##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-Q





|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the period ended October 1, 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 Boulevard,
    Milpitas, CA(Address of principal executive offices) |  | 95035(Zip Code)                         

Registrants telephone number, including area code:


(408) 894-5000


þ o


þ o


o þ












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MAXTOR CORPORATION


FORM 10-Q


October 1, 2005


INDEX


|                                  |  |                                                                                                                                           |    |      |    | 
|--------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                  |  |                                                                                                                                           |    | Page |   
|                                  |  |                                                                                                                                           |    |      |   
|PART I. FINANCIAL
    INFORMATION |  |                                                                                                                                           |    |     
|Item 1.                           |  | Condensed Consolidated Financial Statements
    (Unaudited)                                                                               |    |      | 3  | 
|                                  |  | Condensed Consolidated Balance
    Sheets  October 1, 2005, and December 25,
    2004 (Unaudited)                                        |    |      | 3  | 
|                                  |  | Condensed Consolidated Statements of
    Operations  Three and nine months ended
    October 1, 2005, and September 25, 2004 (Unaudited) |    |      | 4  | 
|                                  |  | Condensed Consolidated Statements of Cash
    Flows  Nine months ended October 1, 2005, and
    September 25, 2004 (Unaudited)           |    |      | 5  | 
|                                  |  | Notes to Condensed Consolidated Financial
    Statements (Unaudited)                                                                      |    |      | 6  | 
|Item 2.                           |  | Managements Discussion and Analysis
    of Financial Condition and Results of
    Operations                                             |    |      | 20 | 
|Item 3.                           |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                                            |    |      | 46 | 
|Item 4.                           |  | Controls and Procedures                                                                                                                   |    |      | 47 | 
|                                 
|PART II. OTHER INFORMATION        |  |                                                                                                                                           |    |     
|Item 1.                           |  | Legal Proceedings                                                                                                                         |    |      | 49 | 
|Item 2.                           |  | Unregistered Sales of Equity Securities and
    Use of Proceeds                                                                           |    |      | 50 | 
|Item 3.                           |  | Defaults Upon Senior Securities                                                                                                           |    |      | 50 | 
|Item 4.                           |  | Submission of Matters to a Vote of Security
    Holders                                                                                   |    |      | 50 | 
|Item 5.                           |  | Other Information                                                                                                                         |    |      | 50 | 
|Item 6.                           |  | Exhibits                                                                                                                                  |    |      | 50 | 
|Signature Page                    |  |                                                                                                                                           | 51 |     
|EXHIBIT 4.1                      
|EXHIBIT 4.2                      
|EXHIBIT 10.1                     
|EXHIBIT 12.1                     
|EXHIBIT 31.1                     
|EXHIBIT 31.2                     
|EXHIBIT 32.1                     
|EXHIBIT 32.2                     



2



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##### Table of Contents






PART I. FINANCIAL INFORMATION







|        |                                                            
|------- | -----------------------------------------------------------
|Item 1. | Condensed Consolidated Financial Statements
    (Unaudited)

MAXTOR CORPORATION





CONDENSED CONSOLIDATED BALANCE SHEETS


|                                           |                                                                                                                                                                                                                                                     |                                            |            |         |              |  |            |         |           | 
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | ------- | ------------ |  | ---------- | ------- | --------- | 
|                                           |                                                                                                                                                                                                                                                     | October 1,                                 |            |         | December 25, | 
|                                           |                                                                                                                                                                                                                                                     | 2005                                       |            |         | 2004         | 
|                                           |                                                                                                                                                                                                                                                     |                                            |            |         |              | 
|                                           |                                                                                                                                                                                                                                                     | (Unaudited)                                |           
|                                           |                                                                                                                                                                                                                                                     | (In thousands, except share                |           
|                                           |                                                                                                                                                                                                                                                     | and per share amounts)                     |           
|ASSETS                                    
|Current assets:                            |                                                                                                                                                                                                                                                     |                                            |            |         |              |  |            |        
|                                           | Cash and cash equivalents                                                                                                                                                                                                                           |                                            | $          | 455,821 |              |  | $          | 378,065 |          
|                                           | Restricted cash                                                                                                                                                                                                                                     |                                            |            | 16,574  |              |  |            | 24,561  |          
|                                           | Marketable securities                                                                                                                                                                                                                               |                                            |            | 88,001  |              |  |            | 103,969 |          
|                                           | Accounts receivable, net of allowance of doubtful accounts of
    $13,600 at October 1, 2005 and $8,228 at December 25,
    2004                                                                                                                    |                                            |            | 433,713 |              |  |            | 425,528 |          
|                                           | Other receivables                                                                                                                                                                                                                                   |                                            |            | 17,707  |              |  |            | 40,838  |          
|                                           | Inventories                                                                                                                                                                                                                                         |                                            |            | 256,969 |              |  |            | 229,410 |          
|                                           | Prepaid expenses and other                                                                                                                                                                                                                          |                                            |            | 44,648  |              |  |            | 36,336  |          
|                                           |                                                                                                                                                                                                                                                     |                                            |            |         |              | 
|                                           |                                                                                                                                                                                                                                                     | Total current assets                       |            |         | 1,313,433    |  |            |         | 1,238,707 | 
|Property, plant and equipment, net         |                                                                                                                                                                                                                                                     |                                            | 355,573    |         |              |  | 347,934    |        
|Goodwill                                   |                                                                                                                                                                                                                                                     |                                            | 489,482    |         |              |  | 489,482    |        
|Other intangible assets, net               |                                                                                                                                                                                                                                                     |                                            | 798        |         |              |  | 1,450      |        
|Other assets                               |                                                                                                                                                                                                                                                     |                                            | 48,259     |         |              |  | 30,168     |        
|                                           |                                                                                                                                                                                                                                                     |                                            |            |         |              | 
|                                           |                                                                                                                                                                                                                                                     | Total assets                               |            | $       | 2,207,545    |  |            | $       | 2,107,741 | 
|                                           |                                                                                                                                                                                                                                                     |                                            |            |         |              | 
|                                          
|LIABILITIES AND STOCKHOLDERS EQUITY      
|Current liabilities:                       |                                                                                                                                                                                                                                                     |                                            |            |         |              |  |            |        
|                                           | Short-term borrowings, including current portion of long-term
    debt                                                                                                                                                                              |                                            | $          | 6,084   |              |  | $          | 82,561  |          
|                                           | Accounts payable                                                                                                                                                                                                                                    |                                            |            | 676,763 |              |  |            | 674,947 |          
|                                           | Accrued and other liabilities                                                                                                                                                                                                                       |                                            |            | 320,815 |              |  |            | 324,369 |          
|                                           |                                                                                                                                                                                                                                                     |                                            |            |         |              | 
|                                           |                                                                                                                                                                                                                                                     | Total current liabilities                  |            |         | 1,003,662    |  |            |         | 1,081,877 | 
|Long-term debt, net of current portion     |                                                                                                                                                                                                                                                     |                                            | 575,774    |         |              |  | 382,570    |        
|Other liabilities                          |                                                                                                                                                                                                                                                     |                                            | 66,796     |         |              |  | 66,695     |        
|                                           |                                                                                                                                                                                                                                                     |                                            |            |         |              | 
|                                           |                                                                                                                                                                                                                                                     | Total liabilities                          |            |         | 1,646,232    |  |            |         | 1,531,142 | 
|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; 267,267,605 shares issued and
    254,021,867 shares outstanding at October 1, 2005 and
    263,413,578 shares issued and 250,167,840 shares
    outstanding at December 25, 2004 |                                            |            | 2,673   |              |  |            | 2,634   |          
|Additional paid-in capital                 |                                                                                                                                                                                                                                                     |                                            | 2,442,822  |         |              |  | 2,429,551  |        
|Accumulated deficit                        |                                                                                                                                                                                                                                                     |                                            | (1,822,850 | )       |              |  | (1,795,183 | )      
|Cumulative other comprehensive income      |                                                                                                                                                                                                                                                     |                                            | 3,607      |         |              |  | 4,536      |        
|Treasury stock (13,245,738 shares) at cost |                                                                                                                                                                                                                                                     |                                            | (64,939    | )       |              |  | (64,939    | )      
|                                           |                                                                                                                                                                                                                                                     |                                            |            |         |              | 
|                                           |                                                                                                                                                                                                                                                     | Total stockholders equity                 |            |         | 561,313      |  |            |         | 576,599   | 
|                                           |                                                                                                                                                                                                                                                     |                                            |            |         |              | 
|                                           |                                                                                                                                                                                                                                                     | Total liabilities and stockholders equity |            | $       | 2,207,545    |  |            | $       | 2,107,741 | 
|                                           |                                                                                                                                                                                                                                                     |                                            |            |         |              | 



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MAXTOR CORPORATION





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                             |                                     |                                                    |             |         |                   |   |             |            |         |   |               |         |         |   |             |         |         | 
|------------------------------------------------------------ | ----------------------------------- | -------------------------------------------------- | ----------- | ------- | ----------------- | - | ----------- | ---------- | ------- | - | ------------- | ------- | ------- | - | ----------- | ------- | ------- | 
|                                                             |                                     | Three Months Ended                                 |             |         | Nine Months Ended |  
|                                                             |                                     |                                                    |             |         |                   |  
|                                                             |                                     | October 1,                                         |             |         | September 25,     |   |             | October 1, |         |   | September 25, |        
|                                                             |                                     | 2005                                               |             |         | 2004              |   |             | 2005       |         |   | 2004          |        
|                                                             |                                     |                                                    |             |         |                   |   |             |            |         |   |               |        
|                                                             |                                     | (Unaudited)                                        |             |         | (Unaudited)       |  
|                                                             |                                     | (In thousands, except share and per share amounts) |            
|Net revenues                                                 |                                     | $                                                  | 926,485     |         |                   | $ | 927,204     |            |         | $ | 2,920,815     |         |         | $ | 2,765,146   |        
|Cost of revenues                                             |                                     |                                                    | 823,608     |         |                   |   | 868,983     |            |         |   | 2,579,741     |         |         |   | 2,480,682   |        
|                                                             |                                     |                                                    |             |         |                   |   |             |            |         |   |               |        
|                                                             | Gross profit                        |                                                    |             | 102,877 |                   |   |             | 58,221     |         |   |               | 341,074 |         |   |             | 284,464 |        
|Operating expenses:                                          |                                     |                                                    |             |         |                   |   |             |            |         |   |               |         |         |   |             |        
|                                                             | Research and development            |                                                    |             | 71,415  |                   |   |             | 76,776     |         |   |               | 218,284 |         |   |             | 239,319 |        
|                                                             | Selling, general and administrative |                                                    |             | 35,864  |                   |   |             | 35,159     |         |   |               | 110,382 |         |   |             | 101,201 |        
|                                                             | Amortization of intangible assets   |                                                    |             | 216     |                   |   |             | 5,052      |         |   |               | 652     |         |   |             | 30,941  |        
|                                                             | Restructuring charges               |                                                    |             | 4,238   |                   |   |             | 31,393     |         |   |               | 18,802  |         |   |             | 31,393  |        
|                                                             |                                     |                                                    |             |         |                   |   |             |            |         |   |               |        
|                                                             |                                     | Total operating expenses                           |             |         | 111,733           |   |             |            | 148,380 |   |               |         | 348,120 |   |             |         | 402,854 | 
|                                                             |                                     |                                                    |             |         |                   |   |             |            |         |   |               |        
|Loss from operations                                         |                                     |                                                    | (8,856      | )       |                   |   | (90,159     | )          |         |   | (7,046        | )       |         |   | (118,390    | )      
|Interest expense                                             |                                     |                                                    | (11,105     | )       |                   |   | (7,576      | )          |         |   | (27,179       | )       |         |   | (23,649     | )      
|Interest income                                              |                                     |                                                    | 3,123       |         |                   |   | 1,276       |            |         |   | 7,772         |         |         |   | 3,646       |        
|Income from litigation settlement                            |                                     |                                                    |            |         |                   |   |            |            |         |   |              |         |         |   | 24,750      |        
|Other gain                                                   |                                     |                                                    | 345         |         |                   |   | 13          |            |         |   | 95            |         |         |   | 67          |        
|                                                             |                                     |                                                    |             |         |                   |   |             |            |         |   |               |        
|Loss before income taxes                                     |                                     |                                                    | (16,493     | )       |                   |   | (96,446     | )          |         |   | (26,358       | )       |         |   | (113,576    | )      
|Provision of (benefit for) income taxes                      |                                     |                                                    | 457         |         |                   |   | (1,300      | )          |         |   | 1,309         |         |         |   | (709        | )      
|                                                             |                                     |                                                    |             |         |                   |   |             |            |         |   |               |        
|Net loss                                                     |                                     | $                                                  | (16,950     | )       |                   | $ | (95,146     | )          |         | $ | (27,667       | )       |         | $ | (112,867    | )      
|                                                             |                                     |                                                    |             |         |                   |   |             |            |         |   |               |        
|Net loss per share  basic and diluted                       |                                     | $                                                  | (0.07       | )       |                   | $ | (0.38       | )          |         | $ | (0.11         | )       |         | $ | (0.46       | )      
|Shares used in per share calculation  basic and
    diluted |                                     |                                                    | 253,668,613 |         |                   |   | 248,728,113 |            |         |   | 252,863,210   |         |         |   | 247,611,347 |        



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MAXTOR CORPORATION





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                                         |                                                                                   |                                   |                                                                                    |         |               |         |          |         |          |          |  
|-------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------- | ---------------------------------------------------------------------------------- | ------- | ------------- | ------- | -------- | ------- | -------- | -------- | -
|                                                                                                         |                                                                                   | Nine Months Ended                 |                                                                                   
|                                                                                                         |                                                                                   |                                   |                                                                                   
|                                                                                                         |                                                                                   | October 1,                        |                                                                                    |         | September 25, |        
|                                                                                                         |                                                                                   | 2005                              |                                                                                    |         | 2004          |        
|                                                                                                         |                                                                                   |                                   |                                                                                    |         |               |        
|                                                                                                         |                                                                                   | (Unaudited)                       |                                                                                   
|                                                                                                         |                                                                                   | (In thousands)                    |                                                                                   
|Cash Flows from Operating Activities:                                                                    |                                                                                   |                                   |                                                                                    |         |               |         |          |        
|Net loss                                                                                                 |                                                                                   | $                                 | (27,667                                                                            | )       |               | $       | (112,867 | )      
|Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities:            |                                                                                   |                                   |                                                                                    |         |               |         |          |        
|                                                                                                         | Depreciation and amortization                                                     |                                   |                                                                                    | 111,159 |               |         |          | 105,789 |         
|                                                                                                         | Amortization of intangible assets                                                 |                                   |                                                                                    | 652     |               |         |          | 30,941  |         
|                                                                                                         | Write-off of unamortized issuance cost on convertible senior
    notes repurchase |                                   |                                                                                    | 1,875   |               |         |          |        |         
|                                                                                                         | Stock-based compensation expense                                                  |                                   |                                                                                    | 171     |               |         |          | 218     |         
|                                                                                                         | Restructuring charge, net                                                         |                                   |                                                                                    | 18,700  |               |         |          | 24,502  |         
|                                                                                                         | Loss on sale of property, plant and equipment                                     |                                   |                                                                                    | 575     |               |         |          | 1,238   |         
|                                                                                                         | Gain on retirement of bond                                                        |                                   |                                                                                    | (434    | )             |         |          |        |         
|                                                                                                         | Other                                                                             |                                   |                                                                                    | 69      |               |         |          |        |         
|                                                                                                         | Changes in assets and liabilities:                                                |                                   |                                                                                    |         |               |         |          |         |         
|                                                                                                         |                                                                                   | Accounts receivable               |                                                                                    |         | (8,185        | )       |          |         | 138,236  |         
|                                                                                                         |                                                                                   | Other receivables                 |                                                                                    |         | 23,131        |         |          |         | (6,129   | )       
|                                                                                                         |                                                                                   | Inventories                       |                                                                                    |         | (27,559       | )       |          |         | (33,049  | )       
|                                                                                                         |                                                                                   | Prepaid expenses and other assets |                                                                                    |         | (38,926       | )       |          |         | (3,168   | )       
|                                                                                                         |                                                                                   | Accounts payable                  |                                                                                    |         | (7,604        | )       |          |         | (31,625  | )       
|                                                                                                         |                                                                                   | Accrued and other liabilities     |                                                                                    |         | (22,153       | )       |          |         | (140,396 | )       
|                                                                                                         |                                                                                   |                                   |                                                                                    |         |               |        
|                                                                                                         |                                                                                   |                                   | Net cash provided by (used in) operating activities from
    continuing operations |         |               | 23,804  |          |         |          | (26,310  | )
|                                                                                                         |                                                                                   |                                   | Net cash used in discontinued operations                                           |         |               |        |          |         |          | (798     | )
|                                                                                                         |                                                                                   |                                   |                                                                                    |         |               |        
|                                                                                                         |                                                                                   |                                   | Net cash provided by (used in) operating activities                                |         |               | 23,804  |          |         |          | (27,108  | )
|                                                                                                         |                                                                                   |                                   |                                                                                    |         |               |        
|Cash Flows from Investing Activities:                                                                    |                                                                                   |                                   |                                                                                    |         |               |         |          |        
|Proceeds from sale of property, plant and equipment                                                      |                                                                                   |                                   | 32                                                                                 |         |               |         | 750      |        
|Purchase of property, plant and equipment                                                                |                                                                                   |                                   | (109,985                                                                           | )       |               |         | (139,743 | )      
|Decrease (increase) in restricted assets                                                                 |                                                                                   |                                   | 26,086                                                                             |         |               |         | (7,108   | )      
|Maturities and sales of marketable securities                                                            |                                                                                   |                                   | 73,304                                                                             |         |               |         | 37,769   |        
|Purchase of marketable securities                                                                        |                                                                                   |                                   | (57,597                                                                            | )       |               |         | (60,168  | )      
|                                                                                                         |                                                                                   |                                   |                                                                                    |         |               |        
|                                                                                                         |                                                                                   |                                   | Net cash used in investing activities                                              |         |               | (68,160 | )        |         |          | (168,500 | )
|                                                                                                         |                                                                                   |                                   |                                                                                    |         |               |        
|Cash Flows from Financing Activities:                                                                    |                                                                                   |                                   |                                                                                    |         |               |         |          |        
|Borrowings under convertible senior notes, net of issuance costs                                         |                                                                                   |                                   | 317,812                                                                            |         |               |         |         |        
|Proceeds from issuance of debt, including short-term borrowings                                          |                                                                                   |                                   |                                                                                   |         |               |         | 54,655   |        
|Principal payments of debt including short-term borrowings                                               |                                                                                   |                                   | (28,276                                                                            | )       |               |         | (4,238   | )      
|Principal payments under capital lease obligations                                                       |                                                                                   |                                   | (4,992                                                                             | )       |               |         | (12,431  | )      
|Repayment of mortgages                                                                                   |                                                                                   |                                   | (31,734                                                                            | )       |               |         |         |        
|Repurchase of convertible senior notes                                                                   |                                                                                   |                                   | (93,837                                                                            | )       |               |         |         |        
|Net proceeds from receivable-backed borrowing                                                            |                                                                                   |                                   |                                                                                   |         |               |         | 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 |                                                                                   |                                   | 13,139                                                                             |         |               |         | 18,523   |        
|                                                                                                         |                                                                                   |                                   |                                                                                    |         |               |        
|                                                                                                         |                                                                                   |                                   | Net cash provided by financing activities                                          |         |               | 122,112 |          |         |          | 56,257   |  
|                                                                                                         |                                                                                   |                                   |                                                                                    |         |               |        
|Net change in cash and cash equivalents                                                                  |                                                                                   |                                   | 77,756                                                                             |         |               |         | (139,351 | )      
|Cash and cash equivalents at beginning of period                                                         |                                                                                   |                                   | 378,065                                                                            |         |               |         | 530,816  |        
|                                                                                                         |                                                                                   |                                   |                                                                                    |         |               |        
|Cash and cash equivalents at end of period                                                               |                                                                                   | $                                 | 455,821                                                                            |         |               | $       | 391,465  |        
|                                                                                                         |                                                                                   |                                   |                                                                                    |         |               |        
|Supplemental Disclosures of Cash Flow Information:                                                       |                                                                                   |                                   |                                                                                    |         |               |         |          |        
|                                                                                                         | Cash paid during the period for:                                                  |                                   |                                                                                    |         |               |         |          |         |         
|                                                                                                         |                                                                                   | Interest                          |                                                                                    | $       | 16,350        |         |          | $       | 17,880   |         
|                                                                                                         |                                                                                   | Income taxes                      |                                                                                    | $       | 1,676         |         |          | $       | 3,334    |         
|Schedule of Non-Cash Investing and Financing Activities:                                                 |                                                                                   |                                   |                                                                                    |         |               |         |          |        
|                                                                                                         | Purchase of property, plant and equipment financed by accounts
    payable        |                                   | $                                                                                  | 14,200  |               |         | $        | 5,961   |         
|                                                                                                         | Retirement of debt in exchange for bond redemption                                |                                   | $                                                                                  | 5,000   |               |         | $        | 5,000   |         



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MAXTOR CORPORATION





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




|   |                      
|-- | ---------------------
|1. | Basis of Presentation





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





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





| |                
| | ---------------
| | Fiscal Calendar





|   |                                 
|-- | --------------------------------
|2. | Recent Accounting Pronouncements



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|   |                         
|-- | ------------------------
|3. | Stock-Based Compensation





|                                                                                                     |                                 |                    |         |         |                   |   |         |            |   |   |               |         |   |   |          |          |  
|---------------------------------------------------------------------------------------------------- | ------------------------------- | ------------------ | ------- | ------- | ----------------- | - | ------- | ---------- | - | - | ------------- | ------- | - | - | -------- | -------- | -
|                                                                                                     |                                 | Three Months Ended |         |         | Nine Months Ended |  
|                                                                                                     |                                 |                    |         |         |                   |  
|                                                                                                     |                                 | October 1,         |         |         | September 25,     |   |         | October 1, |   |   | September 25, |        
|                                                                                                     |                                 | 2005               |         |         | 2004              |   |         | 2005       |   |   | 2004          |        
|                                                                                                     |                                 |                    |         |         |                   |   |         |            |   |   |               |        
|Net loss, as reported                                                                                |                                 | $                  | (16,950 | )       |                   | $ | (95,146 | )          |   | $ | (27,667       | )       |   | $ | (112,867 | )       
|Add: Stock-based employee compensation expense included in net
    loss                              |                                 |                    | 88      |         |                   |   | 36      |            |   |   | 171           |         |   |   | 218      |         
|Deduct: Total stock-based compensation expense determined under
    fair value method for all awards |                                 |                    | 3,550   |         |                   |   | 7,479   |            |   |   | 10,923        |         |   |   | 17,197   |         
|                                                                                                     |                                 |                    |         |         |                   |   |         |            |   |   |               |        
|                                                                                                     | Pro forma net loss              |                    | $       | (20,412 | )                 |   | $       | (102,589   | ) |   | $             | (38,419 | ) |   | $        | (129,846 | )
|                                                                                                     |                                 |                    |         |         |                   |   |         |            |   |   |               |        
|Net loss per share                                                                                   |                                 |                    |         |         |                   |   |         |            |   |   |               |         |   |   |          |         
|                                                                                                     | As reported  basic and diluted |                    | $       | (0.07   | )                 |   | $       | (0.38      | ) |   | $             | (0.11   | ) |   | $        | (0.46    | )
|                                                                                                     | Pro forma  basic and diluted   |                    | $       | (0.08   | )                 |   | $       | (0.41      | ) |   | $             | (0.15   | ) |   | $        | (0.52    | )



|                               |  |                    |           |   |                   |  |           |            |  |  |               |   |  |  |           |  
|------------------------------ |  | ------------------ | --------- | - | ----------------- |  | --------- | ---------- |  |  | ------------- | - |  |  | --------- | -
|                               |  | Three Months Ended |           |   | Nine Months Ended | 
|                               |  |                    |           |   |                   | 
|                               |  | October 1,         |           |   | September 25,     |  |           | October 1, |  |  | September 25, |  
|                               |  | 2005               |           |   | 2004              |  |           | 2005       |  |  | 2004          |  
|                               |  |                    |           |   |                   |  |           |            |  |  |               |  
|Risk-free interest rate        |  |                    | 4.06      | % |                   |  | 3.51      | %          |  |  | 3.92          | % |  |  | 3.51      | %
|Weighted average expected life |  |                    | 4.5 years |   |                   |  | 4.5 years |            |  |  | 4.5 years     |   |  |  | 4.5 years |  
|Volatility                     |  |                    | 71        | % |                   |  | 72        | %          |  |  | 71            | % |  |  | 72        | %
|Dividend yield                 |  |                    |          |   |                   |  |          |            |  |  |              |   |  |  |          |  

7



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                               |  |                    |           |   |                   |  |           |            |  |  |               |   |  |  |           |  
|------------------------------ |  | ------------------ | --------- | - | ----------------- |  | --------- | ---------- |  |  | ------------- | - |  |  | --------- | -
|                               |  | Three Months Ended |           |   | Nine Months Ended | 
|                               |  |                    |           |   |                   | 
|                               |  | October 1,         |           |   | September 25,     |  |           | October 1, |  |  | September 25, |  
|                               |  | 2005               |           |   | 2004              |  |           | 2005       |  |  | 2004          |  
|                               |  |                    |           |   |                   |  |           |            |  |  |               |  
|Risk-free interest rate        |  |                    | 2.86      | % |                   |  | 1.77      | %          |  |  | 2.86          | % |  |  | 1.77      | %
|Weighted average expected life |  |                    | 0.5 years |   |                   |  | 0.6 years |            |  |  | 0.5 years     |   |  |  | 0.6 years |  
|Volatility                     |  |                    | 74        | % |                   |  | 73        | %          |  |  | 74            | % |  |  | 73        | %
|Dividend yield                 |  |                    |          |   |                   |  |          |            |  |  |              |   |  |  |          |  





|   |                   
|-- | ------------------
|4. | Balance Sheet Data

|                                               |                                                 |                |           |         |              |   |           |         | 
|---------------------------------------------- | ----------------------------------------------- | -------------- | --------- | ------- | ------------ | - | --------- | ------- | 
|                                               |                                                 | October 1,     |           |         | December 25, |  
|                                               |                                                 | 2005           |           |         | 2004         |  
|                                               |                                                 |                |           |         |              |  
|                                               |                                                 | (In thousands) |          
|Inventories:                                   |                                                 |                |           |         |              |   |           |        
|                                               | Raw materials                                   |                | $         | 93,095  |              |   | $         | 79,904  | 
|                                               | Work-in-process                                 |                |           | 51,062  |              |   |           | 57,800  | 
|                                               | Finished goods                                  |                |           | 112,812 |              |   |           | 91,706  | 
|                                               |                                                 |                |           |         |              |  
|                                               |                                                 | $              | 256,969   |         |              | $ | 229,410   |        
|                                               |                                                 |                |           |         |              |  
|Prepaid expenses and other:                    |                                                 |                |           |         |              |   |           |        
|                                               | Prepaid expenses                                |                | $         | 10,143  |              |   | $         | 11,913  | 
|                                               | Asset held for sale                             |                |           | 8,750   |              |   |           | 8,200   | 
|                                               | Vendor down payment                             |                |           | 14,170  |              |   |           |        | 
|                                               | Investments in equity securities, at fair value |                |           | 4,307   |              |   |           | 10,042  | 
|                                               | Other                                           |                |           | 7,278   |              |   |           | 6,181   | 
|                                               |                                                 |                |           |         |              |  
|                                               |                                                 | $              | 44,648    |         |              | $ | 36,336    |        
|                                               |                                                 |                |           |         |              |  
|Property, plant and equipment:                 |                                                 |                |           |         |              |   |           |        
|                                               | Machinery and equipment                         |                | $         | 673,167 |              |   | $         | 659,324 | 
|                                               | Buildings                                       |                |           | 170,072 |              |   |           | 155,172 | 
|                                               | Leasehold improvements                          |                |           | 90,841  |              |   |           | 91,571  | 
|                                               | Software                                        |                |           | 86,736  |              |   |           | 86,014  | 
|                                               | Furniture and fixtures                          |                |           | 29,161  |              |   |           | 27,604  | 
|                                               |                                                 |                |           |         |              |  
|                                               |                                                 | $              | 1,049,977 |         |              | $ | 1,019,685 |        
|Less accumulated depreciation and amortization |                                                 |                | (694,404  | )       |              |   | (671,751  | )      
|                                               |                                                 |                |           |         |              |  
|Property, plant and equipment, net             |                                                 | $              | 355,573   |         |              | $ | 347,934   |        
|                                               |                                                 |                |           |         |              |  

8



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                               |                                              |                |         |         |              |   |         |         | 
|------------------------------ | -------------------------------------------- | -------------- | ------- | ------- | ------------ | - | ------- | ------- | 
|                               |                                              | October 1,     |         |         | December 25, |  
|                               |                                              | 2005           |         |         | 2004         |  
|                               |                                              |                |         |         |              |  
|                               |                                              | (In thousands) |        
|Accrued and other liabilities: |                                              |                |         |         |              |   |         |        
|                               | Accrued warranty                             |                | $       | 184,290 |              |   | $       | 185,940 | 
|                               | Accrued payroll and payroll-related expenses |                |         | 60,580  |              |   |         | 59,524  | 
|                               | Restructuring liabilities, short-term        |                |         | 16,859  |              |   |         | 9,707   | 
|                               | Income taxes payable                         |                |         | 7,561   |              |   |         | 7,605   | 
|                               | Accrued expenses                             |                |         | 51,525  |              |   |         | 61,593  | 
|                               |                                              |                |         |         |              |  
|                               |                                              | $              | 320,815 |         |              | $ | 324,369 |        
|                               |                                              |                |         |         |              |  



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



|                              |                      |          |  |                 |          |   |         |              |                   |   |                |         |          |     |         |          |        |   |             |              |   |       |            |        |         |     |          |         |          |   |         |         |   |   |         |       |   | 
|----------------------------- | -------------------- | -------- |  | --------------- | -------- | - | ------- | ------------ | ----------------- | - | -------------- | ------- | -------- | --- | ------- | -------- | ------ | - | ----------- | ------------ | - | ----- | ---------- | ------ | ------- | --- | -------- | ------- | -------- | - | ------- | ------- | - | - | ------- | ----- | - | 
|                              |                      |          |  | October 1, 2005 |          |   |         |              | December 25, 2004 |   |                |        
|                              |                      |          |  |                 |          |   |         |              |                   |   |                |        
|                              |                      | 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        |                   |   |                | (3,552  | )        |     |         |         |        |   |             | 798          |   |       |            | 4,350  |         |     |          | (2,900  | )        |   |         |        |   |   |         | 1,450 |  
|                              |                      |          |  |                 |          |   |         |              |                   |   |                |         |          |     |         |          |        |   |             |              |   |       |            |        |         |     |         
|Total other intangible assets |                      |          |  |                 |          | $ | 290,450 |              |                   | $ | (265,477       | )       |          | $   | (24,175 | )        |        | $ | 798         |              |   | $     | 290,450    |        |         | $   | (264,825 | )       |          | $ | (24,175 | )       |   | $ | 1,450   |      
|                              |                      |          |  |                 |          |   |         |              |                   |   |                |         |          |     |         |          |        |   |             |              |   |       |            |        |         |     |         

9



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                         
|-- | ----------------------------------------
|6. | Short-term Borrowings and Long-term Debt



|                                                    |  |            |         |   |              |   |         |  
|--------------------------------------------------- |  | ---------- | ------- | - | ------------ | - | ------- | -
|                                                    |  | October 1, |         |   | December 25, |  
|                                                    |  | 2005       |         |   | 2004         |  
|                                                    |  |            |         |   |              |  
|2.375% Convertible Senior Notes due August 15, 2012 |  | $          | 326,000 |   |              | $ |        |  
|6.8% Convertible Senior Notes due April 30, 2010    |  |            | 135,729 |   |              |   | 230,000 |  
|Manufacturing Facility Loan, Suzhou China           |  |            | 60,000  |   |              |   | 60,000  |  
|5.75% Subordinated Debentures due March 1, 2012     |  |            | 59,031  |   |              |   | 59,311  |  
|Equipment Loans and Capital Leases                  |  |            | 1,098   |   |              |   | 6,090   |  
|Economic Development Board of Singapore Loans       |  |            |        |   |              |   | 27,148  |  
|Mortgages                                           |  |            |        |   |              |   | 32,582  |  
|Receivables-Backed Borrowings                       |  |            |        |   |              |   | 50,000  |  
|                                                    |  |            |         |   |              |  
|                                                    |  |            | 581,858 |   |              |   | 465,131 |  
|Less amounts due within one year                    |  |            | (6,084  | ) |              |   | (82,561 | )
|                                                    |  |            |         |   |              |  
|                                                    |  | $          | 575,774 |   |              | $ | 382,570 |  
|                                                    |  |            |         |   |              |  



10



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










11



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)
















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



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





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



12



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                               |  |                    |         |      |                   |   |         |            |  |   |               |      |  |   |          |     
|------------------------------ |  | ------------------ | ------- | ---- | ----------------- | - | ------- | ---------- |  | - | ------------- | ---- |  | - | -------- | ----
|                               |  | Three Months Ended |         |      | Nine Months Ended |  
|                               |  |                    |         |      |                   |  
|                               |  | October 1,         |         |      | September 25,     |   |         | October 1, |  |   | September 25, |     
|                               |  | 2005               |         |      | 2004              |   |         | 2005       |  |   | 2004          |     
|                               |  |                    |         |      |                   |   |         |            |  |   |               |     
|Balance at beginning of period |  | $                  | 201,898 |      |                   | $ | 179,612 |            |  | $ | 185,940       |      |  | $ | 209,426  |     
|Charges to operations          |  |                    | 44,207  |      |                   |   | 39,483  |            |  |   | 144,191       |      |  |   | 119,317  |     
|Settlements(3)                 |  |                    | (45,829 | )    |                   |   | (41,934 | )          |  |   | (135,409      | )    |  |   | (147,131 | )   
|Changes in estimates           |  |                    | (15,986 | )(2) |                   |   | (29     | )(1)       |  |   | (10,432       | )(2) |  |   | (4,481   | )(1)
|                               |  |                    |         |      |                   |   |         |            |  |   |               |     
|Balance at end of period       |  | $                  | 184,290 |      |                   | $ | 177,131 |            |  | $ | 184,290       |      |  | $ | 177,131  |     
|                               |  |                    |         |      |                   |   |         |            |  |   |               |     






|    |                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Primarily related to product expirations.                                                                                                                                                                                    
|   
|(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.
|   
|(3) | Represent aggregate reductions in the liability for payments
    made (in cash or in kind) under the warranty.                                                                                                               







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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|   |              
|-- | -------------
|8. | Restructuring









14



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                             |              |               |      |      |               |   |      |       |   |   |      |      |  
|---------------------------- | ------------ | ------------- | ---- | ---- | ------------- | - | ---- | ----- | - | - | ---- | ---- | -
|                             |              | Facilities-   |      |      | Severance and |   |      |      
|                             |              | Related       |      |      | Benefits      |   |      | Total |  
|                             |              |               |      |      |               |   |      |       |  
|                             |              | (In millions) |     
|Balance at December 25, 2004 |              | $             | 51.3 |      |               | $ | 2.2  |       |   | $ | 53.5 |     
|                             | Amounts paid |               |      | (1.2 | )             |   |      | (1.7  | ) |   |      | (2.9 | )
|                             | Adjustments  |               |      |     |               |   |      | (0.3  | ) |   |      | (0.3 | )
|                             | Accruals     |               |      |     |               |   |      | 14.2  |   |   |      | 14.2 |  
|                             |              |               |      |      |               |   |      |       |  
|Balance at April 2, 2005     |              |               | 50.1 |      |               |   | 14.4 |       |   |   | 64.5 |     
|                             | Amounts paid |               |      | (1.8 | )             |   |      | (4.5  | ) |   |      | (6.3 | )
|                             | Accruals     |               |      |     |               |   |      | 0.7   |   |   |      | 0.7  |  
|                             |              |               |      |      |               |   |      |       |  
|Balance at July 2, 2005      |              |               | 48.3 |      |               |   | 10.6 |       |   |   | 58.9 |     
|                             | Amounts paid |               |      | (1.3 | )             |   |      | (5.8  | ) |   |      | (7.1 | )
|                             | Adjustments  |               |      |     |               |   |      | 3.6   |   |   |      | 3.6  |  
|                             | Accruals     |               |      |     |               |   |      | 0.6   |   |   |      | 0.6  |  
|                             |              |               |      |      |               |   |      |       |  
|Balance at October 1, 2005   |              | $             | 47.0 |      |               | $ | 9.0  |       |   | $ | 56.0 |     
|                             |              |               |      |      |               |   |      |       |  



|   |                    
|-- | -------------------
|9. | Asset Held for Sale





15



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                   
|--- | ------------------
|10. | Earnings Per Share



|                                       |                                            |                    |       |             |                   |   |       |             |   |   |               |             |   |   |       |             |  
|-------------------------------------- | ------------------------------------------ | ------------------ | ----- | ----------- | ----------------- | - | ----- | ----------- | - | - | ------------- | ----------- | - | - | ----- | ----------- | -
|                                       |                                            | Three Months Ended |       |             | Nine Months Ended |  
|                                       |                                            |                    |       |             |                   |  
|                                       |                                            | October 1,         |       |             | September 25,     |   |       | October 1,  |   |   | September 25, |            
|                                       |                                            | 2005               |       |             | 2004              |   |       | 2005        |   |   | 2004          |            
|                                       |                                            |                    |       |             |                   |   |       |             |   |   |               |            
|Numerator  Basic and Diluted          |                                            |                    |       |             |                   |   |       |             |   |   |               |             |   |   |       |            
|                                       | Net loss                                   |                    | $     | (16,950     | )                 |   | $     | (95,146     | ) |   | $             | (27,667     | ) |   | $     | (112,867    | )
|                                       |                                            |                    |       |             |                   |   |       |             |   |   |               |            
|Denominator                            |                                            |                    |       |             |                   |   |       |             |   |   |               |             |   |   |       |            
|                                       | Weighted average common shares outstanding |                    |       | 253,668,613 |                   |   |       | 248,728,113 |   |   |               | 252,863,210 |   |   |       | 247,611,347 |  
|                                       |                                            |                    |       |             |                   |   |       |             |   |   |               |            
|Net loss per share  basic and diluted |                                            | $                  | (0.07 | )           |                   | $ | (0.38 | )           |   | $ | (0.11         | )           |   | $ | (0.46 | )          



|                                             |                                                                                                |                    |        |        |                   |  |        |            |  |  |               |        |  |  |        |        | 
|-------------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------ | ------ | ------ | ----------------- |  | ------ | ---------- |  |  | ------------- | ------ |  |  | ------ | ------ | 
|                                             |                                                                                                | Three Months Ended |        |        | Nine Months Ended | 
|                                             |                                                                                                |                    |        |        |                   | 
|                                             |                                                                                                | October 1,         |        |        | September 25,     |  |        | October 1, |  |  | September 25, |       
|                                             |                                                                                                | 2005               |        |        | 2004              |  |        | 2005       |  |  | 2004          |       
|                                             |                                                                                                |                    |        |        |                   |  |        |            |  |  |               |       
|Stock options outstanding:                   |                                                                                                |                    |        |        |                   |  |        |            |  |  |               |        |  |  |        |       
|                                             | In-the-money options                                                                           |                    |        | 1,820  |                   |  |        | 1,431      |  |  |               | 2,013  |  |  |        | 5,722  | 
|                                             | Out-of-the-money options                                                                       |                    |        | 12,641 |                   |  |        | 16,218     |  |  |               | 12,939 |  |  |        | 8,115  | 
|Unvested common shares subject to repurchase |                                                                                                |                    | 215    |        |                   |  | 12     |            |  |  | 118           |        |  |  | 7      |       
|6.8% Convertible Senior Notes due 2010       |                                                                                                |                    | 14,912 |        |                   |  | 18,756 |            |  |  | 17,475        |        |  |  | 18,756 |       
|2.375% Convertible Senior Notes due 2012     |                                                                                                |                    |       |        |                   |  |       |            |  |  |              |        |  |  |       |       
|                                             |                                                                                                |                    |        |        |                   |  |        |            |  |  |               |       
|                                             | Total potential shares of common stock excluded from the
    computation of earnings per share |                    |        | 29,588 |                   |  |        | 36,417     |  |  |               | 32,545 |  |  |        | 32,600 | 





16



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                            
|--- | ---------------------------
|11. | Comprehensive Income (Loss)



|                                                        |  |                    |         |   |                   |   |         |            |  |   |               |   |  |   |          |  
|------------------------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | ---------- |  | - | ------------- | - |  | - | -------- | -
|                                                        |  | Three Months Ended |         |   | Nine Months Ended |  
|                                                        |  |                    |         |   |                   |  
|                                                        |  | October 1,         |         |   | September 25,     |   |         | October 1, |  |   | September 25, |  
|                                                        |  | 2005               |         |   | 2004              |   |         | 2005       |  |   | 2004          |  
|                                                        |  |                    |         |   |                   |   |         |            |  |   |               |  
|Net loss                                                |  | $                  | (16,950 | ) |                   | $ | (95,146 | )          |  | $ | (27,667       | ) |  | $ | (112,867 | )
|Unrealized gain (loss) on available-for-sale securities |  |                    | 908     |   |                   |   | (2,644  | )          |  |   | (1,237        | ) |  |   | (5,145   | )
|Less: reclassification adjustments included in net loss |  |                    |        |   |                   |   | 1       |            |  |   | (308          | ) |  |   | 34       |  
|                                                        |  |                    |         |   |                   |   |         |            |  |   |               |  
|Comprehensive loss                                      |  | $                  | (16,042 | ) |                   | $ | (97,791 | )          |  | $ | (28,596       | ) |  | $ | (118,046 | )
|                                                        |  |                    |         |   |                   |   |         |            |  |   |               |  



|    |                                     
|--- | ------------------------------------
|12. | Segment and Geographical Information





|                               |  |                    |         |  |                   |   |         |            |  |   |               |  |  |   |           | 
|------------------------------ |  | ------------------ | ------- |  | ----------------- | - | ------- | ---------- |  | - | ------------- |  |  | - | --------- | 
|                               |  | Three Months Ended |         |  | Nine Months Ended |  
|                               |  |                    |         |  |                   |  
|                               |  | October 1,         |         |  | September 25,     |   |         | October 1, |  |   | September 25, | 
|                               |  | 2005               |         |  | 2004              |   |         | 2005       |  |   | 2004          | 
|                               |  |                    |         |  |                   |   |         |            |  |   |               | 
|United States                  |  | $                  | 301,319 |  |                   | $ | 297,543 |            |  | $ | 944,717       |  |  | $ | 898,696   | 
|Asia Pacific and Japan         |  |                    | 270,347 |  |                   |   | 261,539 |            |  |   | 885,184       |  |  |   | 838,671   | 
|Europe, Middle East and Africa |  |                    | 319,567 |  |                   |   | 331,172 |            |  |   | 1,017,230     |  |  |   | 958,807   | 
|Latin America and other        |  |                    | 35,252  |  |                   |   | 36,950  |            |  |   | 73,684        |  |  |   | 68,972    | 
|                               |  |                    |         |  |                   |   |         |            |  |   |               | 
|Total                          |  | $                  | 926,485 |  |                   | $ | 927,204 |            |  | $ | 2,920,815     |  |  | $ | 2,765,146 | 
|                               |  |                    |         |  |                   |   |         |            |  |   |               | 



|                               |  |            |         |  |              |   |         | 
|------------------------------ |  | ---------- | ------- |  | ------------ | - | ------- | 
|                               |  | October 1, |         |  | December 25, |  
|                               |  | 2005       |         |  | 2004         |  
|                               |  |            |         |  |              |  
|United States                  |  | $          | 703,757 |  |              | $ | 696,317 | 
|Asia Pacific and Japan         |  |            | 189,953 |  |              |   | 172,002 | 
|Europe, Middle East and Africa |  |            | 402     |  |              |   | 444     | 
|Latin America and other        |  |            |        |  |              |   | 271     | 
|                               |  |            |         |  |              |  
|Total                          |  | $          | 894,112 |  |              | $ | 869,034 | 
|                               |  |            |         |  |              |  





|    |              
|--- | -------------
|13. | Contingencies



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



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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





|    |                 
|--- | ----------------
|14. | Rescission Offer



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





Executive Overview




tm






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Critical Accounting Policies








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



Results of Operations




| |                              
| | -----------------------------
| | Net Revenues and Gross Profit

|                            |  |                    |       |    |               |   |                   |        |  |            |      |   |               |      |         |    |        |   |         |    |  |   |       | 
|--------------------------- |  | ------------------ | ----- | -- | ------------- | - | ----------------- | ------ |  | ---------- | ---- | - | ------------- | ---- | ------- | -- | ------ | - | ------- | -- |  | - | ----- | 
|                            |  | Three Months Ended |       |    |               |   | Nine Months Ended |        |  |           
|                            |  |                    |       |    |               |   |                   |        |  |           
|                            |  | October 1,         |       |    | September 25, |   |                   |        |  | October 1, |      |   | September 25, |      |         |   
|                            |  | 2005               |       |    | 2004          |   |                   | Change |  |            | 2005 |   |               | 2004 |         |    | Change |  
|                            |  |                    |       |    |               |   |                   |        |  |            |      |   |               |      |         |    |        |  
|                            |  | (In millions)      |       |    |               |   | (In millions)     |        |  |           
|Total revenues              |  | $                  | 926.5 |    |               | $ | 927.2             |        |  | $          | (0.7 | ) |               | $    | 2,920.8 |    |        | $ | 2,765.1 |    |  | $ | 155.7 | 
|Gross profit                |  | $                  | 102.9 |    |               | $ | 58.2              |        |  | $          | 44.7 |   |               | $    | 341.1   |    |        | $ | 284.5   |    |  | $ | 56.6  | 
|Net loss                    |  | $                  | (17.0 | )  |               | $ | (95.1             | )      |  | $          | 78.1 |   |               | $    | (27.7   | )  |        | $ | (112.9  | )  |  | $ | 85.2  | 
|As a percentage of revenue: |  |                    |       |    |               |   |                   |        |  |            |      |   |               |      |         |    |        |   |         |    |  |   |       | 
|Total revenues              |  |                    | 100.0 | %  |               |   | 100.0             | %      |  |            |      |   |               |      | 100.0   | %  |        |   | 100.0   | %  |  |   |       | 
|Gross profit                |  |                    | 11.1  | %  |               |   | 6.3               | %      |  |            |      |   |               |      | 11.7    | %  |        |   | 10.3    | %  |  |   |       | 
|Net loss                    |  |                    | (1.8  | )% |               |   | (10.3             | )%     |  |            |      |   |               |      | (0.9    | )% |        |   | (4.1    | )% |  |   |       | 

Net Revenues.


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| |                          
| | -------------------------
| | Net Revenues by Geography

|                             |  |                    |       |   |                   |  |       |        |  |            |      |   |               |      |       |   |        |  |       |   |  |  |      |  
|---------------------------- |  | ------------------ | ----- | - | ----------------- |  | ----- | ------ |  | ---------- | ---- | - | ------------- | ---- | ----- | - | ------ |  | ----- | - |  |  | ---- | -
|                             |  | Three Months Ended |       |   | Nine Months Ended | 
|                             |  |                    |       |   |                   | 
|                             |  | October 1,         |       |   | September 25,     |  |       |        |  | October 1, |      |   | September 25, |      |       |  
|                             |  | 2005               |       |   | 2004              |  |       | Change |  |            | 2005 |   |               | 2004 |       |   | Change | 
|                             |  |                    |       |   |                   |  |       |        |  |            |      |   |               |      |       |   |        | 
|As a Percentage of Revenue:  |  |                    |       |   |                   |  |       |        |  |            |      |   |               |      |       |   |        |  |       |   |  |  |      |  
|United States & Canada       |  |                    | 33.7  | % |                   |  | 32.9  | %      |  |            | 0.8  | % |               |      | 33.1  | % |        |  | 33.4  | % |  |  | -0.3 | %
|Europe, Middle East & Africa |  |                    | 34.5  | % |                   |  | 35.7  | %      |  |            | -1.2 | % |               |      | 34.8  | % |        |  | 34.7  | % |  |  | 0.1  | %
|Asia Pacific & Japan         |  |                    | 29.2  | % |                   |  | 28.2  | %      |  |            | 1.0  | % |               |      | 30.3  | % |        |  | 30.3  | % |  |  | 0.0  | %
|Other                        |  |                    | 2.6   | % |                   |  | 3.2   | %      |  |            | -0.6 | % |               |      | 1.8   | % |        |  | 1.6   | % |  |  | 0.2  | %
|Total                        |  |                    | 100.0 | % |                   |  | 100.0 | %      |  |            |      |   |               |      | 100.0 | % |        |  | 100.0 | % |  |  |      |  
|Change in Absolute Dollars:  |  |                    |       |   |                   |  |       |        |  |            |      |   |               |      |       |   |        |  |       |   |  |  |      |  
|United States & Canada       |  |                    |       |   |                   |  |       |        |  |            | 2.7  | % |               |      |       |   |        |  |       |   |  |  | 4.7  | %
|Europe, Middle East & Africa |  |                    |       |   |                   |  |       |        |  |            | -3.5 | % |               |      |       |   |        |  |       |   |  |  | 6.1  | %
|Asia Pacific & Japan         |  |                    |       |   |                   |  |       |        |  |            | 3.4  | % |               |      |       |   |        |  |       |   |  |  | 5.5  | %







Cost of Revenues; Gross Profit.








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

|                                    |  |                    |      |   |               |   |                   |        |  |            |       |   |               |      |       |   |        |   |       |   |  |   |       |  
|----------------------------------- |  | ------------------ | ---- | - | ------------- | - | ----------------- | ------ |  | ---------- | ----- | - | ------------- | ---- | ----- | - | ------ | - | ----- | - |  | - | ----- | -
|                                    |  | Three Months Ended |      |   |               |   | Nine Months Ended |        |  |           
|                                    |  |                    |      |   |               |   |                   |        |  |           
|                                    |  | October 1,         |      |   | September 25, |   |                   |        |  | October 1, |       |   | September 25, |      |       |  
|                                    |  | 2005               |      |   | 2004          |   |                   | Change |  |            | 2005  |   |               | 2004 |       |   | Change |  
|                                    |  |                    |      |   |               |   |                   |        |  |            |       |   |               |      |       |   |        |  
|                                    |  | (In millions)      |      |   |               |   | (In millions)     |        |  |           
|Research and development            |  | $                  | 71.4 |   |               | $ | 76.8              |        |  | $          | (5.4  | ) |               | $    | 218.3 |   |        | $ | 239.3 |   |  | $ | (21.0 | )
|Selling, general and administrative |  | $                  | 35.9 |   |               | $ | 35.2              |        |  | $          | 0.7   |   |               | $    | 110.4 |   |        | $ | 101.2 |   |  | $ | 9.2   |  
|Amortization of intangible assets   |  | $                  | 0.2  |   |               | $ | 5.1               |        |  | $          | (4.9  | ) |               | $    | 0.7   |   |        | $ | 30.9  |   |  | $ | (30.2 | )
|Restructuring charges               |  | $                  | 4.2  |   |               | $ | 31.4              |        |  | $          | (27.2 | ) |               | $    | 18.8  |   |        | $ | 31.4  |   |  | $ | (12.6 | )
|As a percentage of revenue:         |  |                    |      |   |               |   |                   |        |  |            |       |   |               |      |       |   |        |   |       |   |  |   |       |  
|Research and development            |  |                    | 7.7  | % |               |   | 8.3               | %      |  |            |       |   |               |      | 7.5   | % |        |   | 8.7   | % |  |   |       |  
|Selling, general and administrative |  |                    | 3.9  | % |               |   | 3.8               | %      |  |            |       |   |               |      | 3.8   | % |        |   | 3.7   | % |  |   |       |  
|Amortization of intangible assets   |  |                    | 0.0  | % |               |   | 0.6               | %      |  |            |       |   |               |      | 0.0   | % |        |   | 1.1   | % |  |   |       |  
|Restructuring charges               |  |                    | 0.5  | % |               |   | 3.4               | %      |  |            |       |   |               |      | 0.6   | % |        |   | 1.1   | % |  |   |       |  

Research and Development (R&D).




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


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Restructuring Charge.








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Amortization of Intangible Assets.




| |                                                 
| | ------------------------------------------------
| | Interest Expense, Interest Income and Other Gain

|                                  |  |                    |       |    |               |   |                   |        |  |            |      |   |               |      |       |    |        |   |       |    |  |   |       |  
|--------------------------------- |  | ------------------ | ----- | -- | ------------- | - | ----------------- | ------ |  | ---------- | ---- | - | ------------- | ---- | ----- | -- | ------ | - | ----- | -- |  | - | ----- | -
|                                  |  | Three Months Ended |       |    |               |   | Nine Months Ended |        |  |           
|                                  |  |                    |       |    |               |   |                   |        |  |           
|                                  |  | October 1,         |       |    | September 25, |   |                   |        |  | October 1, |      |   | September 25, |      |       |   
|                                  |  | 2005               |       |    | 2004          |   |                   | Change |  |            | 2005 |   |               | 2004 |       |    | Change |  
|                                  |  |                    |       |    |               |   |                   |        |  |            |      |   |               |      |       |    |        |  
|                                  |  | (In millions)      |       |    |               |   | (In millions)     |        |  |           
|Interest expense                  |  | $                  | (11.1 | )  |               | $ | (7.6              | )      |  | $          | (3.5 | ) |               | $    | (27.2 | )  |        | $ | (23.6 | )  |  | $ | (3.6  | )
|Interest income                   |  | $                  | 3.1   |    |               | $ | 1.3               |        |  | $          | 1.8  |   |               | $    | 7.8   |    |        | $ | 3.7   |    |  | $ | 4.1   |  
|Income from litigation settlement |  | $                  |      |    |               | $ |                  |        |  | $          |     |   |               | $    |      |    |        | $ | 24.8  |    |  | $ | (24.8 | )
|Other gain                        |  | $                  | 0.3   |    |               | $ |                  |        |  | $          | 0.3  |   |               | $    | 0.1   |    |        | $ |      |    |  | $ | 0.1   |  
|As a percentage of revenue:       |  |                    |       |    |               |   |                   |        |  |            |      |   |               |      |       |    |        |   |       |    |  |   |       |  
|Interest expense                  |  |                    | (1.2  | )% |               |   | (0.8              | )%     |  |            |      |   |               |      | (0.9  | )% |        |   | (0.9  | )% |  |   |       |  
|Interest income                   |  |                    | 0.3   | %  |               |   | 0.1               | %      |  |            |      |   |               |      | 0.3   | %  |        |   | 0.1   | %  |  |   |       |  
|Income from litigation settlement |  |                    | 0.0   | %  |               |   | 0.0               | %      |  |            |      |   |               |      | 0.0   | %  |        |   | 0.9   | %  |  |   |       |  
|Other gain                        |  |                    | 0.0   | %  |               |   | 0.0               | %      |  |            |      |   |               |      | 0.0   | %  |        |   | 0.0   | %  |  |   |       |  

Interest Expense.


Interest Income.


Income from Litigation Settlement.


Other Gain.


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| |                                          
| | -----------------------------------------
| | Provision for (Benefit from) Income Taxes

|                                          |  |                    |       |   |               |   |                   |        |  |            |      |  |               |      |       |   |        |   |        |   |  |   |      | 
|----------------------------------------- |  | ------------------ | ----- | - | ------------- | - | ----------------- | ------ |  | ---------- | ---- |  | ------------- | ---- | ----- | - | ------ | - | ------ | - |  | - | ---- | 
|                                          |  | Three Months Ended |       |   |               |   | Nine Months Ended |        |  |           
|                                          |  |                    |       |   |               |   |                   |        |  |           
|                                          |  | October 1,         |       |   | September 25, |   |                   |        |  | October 1, |      |  | September 25, |      |       |  
|                                          |  | 2005               |       |   | 2004          |   |                   | Change |  |            | 2005 |  |               | 2004 |       |   | Change |  
|                                          |  |                    |       |   |               |   |                   |        |  |            |      |  |               |      |       |   |        |  
|                                          |  | (In millions)      |       |   |               |   | (In millions)     |        |  |           
|Loss before provision for income taxes    |  | $                  | (16.5 | ) |               | $ | (96.4             | )      |  | $          | 79.9 |  |               | $    | (26.4 | ) |        | $ | (113.6 | ) |  | $ | 87.2 | 
|Provision for (benefit from) income taxes |  | $                  | 0.5   |   |               | $ | (1.3              | )      |  | $          | 1.8  |  |               | $    | 1.3   |   |        | $ | (0.7   | ) |  | $ | 2.0  | 







Liquidity and Capital Resources




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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 |       |           | 138,256   |        |   |         | 24,648    |  |   |                 | 48,439 |  |               |         | 44,637 |  |   |         | 20,532 | 
|Capital Lease Obligations |                   |       | 1,098     |           |        |   | 1,084   |           |  |   | 10              |        |  |               | 4       |        |  |   |        |       
|                          | Interest Payments |       |           | 30        |        |   |         | 28        |  |   |                 | 2      |  |               |         |       |  |   |         |       | 
|Operating Leases(3)       |                   |       | 251,971   |           |        |   | 35,254  |           |  |   | 65,802          |        |  |               | 61,829  |        |  |   | 89,086  |       
|Purchase Obligations(4)   |                   |       | 856,478   |           |        |   | 851,089 |           |  |   | 5,389           |        |  |               |        |        |  |   |        |       
|                          |                   |       |           |           |        |   |         |           |  |   |                 |        |  |               |        
|Total                     |                   | $     | 1,828,593 |           |        | $ | 917,103 |           |  | $ | 129,642         |        |  | $             | 312,199 |        |  | $ | 469,649 |       
|                          |                   |       |           |           |        |   |         |           |  |   |                 |        |  |               |        






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 will bear interest at
    LIBOR plus 50 basis points (subject to adjustment to
    60 basis points).                                                                                                                                                                                                                                                         
|   
|(2) | Does not include $67 million which we are 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
    October 1, 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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CERTAIN FACTORS AFFECTING FUTURE PERFORMANCE


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.




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.






| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | consolidate or establish strategic relationships to lower their
    product costs or to otherwise compete more effectively against
    us;
|
| |  | lower their product prices to gain market share;                                                                                          
|
| |  | sell their products with other products to increase demand for
    their products;                                                        

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




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




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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.




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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.




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




Because we purchase a significant portion of our parts from a
limited number of third party suppliers, we are subject to the
risk that we may be unable to acquire quality components in a
timely manner, 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.






36



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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 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;                                                                                                                              
|
| |  | the availability and efficient use of manufacturing capacity;                                                                                                                                                        

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



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;                                                                                                                                                
|
| |  | significant unexpected duties or taxes or other adverse tax
    consequences;                                                                                                                                             

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






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##### Table of Contents





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.






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##### Table of Contents



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.




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##### Table of Contents







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










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




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.




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##### Table of Contents







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;                                                
|
| |  | general conditions in the semiconductor and electronic systems
    industries; and                                          
|
| |  | general economic conditions in the United States and abroad.                                                                

If we fail to maintain an effective system of internal
control over financial reporting, we may not be able to
accurately report our financial results. As a result, current
and potential stockholders could lose confidence in our
financial reporting, which would harm our business and the
trading price of our stock.




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##### Table of Contents





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.




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.




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##### Table of Contents



We issued shares under our 1998 Employee Stock Purchase Plan
that may not have been not exempt from registration or
qualification under federal securities laws, and as a result, we
may incur liability to repurchase such shares and may face
additional potential claims.











|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures About Market
    Risk

Derivatives




Investments




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|                      |  |          |        |    |          |   |        |            |  |   |        |    |  |         |        |  |          |   |        |          |  |   |        |   |  |   |        |  
|--------------------- |  | -------- | ------ | -- | -------- | - | ------ | ---------- |  | - | ------ | -- |  | ------- | ------ |  | -------- | - | ------ | -------- |  | - | ------ | - |  | - | ------ | -
|                      |  |          |        |    |          |   |        | Fair Value |  |   |        |    |  |         |       
|                      |  |          |        |    |          |   |        | as of      |  |   |        |    |  |         |       
|                      |  |          |        |    |          |   |        | October 1, |  |   |        |    |  |         |       
|                      |  | +150 bps |        |    | +100 bps |   |        | +50 bps    |  |   | 2005   |    |  | -50 bps |        |  | -100 bps |   |        | -150 bps | 
|                      |  |          |        |    |          |   |        |            |  |   |        |    |  |         |        |  |          |   |        |          | 
|                      |  | ($000)   |       
|Financial Instruments |  | $        | 87,359 |    |          | $ | 87,570 |            |  | $ | 87,781 |    |  | $       | 88,001 |  |          | $ | 88,221 |          |  | $ | 88,441 |   |  | $ | 88,661 |  
|% Change              |  |          | (0.73  | )% |          |   | (0.49  | )%         |  |   | (0.25  | )% |  |         |        |  |          |   | 0.25   | %        |  |   | 0.50   | % |  |   | 0.75   | %



|                             |  |                          |       |            |            |   |       |                          |  |   |       |    |  |   |       |  |  |   |       |   |  |   |       |   |  |   |       |  
|---------------------------- |  | ------------------------ | ----- | ---------- | ---------- | - | ----- | ------------------------ |  | - | ----- | -- |  | - | ----- |  |  | - | ----- | - |  | - | ----- | - |  | - | ----- | -
|                             |  |                          |       | Fair Value |            |   |      
|                             |  | Valuation of Security    |       |            | as of      |   |       | Valuation of Security    | 
|                             |  | Given X% Decrease in the |       |            | October 1, |   |       | Given X% Increase in the | 
|                             |  | Security Price           |       |            | 2005       |   |       | Security Price           | 
|                             |  |                          |       |            |            |   |       |                          | 
|                             |  |                          |       |            |            |   |       | ($000)                   |  |   |      
|Corporate equity investments |  | $                        | 2,154 |            |            | $ | 3,230 |                          |  | $ | 3,661 |    |  | $ | 4,307 |  |  | $ | 4,953 |   |  | $ | 5,384 |   |  | $ | 6,461 |  
|% Change                     |  |                          | (50   | )%         |            |   | (25   | )%                       |  |   | (15   | )% |  |   |       |  |  |   | 15    | % |  |   | 25    | % |  |   | 50    | %






|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

Changes in Internal Control Over Financial Reporting






| |   |                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Application of generally accepted accounting principles related
    to the financial reporting process 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):



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



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##### Table of Contents









| |   |                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Supplementing the Companys staff as needed 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                                                                                                                                                                           
|
| |  | Revising processes and procedures to assure the review by senior
    management of the accounting and related documentation for
    complex, non-routine transactions.                                                            





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 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 second quarter of 2005
    completed the planned remediation steps.                                                                                                                                                                                                                                                                     







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Evaluation of Effectiveness of Disclosure Controls and
Procedures









PART II. OTHER INFORMATION







|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings









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##### Table of Contents










|        |                                                                
|------- | ---------------------------------------------------------------
|Item 2. | Unregistered Sales of Equity Securities and Use of
    Proceeds








|        |                                
|------- | -------------------------------
|Item 3. | Defaults Upon Senior Securities








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








|        |                  
|------- | -----------------
|Item 5. | Other Information








|        |         
|------- | --------
|Item 6. | Exhibits



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##### Table of Contents






SIGNATURES






| |                   
| | ------------------
| | MAXTOR CORPORATION



| |    |                           
| | -- | --------------------------
| | By | /s/ DUSTON M.
    WILLIAMS

| |                                  
| | ---------------------------------
| |                                  
| | Duston M. Williams               
| | Executive Vice President, Finance
| | and Chief Financial Officer      



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EXHIBIT INDEX


|        |    |             |  |                                                                                                                                                                                                                                                                           
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 4  | .1          |  | Indenture between Maxtor Corporation and U.S. Bank National
    Association, dated August 15, 2005.                                                                                                                                                                       
|       
|        | 4  | .2          |  | 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          |  | 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.
|       
|        | 12 | .1          |  | Statements re: Computation of Ratios                                                                                                                                                                                                                                      
|       
|        | 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