
    December 22, 2005.

112