##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-Q



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|                                       |  |                                                                                                 
|-------------------------------------- |  | ------------------------------------------------------------------------------------------------
|(Mark one)                             |  |                                                                                                 
|þ                                      |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                      
|For the period ended June 29,
    2002
|                                      
|or                                    
|                                      
|o                                      |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|                                      
|                                       |  | For the transition period
    from           to                                                 

Commission file Number: 0-14016

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

Indicate by checkmark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

As of August 9, 2002,
239,132,147 shares of the registrants Common Stock,
$.01 par value, were issued and outstanding.



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TABLE OF CONTENTS



|                              |                                                                                               |  |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|INDEX                        
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Condensed Consolidated Financial Statements                                          
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|PART II. OTHER INFORMATION   
|                              | Item 1. Legal Proceedings                                                                    
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                              | Item 5. Other Information                                                                    
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   
|EXHIBIT 10.1                 
|EXHIBIT 10.2                 
|EXHIBIT 10.3                 
|EXHIBIT 10.4                 
|EXHIBIT 99.1                 
|EXHIBIT 99.2                 



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##### Table of Contents



MAXTOR CORPORATION

FORM 10-Q

June 29, 2002







INDEX


|                              |  |                                                                                                                       |    |      |    | 
|----------------------------- |  | --------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                              |  |                                                                                                                       |    | Page
|                              |  |                                                                                                                       |    |     
|PART I. FINANCIAL INFORMATION
|Item 1.                       |  | Condensed Consolidated Financial Statements                                                                           |    |      |    | 
|                              |  | Condensed Consolidated Balance Sheets 
    June 29, 2002, and December 29, 2001                                      |    |      | 2  | 
|                              |  | Condensed Consolidated Statements of
    Operations  Three and six months ended June 29,
    2002, and June 30, 2001 |    |      | 3  | 
|                              |  | Condensed Consolidated Statements of Cash
    Flows  Six months ended June 29, 2002, and
    June 30, 2001           |    |      | 4  | 
|                              |  | Notes to Condensed Consolidated Financial
    Statements                                                              |    |      | 5  | 
|Item 2.                       |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                             |    |      | 20 | 
|Item 3.                       |  | Quantitative and Qualitative Disclosures about
    Market Risk                                                        |    |      | 47 | 
|PART II. OTHER INFORMATION   
|Item 1.                       |  | Legal Proceedings                                                                                                     |    |      | 48 | 
|Item 4.                       |  | Submission of Matters to a Vote of Security
    Holders                                                               |    |      | 49 | 
|Item 5.                       |  | Other Information                                                                                                     |    |      | 49 | 
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                                      |    |      | 49 | 
|Signature Page                |  |                                                                                                                       | 50 |     

1



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##### Table of Contents






PART I.     FINANCIAL
INFORMATION




Item 1.     Condensed
Consolidated Financial Statements

MAXTOR CORPORATION

CONDENSED CONSOLIDATED BALANCE
SHEETS

(In thousands, except share and per share
amounts)


(Unaudited)


|                                          |                                                                                                                                                                                                                                                   |                                            |            |              |           |  |            |         |           | 
|----------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | ------------ | --------- |  | ---------- | ------- | --------- | 
|                                          |                                                                                                                                                                                                                                                   | June 29,                                   |            | December 29,
|                                          |                                                                                                                                                                                                                                                   | 2002                                       |            | 2001        
|                                          |                                                                                                                                                                                                                                                   |                                            |            |             
|ASSETS                                   
|Current assets:                           |                                                                                                                                                                                                                                                   |                                            |            |              |           |  |            |        
|                                          | Cash and cash equivalents                                                                                                                                                                                                                         |                                            | $          | 292,252      |           |  | $          | 379,927 |          
|                                          | Restricted cash                                                                                                                                                                                                                                   |                                            |            | 98,647       |           |  |            | 98,629  |          
|                                          | Marketable securities                                                                                                                                                                                                                             |                                            |            | 98,994       |           |  |            | 167,217 |          
|                                          | Accounts receivable, net of allowance of doubtful
    accounts of $25,421 at June 29, 2002 and $21,638 at
    December 29, 2001                                                                                                                   |                                            |            | 343,942      |           |  |            | 379,918 |          
|                                          | Inventories                                                                                                                                                                                                                                       |                                            |            | 234,315      |           |  |            | 185,556 |          
|                                          | Prepaid expenses and other                                                                                                                                                                                                                        |                                            |            | 39,958       |           |  |            | 45,606  |          
|                                          |                                                                                                                                                                                                                                                   |                                            |            |              |           |  |            |        
|                                          |                                                                                                                                                                                                                                                   | Total current assets                       |            |              | 1,108,108 |  |            |         | 1,256,853 | 
|Property, plant and equipment, net        |                                                                                                                                                                                                                                                   |                                            | 382,791    |              |           |  | 366,786    |        
|Goodwill                                  |                                                                                                                                                                                                                                                   |                                            | 845,972    |              |           |  | 814,863    |        
|Other intangible assets, net              |                                                                                                                                                                                                                                                   |                                            | 188,789    |              |           |  | 262,552    |        
|Other assets                              |                                                                                                                                                                                                                                                   |                                            | 11,056     |              |           |  | 14,410     |        
|                                          |                                                                                                                                                                                                                                                   |                                            |            |              |           |  |            |        
|                                          |                                                                                                                                                                                                                                                   | Total assets                               |            | $            | 2,536,716 |  |            | $       | 2,715,464 | 
|                                          |                                                                                                                                                                                                                                                   |                                            |            |              |           |  |            |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY 
|Current liabilities:                      |                                                                                                                                                                                                                                                   |                                            |            |              |           |  |            |        
|                                          | Short-term borrowings, including current portion
    of long-term debt                                                                                                                                                                            |                                            | $          | 39,872       |           |  | $          | 44,160  |          
|                                          | Accounts payable                                                                                                                                                                                                                                  |                                            |            | 685,626      |           |  |            | 593,263 |          
|                                          | Accrued and other liabilities                                                                                                                                                                                                                     |                                            |            | 460,129      |           |  |            | 532,358 |          
|                                          |                                                                                                                                                                                                                                                   |                                            |            |              |           |  |            |        
|                                          |                                                                                                                                                                                                                                                   | Total current liabilities                  |            |              | 1,185,627 |  |            |         | 1,169,781 | 
|Deferred taxes                            |                                                                                                                                                                                                                                                   |                                            | 196,452    |              |           |  | 196,455    |        
|Long-term debt, net of current portion    |                                                                                                                                                                                                                                                   |                                            | 217,443    |              |           |  | 244,458    |        
|Other liabilities                         |                                                                                                                                                                                                                                                   |                                            | 196,525    |              |           |  | 204,587    |        
|                                          |                                                                                                                                                                                                                                                   |                                            |            |              |           |  |            |        
|                                          |                                                                                                                                                                                                                                                   | Total liabilities                          |            |              | 1,796,047 |  |            |         | 1,815,281 | 
|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; 245,255,384 shares issued and 240,255,384
    shares outstanding at June 29, 2002 and 241,977,795 shares
    issued and 236,977,795 shares outstanding at December 29,
    2001 |                                            |            | 2,452        |           |  |            | 2,420   |          
|Additional paid-in capital                |                                                                                                                                                                                                                                                   |                                            | 2,339,162  |              |           |  | 2,323,885  |        
|Deferred stock-based compensation         |                                                                                                                                                                                                                                                   |                                            | (2,391     | )            |           |  | (3,809     | )      
|Accumulated deficit                       |                                                                                                                                                                                                                                                   |                                            | (1,580,564 | )            |           |  | (1,406,524 | )      
|Cumulative other comprehensive income     |                                                                                                                                                                                                                                                   |                                            | 2,010      |              |           |  | 4,211      |        
|Treasury stock (5,000,000 shares) at cost |                                                                                                                                                                                                                                                   |                                            | (20,000    | )            |           |  | (20,000    | )      
|                                          |                                                                                                                                                                                                                                                   |                                            |            |              |           |  |            |        
|                                          |                                                                                                                                                                                                                                                   | Total stockholders equity                 |            |              | 740,669   |  |            |         | 900,183   | 
|                                          |                                                                                                                                                                                                                                                   |                                            |            |              |           |  |            |        
|                                          |                                                                                                                                                                                                                                                   | Total liabilities and stockholders equity |            | $            | 2,536,716 |  |            | $       | 2,715,464 | 
|                                          |                                                                                                                                                                                                                                                   |                                            |            |              |           |  |            |        

See accompanying notes to condensed consolidated
financial statements.

2



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##### Table of Contents



MAXTOR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS

(In thousands, except share and per share
amounts)


(Unaudited)


|                                     |                                                   |                          |          |                  |             |          |           |          |             |   |           |         |             |   |           |         |             | 
|------------------------------------ | ------------------------------------------------- | ------------------------ | -------- | ---------------- | ----------- | -------- | --------- | -------- | ----------- | - | --------- | ------- | ----------- | - | --------- | ------- | ----------- | 
|                                     |                                                   |                          |          |                 
|                                     |                                                   | Three Months Ended       |          | Six Months Ended
|                                     |                                                   |                          |          |                 
|                                     |                                                   | June 29,                 |          | June 30,         |             | June 29, |           | June 30,
|                                     |                                                   | 2002                     |          | 2001             |             | 2002     |           | 2001    
|                                     |                                                   |                          |          |                  |             |          |           |         
|Net revenues                         |                                                   | $                        | 895,752  |                  |             | $        | 1,041,567 |          |             | $ | 1,940,471 |         |             | $ | 1,672,388 |        
|Cost of revenues                     |                                                   |                          | 832,714  |                  |             |          | 963,630   |          |             |   | 1,761,871 |         |             |   | 1,505,435 |        
|                                     |                                                   |                          |          |                  |             |          |           |          |             |   |           |         |             |   |           |        
|Gross profit                         |                                                   |                          | 63,038   |                  |             |          | 77,937    |          |             |   | 178,600   |         |             |   | 166,953   |        
|Operating expenses:                  |                                                   |                          |          |                  |             |          |           |          |             |   |           |         |             |   |           |        
|                                     | Research and development                          |                          |          | 109,139          |             |          |           | 139,277  |             |   |           | 218,141 |             |   |           | 198,297 |            
|                                     | Selling, general and administrative               |                          |          | 38,810           |             |          |           | 107,873  |             |   |           | 84,907  |             |   |           | 135,339 |            
|                                     | Amortization of goodwill and intangible assets(1) |                          |          | 21,330           |             |          |           | 61,919   |             |   |           | 42,660  |             |   |           | 64,406  |            
|                                     | Purchased in-process research and development     |                          |          |                 |             |          |           | 94,740   |             |   |           |        |             |   |           | 94,740  |            
|                                     |                                                   |                          |          |                  |             |          |           |          |             |   |           |         |             |   |           |        
|                                     |                                                   | Total operating expenses |          |                  | 169,279     |          |           |          | 403,809     |   |           |         | 345,708     |   |           |         | 492,782     | 
|                                     |                                                   |                          |          |                  |             |          |           |          |             |   |           |         |             |   |           |        
|Loss from operations                 |                                                   |                          | (106,241 | )                |             |          | (325,872  | )        |             |   | (167,108  | )       |             |   | (325,829  | )      
|Interest expense                     |                                                   |                          | (6,562   | )                |             |          | (5,533    | )        |             |   | (13,108   | )       |             |   | (8,471    | )      
|Interest and other income            |                                                   |                          | 2,376    |                  |             |          | 12,885    |          |             |   | 5,405     |         |             |   | 18,641    |        
|Other gain (loss)                    |                                                   |                          | 1,577    |                  |             |          | (176      | )        |             |   | 1,577     |         |             |   | (1,462    | )      
|                                     |                                                   |                          |          |                  |             |          |           |          |             |   |           |         |             |   |           |        
|Loss before income taxes             |                                                   |                          | (108,850 | )                |             |          | (318,696  | )        |             |   | (173,234  | )       |             |   | (317,121  | )      
|Provision for income taxes           |                                                   |                          | 152      |                  |             |          | 1,072     |          |             |   | 806       |         |             |   | 1,308     |        
|                                     |                                                   |                          |          |                  |             |          |           |          |             |   |           |         |             |   |           |        
|Net loss                             |                                                   | $                        | (109,002 | )                |             | $        | (319,768  | )        |             | $ | (174,040  | )       |             | $ | (318,429  | )      
|                                     |                                                   |                          |          |                  |             |          |           |          |             |   |           |         |             |   |           |        
|Net loss per share  basic           |                                                   | $                        | (0.46    | )                |             | $        | (1.35     | )        |             | $ | (0.73     | )       |             | $ | (1.81     | )      
|Net loss per share  diluted         |                                                   | $                        | (0.46    | )                |             | $        | (1.35     | )        |             | $ | (0.73     | )       |             | $ | (1.81     | )      
|Shares used in per share calculation |                                                   |                          |          |                  |             |          |           |          |             |   |           |         |             |   |           |        
|                                     |                                                   |  basic                  |          |                  | 238,803,423 |          |           |          | 236,680,543 |   |           |         | 237,892,949 |   |           |         | 175,772,877 | 
|                                     |                                                   |  diluted                |          |                  | 238,803,423 |          |           |          | 236,680,543 |   |           |         | 237,892,949 |   |           |         | 175,772,877 | 






|    |                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------
|(1) | The amounts for three and six months ended
    June 29, 2002 represent only amortization of other
    intangible assets.

See accompanying notes to condensed consolidated
financial statements.

3



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##### Table of Contents



MAXTOR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In thousands)


(Unaudited)


|                                                                                                         |                                                                                                      |                               |                                                         |          |         |         |          |           |          |         |  
|-------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ----------------------------- | ------------------------------------------------------- | -------- | ------- | ------- | -------- | --------- | -------- | ------- | -
|                                                                                                         |                                                                                                      |                              
|                                                                                                         |                                                                                                      | Six Months Ended             
|                                                                                                         |                                                                                                      |                              
|                                                                                                         |                                                                                                      | June 29,                      |                                                         | June 30,
|                                                                                                         |                                                                                                      | 2002                          |                                                         | 2001    
|                                                                                                         |                                                                                                      |                               |                                                         |         
|Cash Flows from Operating
    Activities:                                                                |                                                                                                      |                               |                                                         |          |         |         |          |          
|Net loss                                                                                                 |                                                                                                      | $                             | (174,040                                                | )        |         | $       | (318,429 | )        
|Adjustments to reconcile net loss to net cash
    used in operating activities:                          |                                                                                                      |                               |                                                         |          |         |         |          |          
|                                                                                                         | Depreciation and amortization                                                                        |                               |                                                         | 73,000   |         |         |          | 56,244    |         
|                                                                                                         | Amortization of goodwill and other intangible
    assets                                             |                               |                                                         | 42,660   |         |         |          | 64,406    |         
|                                                                                                         | Amortization of deferred and prepaid stock-based
    compensation related to Quantum HDD acquisition |                               |                                                         | 4,103    |         |         |          | 29,030    |         
|                                                                                                         | Purchased in-process research and development                                                        |                               |                                                         |         |         |         |          | 94,740    |         
|                                                                                                         | Stock-based compensation expense                                                                     |                               |                                                         | 2,850    |         |         |          | 3,650     |         
|                                                                                                         | Loss on sale of property, plant and equipment and
    other assets                                   |                               |                                                         | 3,104    |         |         |          | 212       |         
|                                                                                                         | Gain on investment                                                                                   |                               |                                                         | (1,079   | )       |         |          |          |         
|                                                                                                         | Gain on retirement of bond                                                                           |                               |                                                         | (1,162   | )       |         |          | (857      | )       
|                                                                                                         | Change in assets and liabilities:                                                                    |                               |                                                         |          |         |         |          |           |         
|                                                                                                         |                                                                                                      | Accounts receivable           |                                                         |          | 35,976  |         |          |           | 152,707  |        
|                                                                                                         |                                                                                                      | Inventories                   |                                                         |          | (48,759 | )       |          |           | 19,995   |        
|                                                                                                         |                                                                                                      | Other assets                  |                                                         |          | 4,034   |         |          |           | 75,108   |        
|                                                                                                         |                                                                                                      | Accounts payable              |                                                         |          | 78,635  |         |          |           | (139,061 | )      
|                                                                                                         |                                                                                                      | Accrued and other liabilities |                                                         |          | (80,411 | )       |          |           | (74,284  | )      
|                                                                                                         |                                                                                                      |                               |                                                         |          |         |         |          |          
|                                                                                                         |                                                                                                      |                               | Net cash used in operating activities                   |          |         | (61,089 | )        |           |          | (36,539 | )
|                                                                                                         |                                                                                                      |                               |                                                         |          |         |         |          |          
|Cash Flows from Investing
    Activities:                                                                |                                                                                                      |                               |                                                         |          |         |         |          |          
|Proceeds from sale of property, plant and
    equipment                                                  |                                                                                                      |                               | 65                                                      |          |         |         | 148      |          
|Purchase of property, plant and equipment                                                                |                                                                                                      |                               | (78,446                                                 | )        |         |         | (89,630  | )        
|Cash acquired from acquisition, net of merger
    related expenses                                       |                                                                                                      |                               |                                                        |          |         |         | 375,838  |          
|Restricted cash acquired from acquisition                                                                |                                                                                                      |                               |                                                        |          |         |         | (93,909  | )        
|Increase in restricted cash                                                                              |                                                                                                      |                               | (18                                                     | )        |         |         |         |          
|Proceeds from marketable securities                                                                      |                                                                                                      |                               | 102,158                                                 |          |         |         | 108,936  |          
|Purchase of marketable securities                                                                        |                                                                                                      |                               | (34,192                                                 | )        |         |         | (84,846  | )        
|                                                                                                         |                                                                                                      |                               |                                                         |          |         |         |          |          
|                                                                                                         |                                                                                                      |                               | Net cash provided by (used in) investing
    activities |          |         | (10,433 | )        |           |          | 216,537 |  
|                                                                                                         |                                                                                                      |                               |                                                         |          |         |         |          |          
|Cash Flows from Financing
    Activities:                                                                |                                                                                                      |                               |                                                         |          |         |         |          |          
|Principal payments of debt including short-term
    borrowings                                           |                                                                                                      |                               | (18,400                                                 | )        |         |         | (8,503   | )        
|Principal payments under capital lease obligations                                                       |                                                                                                      |                               | (11,741                                                 | )        |         |         |         |          
|Repurchase of common stock                                                                               |                                                                                                      |                               | (606                                                    | )        |         |         |         |          
|Proceeds from issuance of common stock from
    employee stock purchase plan and stock options exercised |                                                                                                      |                               | 14,594                                                  |          |         |         | 8,016    |          
|                                                                                                         |                                                                                                      |                               |                                                         |          |         |         |          |          
|                                                                                                         |                                                                                                      |                               | Net cash used in financing activities                   |          |         | (16,153 | )        |           |          | (487    | )
|                                                                                                         |                                                                                                      |                               |                                                         |          |         |         |          |          
|Net change in cash and cash equivalents                                                                  |                                                                                                      |                               | (87,675                                                 | )        |         |         | 179,511  |          
|Cash and cash equivalents at beginning of period                                                         |                                                                                                      |                               | 379,927                                                 |          |         |         | 193,228  |          
|                                                                                                         |                                                                                                      |                               |                                                         |          |         |         |          |          
|Cash and cash equivalents at end of period                                                               |                                                                                                      | $                             | 292,252                                                 |          |         | $       | 372,739  |          
|                                                                                                         |                                                                                                      |                               |                                                         |          |         |         |          |          
|Supplemental Disclosures of Cash Flow
    Information:                                                   |                                                                                                      |                               |                                                         |          |         |         |          |          
|                                                                                                         | Cash paid during the period for:                                                                     |                               |                                                         |          |         |         |          |           |         
|                                                                                                         |                                                                                                      | Interest                      |                                                         | $        | 11,583  |         |          | $         | 10,160   |        
|                                                                                                         |                                                                                                      | Income taxes                  |                                                         | $        | 5,369   |         |          | $         | 1,357    |        
|Schedule of Non-Cash Investing and Financing
    Activities:                                             |                                                                                                      |                               |                                                         |          |         |         |          |          
|                                                                                                         | Purchase of property, plant and equipment
    financed by accounts payable                           |                               | $                                                       | 13,728   |         |         | $        | 10,160    |         
|                                                                                                         | Retirement of debt in exchange for bond redemption                                                   |                               | $                                                       | 5,000    |         |         | $        | 5,000     |         
|                                                                                                         | Change in unrealized loss on investments                                                             |                               | $                                                       | (2,201   | )       |         | $        | (603      | )       
|                                                                                                         | Value of shares issued for Quantum HDD acquisition                                                   |                               | $                                                       |         |         |         |          | 1,240,597 |         

See accompanying notes to condensed consolidated
financial statements.

4



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##### Table of Contents



MAXTOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

1.     Summary of
Significant Accounting Policies



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

The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. The
consolidated financial statements include the accounts of Maxtor
Corporation (Maxtor or the Company) and
its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. All
adjustments of a normal recurring nature which, in the opinion
of management, are necessary for a fair statement of the results
for the interim periods have been made. The unaudited interim
financial statements should be read in conjunction with the
Companys audited consolidated financial statements and
notes thereto for the fiscal year ended December 29, 2001
incorporated in the Companys Annual Report on
Form 10-K. Interim results are not necessarily indicative
of the operating results expected for later quarters or the full
fiscal year.



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

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



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

The Company operates and reports financial
results on a fiscal year of 52 or 53 weeks ending on the
Saturday closest to December 31. As a result, the three and
six month periods ended June 29, 2002 comprised
13 weeks and 26 weeks, respectively, as did the three
and six month periods ended June 30, 2001. All references
to years in these notes to consolidated financial statements
represent fiscal years unless otherwise noted.

2.     Acquisitions



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

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

5



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

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

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

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

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

6



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes the activity
related to the merger-related restructuring costs as of
June 29, 2002:

|                             |  |               |      |           |  |       |       |       |  |   |       |   |  |   |       |  
|---------------------------- |  | ------------- | ---- | --------- |  | ----- | ----- | ----- |  | - | ----- | - |  | - | ----- | -
|                             |  |               |      | Severance |  |       |       |      
|                             |  | Facility      |      | and       |  | Other |       |      
|                             |  | Costs         |      | Benefits  |  | Costs |       | Total
|                             |  |               |      |           |  |       |       |      
|                             |  |              
|                             |  | (In millions)
|Provision at April 2, 2001   |  | $             | 59.1 |           |  | $     | 29.2  |       |  | $ | 12.7  |   |  | $ | 101.0 |  
|Cash payments                |  |               | (0.9 | )         |  |       | (15.5 | )     |  |   | (12.7 | ) |  |   | (29.1 | )
|                             |  |               |      |           |  |       |       |       |  |   |       |   |  |   |       |  
|Balance at December 29, 2001 |  |               | 58.2 |           |  |       | 13.7  |       |  |   |      |   |  |   | 71.9  |  
|Cash payments                |  |               | (2.7 | )         |  |       | (7.7  | )     |  |   |      |   |  |   | (10.4 | )
|                             |  |               |      |           |  |       |       |       |  |   |       |   |  |   |       |  
|Balance at March 30, 2002    |  |               | 55.5 |           |  |       | 6.0   |       |  |   |      |   |  |   | 61.5  |  
|Cash payments                |  |               | (1.4 | )         |  |       | (4.8  | )     |  |   |      |   |  |   | (6.3  | )
|                             |  |               |      |           |  |       |       |       |  |   |       |   |  |   |       |  
|Balance at June 29, 2002     |  | $             | 54.1 |           |  | $     | 1.2   |       |  | $ |      |   |  | $ | 55.2  |  
|                             |  |               |      |           |  |       |       |       |  |   |       |   |  |   |       |  

The unpaid portion of the severance accrual is
expected to be paid during 2002. The balance remaining in the
facilities exit accrual is expected to be paid over several
years based on the underlying lease agreements.



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

On September 2, 2001, Maxtor completed the
acquisition of MMC Technology, Inc. (MMC), a
wholly-owned subsidiary of Hynix Semiconductor America Inc.
(Hynix). MMC, based in San Jose, California,
designs, develops and manufactures media for hard disk drives.
Prior to the acquisition, sales to Maxtor comprised 95% of
MMCs annual revenues. The primary reason for Maxtor
acquiring MMC was to provide the Company with a reliable source
of media supply. The acquisition has been accounted for as a
purchase with a total cost of $17.9 million, which
consisted of cash consideration of $1.0 million,
$16.0 million of loan forgiveness and $0.9 million of
direct transaction costs. In connection with the acquisition,
the Company has also assumed liabilities of $105.7 million,
including a $7.3 million note owed by MMC to Hynix, which
was non-interest bearing through March 31, 2002, with any
balance remaining thereafter bearing interest at 9% per annum
(the Maxtor Note). On January 5, 2001, Hynix
issued a promissory note to Maxtor for $2 million in
principal amount, representing Hynixs share of a
settlement relating to litigation between Maxtor, Hynix and
Stormedia. This note bore interest at 9% per annum, with the
payment of principal and interest due on December 31, 2001
(the Hynix Note). Hynix and Maxtor agreed that the
principal and accrued interest on the Hynix Note as of
December 28, 2001 was offset against the principal amount
of the Maxtor Note, such that the Hynix Note was fully paid and
the Maxtor Note had a principal amount of approximately
$5.1 million as of December 29, 2001. On April 5,
2002, the outstanding balance under the Maxtor Note was fully
paid. MMCs results of operations are included in the
financial statements from the date of acquisition, and the
assets and liabilities acquired were recorded based on their
fair values as of the date of acquisition.

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

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

7



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Purchase Price Allocation (in millions):

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



| |                        
| | -----------------------
| | c. Pro forma disclosure

The following unaudited proforma consolidated
amounts give effect to the acquisitions of Quantum HDD and MMC,
excluding the charges for acquired in-process research and
development, as if the acquisitions had occurred on
January 1, 2001. On a proforma basis, the results of
operations of Quantum HDD and MMC are consolidated with the
Companys results for the three and six months ended
June 29, 2002 and June 30, 2001. The proforma amounts
do not purport to be indicative of what would have occurred had
the acquisitions been made as of the beginning of each period or
of results which may occur in the future.

|                                       |         |                                                   |        |                  |  |          |         |             |  |   |         |             |  |   |         |             | 
|-------------------------------------- | ------- | ------------------------------------------------- | ------ | ---------------- |  | -------- | ------- | ----------- |  | - | ------- | ----------- |  | - | ------- | ----------- | 
|                                       |         |                                                   |        |                 
|                                       |         | Three Months Ended                                |        | Six Months Ended
|                                       |         |                                                   |        |                 
|                                       |         | June 29,                                          |        | June 30,         |  | June 29, |         | June 30,   
|                                       |         | 2002                                              |        | 2001             |  | 2002     |         | 2001       
|                                       |         |                                                   |        |                  |  |          |         |            
|                                       |         |                                                  
|                                       |         | (In millions, except share and per share amounts)
|Revenue                                |         | $                                                 | 895.8  |                  |  | $        | 1,042.4 |             |  | $ | 1,940.5 |             |  | $ | 2,325.0 |            
|Net loss                               |         | $                                                 | (109.0 | )                |  | $        | (327.1  | )           |  | $ | (174.0  | )           |  | $ | (349.0  | )          
|Loss per share  basic and diluted     |         | $                                                 | (0.46  | )                |  | $        | (1.38   | )           |  | $ | (0.73   | )           |  | $ | (1.99   | )          
|Shares used in per share calculations: |         |                                                   |        |                  |  |          |         |             |  |   |         |             |  |   |         |            
|                                       | Basic   |                                                   |        | 238,803,423      |  |          |         | 236,680,543 |  |   |         | 237,892,949 |  |   |         | 175,772,877 | 
|                                       | Diluted |                                                   |        | 238,803,423      |  |          |         | 236,680,543 |  |   |         | 237,892,949 |  |   |         | 175,772,877 | 

4.     Restricted
Cash

The Companys restricted cash balance of
$98.6 million at June 29, 2002, is associated with
short-term letters of credits (LOCs), where the
Company has chosen to provide cash security in order to lower
the cost of the LOCs.

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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

5.     Supplemental
Financial Statement Data

|                               |                                              |                |         |              |  |   |         |         | 
|------------------------------ | -------------------------------------------- | -------------- | ------- | ------------ |  | - | ------- | ------- | 
|                               |                                              | June 29,       |         | December 29,
|                               |                                              | 2002           |         | 2001        
|                               |                                              |                |         |             
|                               |                                              |               
|                               |                                              | (In thousands)
|Inventories:                   |                                              |                |         |              |  |   |         |        
|                               | Raw materials                                |                | $       | 34,888       |  |   | $       | 36,914  | 
|                               | Work-in-process                              |                |         | 12,327       |  |   |         | 9,087   | 
|                               | Finished goods                               |                |         | 187,100      |  |   |         | 139,555 | 
|                               |                                              |                |         |              |  |   |         |        
|                               |                                              | $              | 234,315 |              |  | $ | 185,556 |        
|                               |                                              |                |         |              |  |   |         |        
|Accrued and other liabilities: |                                              |                |         |              |  |   |         |        
|                               | Income taxes payable                         |                | $       | 22,236       |  |   | $       | 27,740  | 
|                               | Accrued payroll and payroll-related expenses |                |         | 75,000       |  |   |         | 82,828  | 
|                               | Accrued warranty                             |                |         | 272,645      |  |   |         | 313,894 | 
|                               | Accrued expenses                             |                |         | 90,248       |  |   |         | 107,896 | 
|                               |                                              |                |         |              |  |   |         |        
|                               |                                              | $              | 460,129 |              |  | $ | 532,358 |        
|                               |                                              |                |         |              |  |   |         |        

6.     Net Loss Per
Share

In accordance with the disclosure requirements of
Statements of Financial Accounting Standards No. 128,
Earnings per Share a reconciliation of the numerator
and denominator of the basic and diluted net loss per share
calculations is provided as follows (in thousands, except share
and per share amounts):

|                                                 |                              |                    |             |                  |  |          |             |          |  |   |             |   |  |   |             |   | 
|------------------------------------------------ | ---------------------------- | ------------------ | ----------- | ---------------- |  | -------- | ----------- | -------- |  | - | ----------- | - |  | - | ----------- | - | 
|                                                 |                              |                    |             |                 
|                                                 |                              | Three Months Ended |             | Six Months Ended
|                                                 |                              |                    |             |                 
|                                                 |                              | June 29,           |             | June 30,         |  | June 29, |             | June 30,
|                                                 |                              | 2002               |             | 2001             |  | 2002     |             | 2001    
|                                                 |                              |                    |             |                  |  |          |             |         
|Numerator  Basic and
    diluted                |                              |                    |             |                  |  |          |             |          |  |   |             |   |  |   |             |  
|Net loss                                         |                              | $                  | (109,002    | )                |  | $        | (319,768    | )        |  | $ | (174,040    | ) |  | $ | (318,429    | )
|                                                 |                              |                    |             |                  |  |          |             |          |  |   |             |   |  |   |             |  
|Net loss available to common stockholders        |                              | $                  | (109,002    | )                |  | $        | (319,768    | )        |  | $ | (174,040    | ) |  | $ | (318,429    | )
|                                                 |                              |                    |             |                  |  |          |             |          |  |   |             |   |  |   |             |  
|Denominator                                      |                              |                    |             |                  |  |          |             |          |  |   |             |   |  |   |             |  
|Basic weighted average common shares outstanding |                              |                    | 238,803,423 |                  |  |          | 236,680,543 |          |  |   | 237,892,949 |   |  |   | 175,772,877 |  
|Effect of dilutive securities:                   |                              |                    |             |                  |  |          |             |          |  |   |             |   |  |   |             |  
|                                                 | Common stock options         |                    |             |                 |  |          |             |         |  |   |             |  |  |   |             |  | 
|                                                 | Contingently issuable shares |                    |             |                 |  |          |             |         |  |   |             |  |  |   |             |  | 
|                                                 |                              |                    |             |                  |  |          |             |          |  |   |             |   |  |   |             |  
|Diluted weighted average common shares           |                              |                    | 238,803,423 |                  |  |          | 236,680,543 |          |  |   | 237,892,949 |   |  |   | 175,772,877 |  
|                                                 |                              |                    |             |                  |  |          |             |          |  |   |             |   |  |   |             |  
|Basic net loss per share                         |                              | $                  | (0.46       | )                |  | $        | (1.35       | )        |  | $ | (0.73       | ) |  | $ | (1.81       | )
|                                                 |                              |                    |             |                  |  |          |             |          |  |   |             |   |  |   |             |  
|Diluted net loss per share                       |                              | $                  | (0.46       | )                |  | $        | (1.35       | )        |  | $ | (0.73       | ) |  | $ | (1.81       | )
|                                                 |                              |                    |             |                  |  |          |             |          |  |   |             |   |  |   |             |  

9



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following securities and contingently
issuable shares are excluded in the calculation of diluted
shares outstanding, as their effects would be antidilutive:

|                             |  |                    |            |                  |  |          |            |          |  |  |            |  |  |  |            | 
|---------------------------- |  | ------------------ | ---------- | ---------------- |  | -------- | ---------- | -------- |  |  | ---------- |  |  |  | ---------- | 
|                             |  |                    |            |                 
|                             |  | Three Months Ended |            | Six Months Ended
|                             |  |                    |            |                 
|                             |  | June 29,           |            | June 30,         |  | June 29, |            | June 30,
|                             |  | 2002               |            | 2001             |  | 2002     |            | 2001    
|                             |  |                    |            |                  |  |          |            |         
|Common stock options         |  |                    | 34,226,219 |                  |  |          | 34,615,806 |          |  |  | 34,599,950 |  |  |  | 31,853,162 | 
|Contingently issuable shares |  |                    | 1,269,058  |                  |  |          | 1,598,563  |          |  |  | 1,269,058  |  |  |  | 1,598,563  | 

7.     Short-Term
Borrowings and Long-Term Debt

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

|                                                                                                   |  |          |         |              |  |   |         |  
|-------------------------------------------------------------------------------------------------- |  | -------- | ------- | ------------ |  | - | ------- | -
|                                                                                                   |  | June 29, |         | December 29,
|                                                                                                   |  | 2002     |         | 2001        
|                                                                                                   |  |          |         |             
|5.75% Subordinated Debentures due March 1,
    2012                                                |  | $        | 64,627  |              |  | $ | 74,262  |  
|Economic Development Board of Singapore Loan due
    March 2004                                    |  |          | 13,012  |              |  |   | 16,313  |  
|Pro rata portion of Quantum Corporations 7%
    Subordinated Convertible Notes due August 1, 2004 |  |          | 95,833  |              |  |   | 95,833  |  
|Mortgages                                                                                          |  |          | 36,283  |              |  |   | 36,926  |  
|Hynix Semiconductor America Inc. Note                                                              |  |          |        |              |  |   | 5,095   |  
|Equipment Loans and Capital Leases                                                                 |  |          | 47,560  |              |  |   | 60,189  |  
|                                                                                                   |  |          |         |              |  |   |         |  
|                                                                                                   |  |          | 257,315 |              |  |   | 288,618 |  
|Less amounts due within one year                                                                   |  |          | (39,872 | )            |  |   | (44,160 | )
|                                                                                                   |  |          |         |              |  |   |         |  
|                                                                                                   |  | $        | 217,443 |              |  | $ | 244,458 |  
|                                                                                                   |  |          |         |              |  |   |         |  

The 5.75% Subordinated Debentures due
March 1, 2012 require semi-annual interest payments and
annual sinking fund payments of $5.0 million, which
commenced March 1, 1998. The Debentures are subordinated in
right to payment to all senior indebtedness.

In September 1999, Maxtor Peripherals
(S) Pte Ltd entered into a four-year Singapore dollar
denominated loan agreement with the Economic Development Board
of Singapore (the Board), which is being amortized
in seven equal semi-annual installments ending March 2004. As of
June 29, 2002, the balance was equivalent to
$13.0 million. The Board charges interest at 1% above the
prevailing Central Provident Fund lending rate, subject to a
minimum of 3.5% per year (3.5% as of June 29, 2002). This
loan is supported by a two-year guaranty from a bank. Cash is
currently provided as collateral for this guaranty but the
Company may, at its option, substitute other assets as security.
As part of this arrangement, the Company is subject to two
financial covenants, the maintenance of minimum unrestricted
cash and a tangible net worth test.

As of December 29, 2001, the Company
determined that it was not in compliance with the tangible net
worth covenant under the loan agreement. On February 15,
2002, the Company received a waiver and amendment from the
lender for its Singapore loan relating to the tangible net worth
covenant. On the same date, the banks participating in the
Companys asset securitization program (the
Program) agreed to a first amendment through
May 15, 2002 to the Program. In each case, the definition
for calculating tangible net worth was amended to include an
adjustment associated with the purchase price accounting for the
acquisition of Quantum HDD. After giving effect to this first
amendment, the Company was in compliance with the tangible net
worth covenant.

On March 15, 2002, the first amendment was
superceded by a second amendment reflecting the terms of the
first amendment and extending the terms of the amendment for the
duration of the Program. At this time

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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the Program was reduced from $300 million to
$210 million due to the withdrawal of one of the
participating banks.

On May 28, 2002, the banks participating in
the Program approved a third amendment, which modified the
tangible net worth covenant and the minimum unrestricted cash
requirement. On June 20, 2002 the Singapore loan was
amended to the same effect. After giving effect to the third
amendment to the Program and the amendment to the Singapore
loan, the Company was in compliance with all covenants.

In connection with the acquisition of the Quantum
HDD business, Maxtor agreed to indemnify Quantum for the Quantum
HDD pro rata portion of Quantums outstanding
$287.5 million 7% convertible subordinated notes due
August 1, 2004, and accordingly the principal amount of
$95.8 million has been included in the Companys long
term debt. Quantum is required to pay interest semi-annually on
February 1 and August 1, and principal is payable on
maturity. The Company is required to reimburse Quantum for
interest and principal payments relating to the
$95.8 million representing Quantum HDDs pro rata
portion of such notes.

In connection with the acquisition of the Quantum
HDD business, the Company acquired real estate and related
mortgage obligations. The term of the mortgages is ten years, at
an interest rate of 9.2%, with monthly payments based on a
twenty-year amortization schedule, and a balloon payment at the
end of the 10-year term, which is September 2006. The
outstanding balance at June 29, 2002 was $36.3 million.

In connection with the acquisition of MMC, the
Company assumed certain amortizing equipment loans and capital
leases. As of June 29, 2002, these obligations, having
final maturity dates ranging from December 2002 to October 2004
and interest rates averaging 9.9%, amounted to
$47.6 million.

In connection with the acquisition of MMC, the
Company assumed a note for $7.3 million owing to Hynix,
which bore no interest through March 31, 2002; thereafter,
unpaid principal amounts were to bear interest at 9% per annum
(the Maxtor Note). On January 5, 2001, Hynix
issued a promissory note to Maxtor for $2 million in
principal amount, the note bore interest at 9% per annum, with
the payment of principal and interest due on December 31,
2001 (the Hynix Note). Hynix and Maxtor have agreed
that the principal and accrued interest on the Hynix Note as of
December 28, 2001 was offset against the principal amount
of the Maxtor Note, such that the Hynix Note was fully paid and
the Maxtor Note had a principal amount of approximately
$5.1 million as of such date. On April 5, 2002, the
outstanding balance under the Maxtor Note was fully paid.

8.     Comprehensive
Loss

Cumulative other comprehensive loss on the
consolidated balance sheets consists of unrealized loss on
investments. Total comprehensive loss for the three and six
months ended June 29, 2002 and June 30, 2001, is
presented in the following table (in thousands):

|                           |                                          |                    |          |                  |   |          |          |          |   |   |          |        |   |   |          |      |  
|-------------------------- | ---------------------------------------- | ------------------ | -------- | ---------------- | - | -------- | -------- | -------- | - | - | -------- | ------ | - | - | -------- | ---- | -
|                           |                                          |                    |          |                 
|                           |                                          | Three Months Ended |          | Six Months Ended
|                           |                                          |                    |          |                 
|                           |                                          | June 29,           |          | June 30,         |   | June 29, |          | June 30,
|                           |                                          | 2002               |          | 2001             |   | 2002     |          | 2001    
|                           |                                          |                    |          |                  |   |          |          |         
|Net loss                   |                                          | $                  | (109,002 | )                |   | $        | (319,768 | )        |   | $ | (174,040 | )      |   | $ | (318,429 | )   
|Other comprehensive loss  |                                          |                    |          |                  |   |          |          |          |   |   |          |        |   |   |          |     
|                           | Change in unrealized loss on investments |                    |          | (1,195           | ) |          |          | (531     | ) |   |          | (2,201 | ) |   |          | (603 | )
|                           |                                          |                    |          |                  |   |          |          |          |   |   |          |        |   |   |          |     
|Comprehensive loss         |                                          | $                  | (110,197 | )                |   | $        | (320,299 | )        |   | $ | (176,241 | )      |   | $ | (319,032 | )   
|                           |                                          |                    |          |                  |   |          |          |          |   |   |          |        |   |   |          |     

9.     Segment,
Geography and Major Customers Information

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

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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

The Company has determined that it has two
reportable segments; the hard disk drive group and the network
systems group. The Company has a world-wide sales, service and
distribution network. Products are marketed and sold through a
direct sales force to computer equipment manufacturers,
distributors and retailers in the United States, Europe, Latin
America and Asia Pacific.

The following table presents net revenue and
operating loss for each operating segment:

|                      |  |                    |          |                  |  |          |           |          |  |   |           |   |  |   |           |  
|--------------------- |  | ------------------ | -------- | ---------------- |  | -------- | --------- | -------- |  | - | --------- | - |  | - | --------- | -
|                      |  |                    |          |                 
|                      |  | Three Months Ended |          | Six Months Ended
|                      |  |                    |          |                 
|                      |  | June 29,           |          | June 30,         |  | June 29, |           | June 30,
|                      |  | 2002               |          | 2001             |  | 2002     |           | 2001    
|                      |  |                    |          |                  |  |          |           |         
|                      |  |                   
|                      |  | (In thousands)    
|Net revenue:          |  |                    |          |                  |  |          |           |          |  |   |           |   |  |   |           |  
|Hard Disk Drive Group |  | $                  | 882,624  |                  |  | $        | 1,032,612 |          |  | $ | 1,916,035 |   |  | $ | 1,659,175 |  
|Network Systems Group |  |                    | 13,128   |                  |  |          | 8,955     |          |  |   | 24,436    |   |  |   | 13,213    |  
|                      |  |                    |          |                  |  |          |           |          |  |   |           |   |  |   |           |  
|Total                 |  | $                  | 895,752  |                  |  | $        | 1,041,567 |          |  | $ | 1,940,471 |   |  | $ | 1,672,388 |  
|                      |  |                    |          |                  |  |          |           |          |  |   |           |   |  |   |           |  
|Operating loss:       |  |                    |          |                  |  |          |           |          |  |   |           |   |  |   |           |  
|Hard Disk Drive Group |  | $                  | (97,239  | )                |  | $        | (314,273  | )        |  | $ | (145,793  | ) |  | $ | (301,995  | )
|Network Systems Group |  |                    | (9,002   | )                |  |          | (11,599   | )        |  |   | (21,315   | ) |  |   | (23,834   | )
|                      |  |                    |          |                  |  |          |           |          |  |   |           |   |  |   |           |  
|Total                 |  | $                  | (106,241 | )                |  | $        | (325,872  | )        |  | $ | (167,108  | ) |  | $ | (325,829  | )
|                      |  |                    |          |                  |  |          |           |          |  |   |           |   |  |   |           |  

The following table presents the reconciliation
of segment operating loss to the consolidated loss before
provision for income taxes:

|                                    |                                        |                    |          |                  |   |          |          |          |   |   |          |          |   |   |          |          |  
|----------------------------------- | -------------------------------------- | ------------------ | -------- | ---------------- | - | -------- | -------- | -------- | - | - | -------- | -------- | - | - | -------- | -------- | -
|                                    |                                        |                    |          |                 
|                                    |                                        | Three Months Ended |          | Six Months Ended
|                                    |                                        |                    |          |                 
|                                    |                                        | June 29,           |          | June 30,         |   | June 29, |          | June 30,
|                                    |                                        | 2002               |          | 2001             |   | 2002     |          | 2001    
|                                    |                                        |                    |          |                  |   |          |          |         
|                                    |                                        |                   
|                                    |                                        | (In thousands)    
|Total segment operating loss        |                                        | $                  | (106,241 | )                |   | $        | (325,872 | )        |   | $ | (167,108 | )        |   | $ | (325,829 | )       
|Unallocated amounts:                |                                        |                    |          |                  |   |          |          |          |   |   |          |          |   |   |          |         
|Interest and other income (expense) |                                        |                    | (4,186   | )                |   |          | 7,352    |          |   |   | (7,703   | )        |   |   | 10,170   |         
|Other gain (loss)                   |                                        |                    | 1,577    |                  |   |          | (176     | )        |   |   | 1,577    |          |   |   | (1,462   | )       
|                                    |                                        |                    |          |                  |   |          |          |          |   |   |          |          |   |   |          |         
|                                    | Loss before provision for income taxes |                    | $        | (108,850         | ) |          | $        | (318,696 | ) |   | $        | (173,234 | ) |   | $        | (317,121 | )
|                                    |                                        |                    |          |                  |   |          |          |          |   |   |          |          |   |   |          |         

Sales to computer equipment manufacturers for the
three and six months ended June 29, 2002 represented 50.2%
and 46.4% of total revenue, respectively, compared to 59.7% and
63.4% of total revenue, respectively, for the corresponding
period in fiscal year 2001. Sales to the distribution and retail
channels for the three and six months ended June 29, 2002
represented 49.8% and 53.6% of total revenue, respectively,
compared to 40.3% and 36.6% of total revenue, respectively, in
the corresponding period in fiscal year 2001. Sales to one
customer were 11.8% and 10.8% of revenue in the three and six
months ended June 29, 2002; sales to one customer
represented 11.4% and 13.8% of total revenue for the
corresponding period in fiscal year 2001, and there was only one
customer with over 10% of revenue in these periods.

Assets of the segment groups are not meaningful
for management of the business or for disclosure.

12



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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Maxtor operations outside the United States
primarily consist of its manufacturing facilities in Singapore
that produce subassemblies and final assemblies for the
Companys disk drive products. Revenue by destination
information for the three and six months ended June 29,
2002 and June 30, 2001 is presented in the following table
(in thousands):

|                         |  |                    |         |                  |  |          |           |          |  |   |           |  |  |   |           | 
|------------------------ |  | ------------------ | ------- | ---------------- |  | -------- | --------- | -------- |  | - | --------- |  |  | - | --------- | 
|                         |  |                    |         |                 
|                         |  | Three Months Ended |         | Six Months Ended
|                         |  |                    |         |                 
|                         |  | June 29,           |         | June 30,         |  | June 29, |           | June 30,
|                         |  | 2002               |         | 2001             |  | 2002     |           | 2001    
|                         |  |                    |         |                  |  |          |           |         
|                         |  |                   
|                         |  | (In thousands)    
|United States and Canada |  | $                  | 306,526 |                  |  | $        | 470,434   |          |  | $ | 701,143   |  |  | $ | 758,945   | 
|Asia Pacific             |  |                    | 311,436 |                  |  |          | 285,914   |          |  |   | 607,544   |  |  |   | 456,895   | 
|Europe                   |  |                    | 272,203 |                  |  |          | 256,842   |          |  |   | 615,388   |  |  |   | 401,804   | 
|Latin America and other  |  |                    | 5,587   |                  |  |          | 28,377    |          |  |   | 16,396    |  |  |   | 54,744    | 
|                         |  |                    |         |                  |  |          |           |          |  |   |           |  |  |   |           | 
|Total                    |  | $                  | 895,752 |                  |  | $        | 1,041,567 |          |  | $ | 1,940,471 |  |  | $ | 1,672,388 | 
|                         |  |                    |         |                  |  |          |           |          |  |   |           |  |  |   |           | 

Long-lived asset information by geographic area
as of June 29, 2002 and December 29, 2001 is presented
in the following table:

|                   |  |                |           |              |  |   |           | 
|------------------ |  | -------------- | --------- | ------------ |  | - | --------- | 
|                   |  | June 29,       |           | December 29,
|                   |  | 2002           |           | 2001        
|                   |  |                |           |             
|                   |  |               
|                   |  | (In thousands)
|Long-lived assets: |  |                |           |              |  |   |           | 
|United States      |  | $              | 1,289,801 |              |  | $ | 1,334,122 | 
|Asia Pacific       |  |                | 137,414   |              |  |   | 122,901   | 
|Europe             |  |                | 1,393     |              |  |   | 1,588     | 
|                   |  |                |           |              |  |   |           | 
|Total              |  | $              | 1,428,608 |              |  | $ | 1,458,611 | 
|                   |  |                |           |              |  |   |           | 

Long-lived assets located within the United
States consist primarily of goodwill and other intangible assets
which amounted to $1,034.8 million and
$1,077.4 million as of June 29, 2002 and
December 29, 2001, respectively. Long-lived assets located
outside the United States consist primarily of the
Companys manufacturing operations located in Singapore
which amounted to $135.8 million and $121.1 million as
of June 29, 2002 and December 29, 2001, respectively.

10.     Asset
Securitization

In July 1998, the Company entered into an
accounts receivable securitization program (the
Program) with a financial institution. On
November 15, 2001, the Company amended its asset
securitization program to increase the amount available to
$300 million from $200 million. The Program allows the
Company to sell on a revolving basis an undivided interest in up
to $300 million in eligible receivables. The eligible
receivables are sold to bank conduits through a
bankruptcy-remote special purpose entity which is consolidated
for financial reporting purposes.

The transaction has been accounted for as a sale
under Statement of Financial Accounting Standards No. 140,
Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities. As of June 29,
2002 and June 30, 2001, the Company has sold
$45.0 million and $150.0 million of receivables,
respectively under the Program which are reflected as reductions
of receivables in the accompanying consolidated balance sheets.
As part of this arrangement, the Company is subject to financial
covenants including the maintenance of certain financial ratios
and a tangible net worth test.

As of December 29, 2001, the Company
determined that it was not in compliance with the tangible net
worth covenant under the Program. On February 15, 2002, the
Company received a waiver and amendment

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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

from the lender for its Singapore loan relating
to the tangible net worth covenant. On the same date, the banks
participating in the Companys asset securitization program
(the Program) agreed to a first amendment through
May 15, 2002 to the Program. In each case, the definition
for calculating tangible net worth was amended to include an
adjustment associated with the purchase price accounting for the
acquisition of Quantum HDD. After giving effect to this first
amendment, the Company was in compliance with the tangible net
worth covenant.

On March 15, 2002, the first amendment was
superceded by a second amendment reflecting the terms of the
first amendment and extending the terms of the amendment for the
duration of the Program. At this time the Program was reduced
from $300 million to $210 million due to the
withdrawal of one of the participating banks.

On May 28, 2002, the banks participating in
the Program approved a third amendment, which modified the
tangible net worth covenant and the minimum unrestricted cash
requirement. After giving effect to the third amendment, the
Company was in compliance with all covenants.

The Company receives cash in respect of the
interest in its receivables sold. The proceeds were used for
working capital purposes and are reflected as operating cash
flows in the Companys statement of cash flows. Delinquent
amounts and credit losses related to these receivables were not
material at June 29, 2002. Sales of receivables resulted in
recognition of expenses of approximately $1.9 million and
$3.5 million for the six months ended June 29, 2002
and June 30, 2001, respectively. These expenses are
included in interest expense.

11.     Related Party
Transactions

In 1994, Hyundai Electronics Industries,
HEI, and certain of its affiliates purchased 40% of
Maxtors outstanding common stock for $150.0 million
in cash. In early 1996, Hynix, formerly Hyundai Electronics
America, or HEA, acquired all of the remaining shares of common
stock of Maxtor in a tender offer and merger for
$215.0 million in cash and also acquired all of
Maxtors common stock held by HEI and its affiliates.
Maxtor operated as a wholly-owned subsidiary of Hynix until
completion of its initial public offering on July 31, 1998,
which reduced the ownership interest of Hynix to below 50%. In
April 2001 as a result of Maxtors acquisition of the
Quantum HDD business, Hynixs ownership in Maxtor was
reduced to approximately 17% of the outstanding common stock. As
described below, Hynix sold Maxtor shares to the public and to
Maxtor in October 2001, reducing Hynixs ownership to 5.17%
at December 29, 2001, and in February 2002, Hynix
distributed the balance of its Maxtor shares to the beneficial
owners of a trust and is no longer a stockholder of Maxtor.

On September 2, 2001, Maxtor completed its
acquisition of MMC which had previously been a wholly-owned
subsidiary of Hynix. MMC, based in San Jose, California,
designs, develops and manufactures media for hard disk drives.
Prior to the acquisition, sales to Maxtor constituted 95% of
MMCs annual revenues. The primary business reason for
Maxtors acquisition of MMC was to provide Maxtor with a
reliable source of supply of media for hard disk drives. A
fairness opinion was delivered to Maxtors Board of
Directors by a nationally recognized investment banking firm in
connection with the MMC acquisition. The fairness opinion
concluded that the consideration to be paid by Maxtor for MMC
was fair to Maxtor, from a financial point of view. The
acquisition of MMC was approved by the Maxtor Boards
Affiliated Transactions Committee and was determined by the
Committee to be in the best interests of Maxtor and its
stockholders. The Affiliated Transactions Committee was
comprised entirely of directors with no relationship with Hynix
and its affiliates. The acquisition was accounted for as a
purchase with a total cost of $17.9 million, which
consisted of cash consideration of $1.0 million,
$16.0 million of loan forgiveness, and $0.9 million of
direct transaction costs. In connection with the acquisition,
Maxtor also assumed liabilities of $105.7 million.

In connection with the acquisition of MMC
Technology, Inc., Maxtor assumed a note for $7.3 million
owing to Hynix, which bore no interest through March 31,
2002; thereafter, unpaid principal amounts bore

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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

interest at 9% per annum (the Maxtor
Note). On January 5, 2001, Hynix issued a promissory
note to Maxtor for $2 million in principal amount
representing Hynixs share of a settlement relating to
litigation between Maxtor and Hynix and Stormedia. This note
bore interest at 9% per annum, with the payment of principal and
interest due on December 31, 2001 (the Hynix
Note). Hynix and Maxtor agreed that the principal and
accrued interest on the Hynix Note as of December 28, 2001
was offset against the principal amount of the Maxtor Note, such
that the Hynix Note was fully paid and the Maxtor Note had a
principal amount of approximately $5.1 million as of
December 29. On April 5, 2002, the outstanding balance
under the Maxtor Note was fully paid.

Maxtors cost of revenue includes certain
component parts Maxtor purchased from MMC. These purchases
amounted to $34 million and $72 million for the three
and six months ended June 30, 2001, respectively. In August
1998, Maxtor entered into an agreement with MMC with respect to
the pricing of future purchases that provided for pricing
discounts in return for a purchase volume commitment based on a
percentage of our total media purchases through
September 30, 2001. The pricing discounts generally ranged
from 2% to 4% off of competitive prices. As described above,
Maxtor completed its acquisition of MMC on September 2,
2001.

Maxtors cost of revenue also includes
certain DRAM chip purchases from Hynix Semiconductor, Inc.,
HSI, formerly HEI. Hynix is treated identically to
its competitors in the process by which commodity electronics,
principally DRAMs, are selected, qualified, and purchased;
pricing is negotiated with selected suppliers on the basis of
suppliers bids and market information. Maxtors
purchases from HSI totaled $26.5 million in fiscal year
1999, $41.6 million in fiscal year 2000 and
$19.3 million in fiscal year 2001.

In October 2001, Hynix sold approximately
23.3 million shares of Maxtor common stock in a registered
public offering. At the same time as Hynixs sale of Maxtor
common stock to the public, Maxtor purchased an additional
5.0 million shares of its common stock from Hynix.
Maxtors purchase of its shares from Hynix was on the same
terms as Hynixs sale of shares to the public at
$4 per share for an aggregate purchase price of
$20.0 million. The repurchase of its shares was intended to
improve Maxtors capital structure, increase shareholder
returns, and increase the price of Maxtors stock. The
repurchase of the shares from Hynix was approved by the Maxtor
Boards Affiliated Transaction Committee and determined to
be in the best interest of the Company and its stockholders. As
a result of Hynixs sale of its Maxtor shares to the public
and to Maxtor, in October 2001, and Hynixs distribution of
its remaining shares to the beneficial owners of a trust in
February 2002, Hynix is no longer a stockholder of Maxtor.

Pursuant to a sublicense agreement with HEI,
Maxtor is obligated to pay a portion of an IBM license royalty
fee otherwise due from HEI. Such payments are due in annual
installments through 2007, and are based upon the license fee
separately negotiated on an arms length basis between HEI
and IBM. For the years ended January 1, 2000,
December 30, 2000 and December 29, 2001, Maxtor
recorded $1.9 million of expenses each year in connection
with this obligation.

Hynix was an unconditional guarantor of one of
Maxtors facilities lease in Milpitas, California. The
aggregate rent under the lease was $3.24 million per annum
in each of the years ended January 1, 2000,
December 30, 2000 and December 29, 2001. The lease
rate was established by arms length negotiations with the
lessor based on applicable market rates. The lease expired on
March 31, 2002 and was not extended.

12.     Contingencies

Prior to the Companys acquisition of the
Quantum HDD business, Maxtor, on the one hand, and Quantum and
MKE, on the other hand, were sued by Papst Licensing, GmbH, a
German corporation, for infringement of a number of patents that
relate to hard disk drives. Papsts complaint against
Quantum and MKE was filed on July 30, 1998, and
Papsts complaint against Maxtor was filed on
March 18, 1999. Both lawsuits, filed in the United States
District Court for the Northern District of California, were
transferred by

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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

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

On April 15, 2002, the Judicial Panel on
Multidistrict Litigation ordered a separation of claims and
remand to the District of Columbia of certain claims between
Papst and another party involved in the MDL Proceeding. By order
entered June 4, 2002, the court stayed the MDL Proceeding
pending resolution by the District of Columbia court of the
remanded claims. The first status conference in that District of
Columbia action is scheduled for August 15, 2002.

The results of any litigation are inherently
uncertain and Papst may assert other infringement claims
relating to current patents, pending patent applications, and/or
future patent applications or issued patents. Additionally, the
Company cannot assure that it will be able to successfully
defend itself against this or any other Papst lawsuit. The Papst
complaints assert claims to an unspecified dollar amount of
damages. A favorable outcome for Papst in these lawsuits could
result in the issuance of an injunction against Maxtor and its
products and/or the payment of monetary damages equal to a
reasonable royalty. In the case of a finding of a willful
infringement, Maxtor also could be required to pay treble
damages and Papsts attorneys fees. Accordingly, a
litigation outcome favorable to Papst could harm Maxtors
business, financial condition and operating results. Management
believes that it has valid defenses to the claims of Papst and
is defending this matter vigorously.

13.     Goodwill and
Other Intangible Assets

On December 30, 2001, the Company adopted
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets(SFAS 142). SFAS 142 requires goodwill
to be tested for impairment under certain circumstances, written
down when impaired, and requires purchased intangible assets
other than goodwill to be amortized over their useful lives
unless these lives are determined to be indefinite. Goodwill and
indefinite lived intangible assets will be subject to an
impairment test at least annually which the Company expects to
perform in the third quarter of each year after the transition
year.

The Company ceased amortizing goodwill totaling
$846.0 million as of the beginning of fiscal 2002,
including $31.1 million, net of accumulated amortization,
of acquired workforce intangibles previously classified as
purchased intangible assets.

Purchased intangible assets are carried at cost
less accumulated amortization. The Company evaluated its
intangible assets and determined that all such assets have
determinable lives. Amortization is computed over the estimated
useful lives of the respective assets, generally one to seven
years. The Company expects amortization expense on purchased
intangible assets to be $41.5 million for the remainder of
fiscal 2002,

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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

$82.3 million in fiscal 2003,
$37.1 million in fiscal 2004, $22.0 million in fiscal
2005, and $5.9 million in fiscal 2006, at which time
purchased intangible assets will be fully amortized.

|                    |  |                |         |              |  |          |          |              |  |   |         |  |  |   |         | 
|------------------- |  | -------------- | ------- | ------------ |  | -------- | -------- | ------------ |  | - | ------- |  |  | - | ------- | 
|                    |  |                |         |              |  | June 29, |          | December 29,
|                    |  |                |         |              |  | 2002     |          | 2001        
|                    |  | Gross Carrying |         | Accumulated  |  |          |          |             
|                    |  | Amount         |         | Amortization |  | Net      |          | Net         
|                    |  |                |         |              |  |          |          |             
|Existing technology |  | $              | 299,075 |              |  | $        | (110,754 | )            |  | $ | 188,321 |  |  | $ | 230,919 | 
|Acquired workforce  |  |                |        |              |  |          |         |              |  |   |        |  |  |   | 31,109  | 
|Other               |  |                | 780     |              |  |          | (312     | )            |  |   | 468     |  |  |   | 524     | 
|                    |  |                |         |              |  |          |          |              |  |   |         |  |  |   |         | 
|Total               |  | $              | 299,855 |              |  | $        | (111,066 | )            |  | $ | 188,789 |  |  | $ | 262,552 | 
|                    |  |                |         |              |  |          |          |              |  |   |         |  |  |   |         | 

SFAS No. 142 prescribes a two-phase
transitional process for impairment testing of goodwill. The
first phase, required to be completed by June 30, 2002,
screens for impairment as of January 1, 2002. The second
phase (if necessary), required to be completed by
December 31, 2002, measures the impairment. The Company
completed its first phase impairment analysis during the second
quarter of 2002 and found no instances of impairment of its
recorded goodwill; accordingly, the second testing phase, absent
future indicators of impairment, is not necessary during 2002.

The following table presents the impact of SFAS
142 on net loss and net loss per share had the standard been in
effect for the three and six months ended June 30, 2001 (in
thousands, except per share amounts):

|                                                       |                                                                                                         |                    |          |                  |  |          |          |          |  |   |          |   |  |   |          |        | 
|------------------------------------------------------ | ------------------------------------------------------------------------------------------------------- | ------------------ | -------- | ---------------- |  | -------- | -------- | -------- |  | - | -------- | - |  | - | -------- | ------ | 
|                                                       |                                                                                                         |                    |          |                 
|                                                       |                                                                                                         | Three Months Ended |          | Six Months Ended
|                                                       |                                                                                                         |                    |          |                 
|                                                       |                                                                                                         | June 29,           |          | June 30,         |  | June 29, |          | June 30,
|                                                       |                                                                                                         | 2002               |          | 2001             |  | 2002     |          | 2001    
|                                                       |                                                                                                         |                    |          |                  |  |          |          |         
|Net loss  as reported                                 |                                                                                                         | $                  | (109,002 | )                |  | $        | (319,768 | )        |  | $ | (174,040 | ) |  | $ | (318,429 | )     
|Adjustments:                                           |                                                                                                         |                    |          |                  |  |          |          |          |  |   |          |   |  |   |          |       
|                                                       | Amortization of goodwill                                                                                |                    |          |                 |  |          |          | 37,484   |  |   |          |  |  |   |          | 39,168 | 
|                                                       | Amortization of acquired workforce intangibles
    previously classified as purchased intangible assets |                    |          |                 |  |          |          | 3,326    |  |   |          |  |  |   |          | 3,362  | 
|                                                       |                                                                                                         |                    |          |                  |  |          |          |          |  |   |          |   |  |   |          |       
|                                                       | Net adjustments                                                                                         |                    |          |                 |  |          |          | 40,810   |  |   |          |  |  |   |          | 42,530 | 
|                                                       |                                                                                                         |                    |          |                  |  |          |          |          |  |   |          |   |  |   |          |       
|Net loss  adjusted                                    |                                                                                                         | $                  | (109,002 | )                |  | $        | (278,958 | )        |  | $ | (174,040 | ) |  | $ | (275,899 | )     
|                                                       |                                                                                                         |                    |          |                  |  |          |          |          |  |   |          |   |  |   |          |       
|Basic and diluted net loss per share 
    as reported |                                                                                                         | $                  | (0.46    | )                |  | $        | (1.35    | )        |  | $ | (0.73    | ) |  | $ | (1.81    | )     
|Basic and diluted net loss per share 
    adjusted    |                                                                                                         | $                  | (0.46    | )                |  | $        | (1.18    | )        |  | $ | (0.73    | ) |  | $ | (1.57    | )     

17



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##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table presents the impact of
SFAS 142 on net income (loss) and net income (loss) per
share had the standard been in effect for the fiscal years ended
1999, 2000 and 2001 (in thousands, expect per share amounts):

|                                                      |                                                                                                         |             |         |              |  |              |        |       |  |   |          |         | 
|----------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ----------- | ------- | ------------ |  | ------------ | ------ | ----- |  | - | -------- | ------- | 
|                                                      |                                                                                                         |            
|                                                      |                                                                                                         | Years Ended
|                                                      |                                                                                                         |            
|                                                      |                                                                                                         | January 1,  |         | December 30, |  | December 29,
|                                                      |                                                                                                         | 2000        |         | 2000         |  | 2001        
|                                                      |                                                                                                         |             |         |              |  |             
|Net income (loss)  as reported                       |                                                                                                         | $           | (50,148 | )            |  | $            | 31,802 |       |  | $ | (646,398 | )      
|Adjustments:                                          |                                                                                                         |             |         |              |  |              |        |       |  |   |          |        
|                                                      | Amortization of goodwill                                                                                |             |         | 2,122        |  |              |        | 6,692 |  |   |          | 140,779 | 
|                                                      | Amortization of acquired workforce intangibles
    previously classified as purchased intangible assets |             |         | 45           |  |              |        | 144   |  |   |          | 12,616  | 
|                                                      |                                                                                                         |             |         |              |  |              |        |       |  |   |          |        
|                                                      | Net adjustments                                                                                         |             |         | 2,167        |  |              |        | 6,836 |  |   |          | 153,395 | 
|                                                      |                                                                                                         |             |         |              |  |              |        |       |  |   |          |        
|Net income (loss)  adjusted                          |                                                                                                         | $           | (47,981 | )            |  | $            | 38,638 |       |  | $ | (493,003 | )      
|                                                      |                                                                                                         |             |         |              |  |              |        |       |  |   |          |        
|Basic net income (loss) per share  as
    reported   |                                                                                                         | $           | (0.48   | )            |  | $            | 0.28   |       |  | $ | (3.12    | )      
|Diluted net income (loss) per share 
    as reported |                                                                                                         | $           | (0.48   | )            |  | $            | 0.27   |       |  | $ | (3.12    | )      
|Basic net income (loss) per share 
    adjusted      |                                                                                                         | $           | (0.45   | )            |  | $            | 0.34   |       |  | $ | (2.38    | )      
|Diluted net income (loss) per share 
    adjusted    |                                                                                                         | $           | (0.45   | )            |  | $            | 0.32   |       |  | $ | (2.38    | )      

14.     Recent
Accounting Pronouncements

In August 2001, the FASB issued Statement of
Financial Accounting Standards No. 143
(SFAS 143), Accounting for Asset
Retirement Obligations. This statement addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated
asset retirement costs. This Statement applies to all entities.
It applies to legal obligations associated with the retirement
of long-lived assets that result from the acquisition,
construction, development and/or the normal operation of a
long-lived asset, except for certain obligations or lessees.
SFAS 143 is effective for financial statements issued for
fiscal years beginning after June 25, 2002. The Company is
currently assessing the impact of SFAS 143 on its financial
statements.

In August 2001, the FASB issued Statement of
Financial Accounting Standards No. 144
(SFAS 144), Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS 144 replaces
SFAS 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. The
FASB issued SFAS 144 to establish a single accounting
model, based on the framework established in SFAS 121, as
SFAS 121 did not address the accounting for a segment of a
business accounted for as a discontinued operation under
APB 30, Reporting The Results of Operations-Reporting
The Effects of Disposal of a Segment of a Business, and
Extraordinary Unusual and Infrequently Occurring Events and
Transactions. SFAS 144 also resolves significant
implementation issues related to SFAS 121. Companies are
required to adopt SFAS 144 for fiscal years beginning after
December 15, 2001, but early adoption is permitted. The
adoption of SFAS 144 did not have a significant impact on
Maxtors financial statements.

In May 2002, the FASB issued SFAS No. 145,
Rescission of SFAS Nos. 4, 44, and 64, Amendment of
SFAS No. 13, and Technical Corrections
(SFAS 145). Among other things, SFAS 145
rescinds various pronouncements regarding early extinguishment
of debt and allows extraordinary accounting treatment for early
extinguishment only when the provisions of Accounting Principles
Board Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions are met. SFAS 145 provisions
regarding early extinguishment of debt are generally effective
for fiscal years beginning after May 15, 2002. The Company
is currently assessing the impact of SFAS 145 on its
financial statements.

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MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities (SFAS 146). This Statement addresses
financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue No.  94-3, Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). This Statement requires that a liability
for costs associated with an exit or disposal activity be
recognized and measured initially at fair value only when the
liability is incurred. The provisions of this Statement are
effective for exit or disposal activities that are initiated
after December 31, 2002. The Company is currently assessing
the impact of SFAS 146 on its financial statements.

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

The following discussion should be read in
conjunction with the condensed consolidated financial statements
and the accompanying notes included in Part I. Financial
Information, Item 1. Condensed Consolidated Financial
Statements of this report.

This report contains forward-looking statements
within the meaning of the U.S. federal securities laws that
involve risks and uncertainties. The statements contained in
this report that are not purely historical, including, without
limitation, statements regarding our expectations, beliefs,
intentions or strategies regarding the future, are
forward-looking statements. In this report, the words
anticipate, believe, expect,
intend, may, will,
should, plan, estimate,
predict, potential, future,
continue, or similar expressions also identify
forward-looking statements. These statements are only
predictions. We make these forward-looking statements based upon
information available on the date hereof, and we have no
obligation (and expressly disclaim any such obligation) to
update or alter any such forward-looking statements whether as a
result of new information, future events, or otherwise. Our
actual results could differ materially from those anticipated in
this report as a result of certain factors including, but not
limited to, those set forth in the following section entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Certain Factors
Affecting Future Performance and elsewhere in this report.

Overview

Maxtor Corporation (Maxtor or the
Company) was founded in 1982 and completed an
initial public offering of common stock in 1986. In the
mid-1980s, we were a leading technology innovator in the
hard disk drive industry. As is true today, the hard disk drive
industry during the 1980s was intensely competitive and
characterized by rapid technological change, rapid rates of
product and technology obsolescence, changing customer
requirements, dramatic shifts in market share and significant
erosion of average selling prices. In an effort to mitigate the
risks associated with these factors, we pursued all major
product segments in the hard disk drive market, utilizing
multiple product families and technology platforms. This costly
strategy added significant complexity to the business, which
caused us to delay or miss a number of key product introductions
and ultimately led to the deterioration of our overall financial
condition. As a result of this deterioration, we sold 40% of our
outstanding common stock to Hyundai Electronics Industries (now
Hynix Semiconductor Inc.) and its affiliates in 1994.

In early 1996, Hyundai Electronics America (Hynix
Semiconductor America, Inc.  Hynix)
acquired all of the remaining publicly held shares of our common
stock as well as all of our common stock then held by Hynix
Semiconductor Inc. and its affiliates. Shortly thereafter, Hynix
invested in renewed efforts to revitalize Maxtor. In July 1996,
we hired a new management team, headed by Michael R. Cannon, our
current President and Chief Executive Officer and a 20-year
veteran of the hard drive industry, to lead our turnaround and
capture business at leading desktop computer manufacturers.

In the third quarter of 1998, we completed a
public offering of approximately 49.7 million shares of our
common stock. We received net proceeds of approximately
$328.8 million from the offering.

In February 1999, we completed a public offering
of 7.8 million shares of our common stock. We received net
proceeds of approximately $95.8 million from the offering.
We used a portion of the proceeds from the offering to prepay,
without penalty, outstanding aggregate principal indebtedness of
$55.0 million owing to Hynix under a subordinated note.

In September 1999, we acquired privately held
Creative Design Solutions, Inc. (CDS), a participant
in the emerging network attached storage market. The acquisition
of CDS helped us to transition from only being a supplier of
hard disk drives for the desktop personal computer market to
also being positioned to provide storage solutions that deliver
price and performance values in networked environments.

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

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information regarding the Quantum HDD
acquisition, see note 2 of the Notes to Consolidated
Financial Statements.


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

On October 9, 2001, Hynix sold 23,329,843
shares (including exercise of the underwriters
over-allotment) of Maxtor common stock in a registered public
offering. Maxtor did not receive any proceeds from Hynixs
sale of Maxtor stock to the public. In addition, at the same
time and on the same terms as Hynixs sale of Maxtor stock
to the public, we repurchased 5.0 million shares from Hynix
for an aggregate purchase price of $20.0 million. These
repurchased shares are being held as treasury shares. See
Related Party Transactions below. In February 2002,
Hynix distributed all of its remaining Maxtor shares to the
beneficial owners of a trust and is no longer a stockholder of
Maxtor.

Critical Accounting Policies

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

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



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

For additional information regarding the
Companys critical accounting policies mentioned above, see
Managements Discussion and Analysis of Financial
Condition and Results of Operation in our Annual Report on
Form 10-K for the fiscal year ended December 29, 2001.

Effective July 1, 2001, we adopted certain
provisions of SFAS No. 141, and effective December 30,
2001, we adopted the full provisions of SFAS No. 141 and
SFAS No. 142. SFAS No. 141 requires business
combinations initiated after June 30, 2001 to be accounted
for using the purchase method of accounting, and broadens the
criteria for recording intangible assets apart from goodwill. We
evaluated our goodwill and intangibles acquired prior to
June 30, 2001 using the criteria of SFAS No. 141,
which resulted in $31.1 million of other intangibles, net
of accumulated amortization of $12.8 million, (comprised
entirely of assembled workforce intangibles) being subsumed into
goodwill at December 30, 2001. SFAS No. 142 requires
that purchased goodwill and certain indefinite-lived intangibles
no longer be amortized, but instead be tested for

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impairment at least annually. We evaluated our
intangible assets and determined that all such assets have
determinable lives.


SFAS No. 142 prescribes a two-phase
transitional process for impairment testing of goodwill. The
first phase, required to be completed by June 30, 2002,
screens for impairment as of January 1, 2002. The second
phase (if necessary), required to be completed by
December 31, 2002, measures the impairment. We completed
our first phase impairment analysis and found no instances of
impairment of our recorded goodwill; accordingly, the second
testing phase, absent future indicators of impairment, is not
necessary during 2002.

Results of Operations



| |                         
| | ------------------------
| | Revenue and Gross Profit

|                            |  |                    |        |          |  |                  |         |          |  |          |        |        |  |   |         |    |  |   |         |    |  |   |       | 
|--------------------------- |  | ------------------ | ------ | -------- |  | ---------------- | ------- | -------- |  | -------- | ------ | ------ |  | - | ------- | -- |  | - | ------- | -- |  | - | ----- | 
|                            |  |                    |        |          |  |                  |         |         
|                            |  | Three Months Ended |        |          |  | Six Months Ended |         |         
|                            |  |                    |        |          |  |                  |         |         
|                            |  | June 29,           |        | June 30, |  |                  |         | June 29, |  | June 30, |        |       
|                            |  | 2002               |        | 2001     |  | Change           |         | 2002     |  | 2001     |        | Change
|                            |  |                    |        |          |  |                  |         |          |  |          |        |       
|                            |  |                   
|                            |  | (Unaudited)       
|                            |  | (In millions)     
|Total revenue               |  | $                  | 895.8  |          |  | $                | 1,041.6 |          |  | $        | (145.8 | )      |  | $ | 1,940.5 |    |  | $ | 1,672.4 |    |  | $ | 268.1 | 
|Gross profit                |  | $                  | 63.0   |          |  | $                | 77.9    |          |  | $        | (14.9  | )      |  | $ | 178.6   |    |  | $ | 167.0   |    |  | $ | 11.6  | 
|Net loss                    |  | $                  | (109.0 | )        |  | $                | (319.8  | )        |  | $        | 210.8  |        |  | $ | (174.0  | )  |  | $ | (318.4  | )  |  | $ | 144.4 | 
|As a percentage of revenue: |  |                    |        |          |  |                  |         |          |  |          |        |        |  |   |         |    |  |   |         |    |  |   |       | 
|Total revenue               |  |                    | 100.0  | %        |  |                  | 100.0   | %        |  |          |        |        |  |   | 100.0   | %  |  |   | 100.0   | %  |  |   |       | 
|Gross profit                |  |                    | 7.0    | %        |  |                  | 7.5     | %        |  |          |        |        |  |   | 9.2     | %  |  |   | 10.0    | %  |  |   |       | 
|Net loss                    |  |                    | (12.2  | )%       |  |                  | (30.7   | )%       |  |          |        |        |  |   | (9.0    | )% |  |   | (19.0   | )% |  |   |       | 



| |        
| | -------
| | Revenue

Revenue in the three and six months ended
June 29, 2002 was $895.8 million and
$1,940.5 million, compared to $1,041.6 million and
$1,672.4 million in the corresponding periods in fiscal
year 2001. Total shipments for the three months ended
June 29, 2002 were 12.7 million units, which was
0.6 million units, or 5%, higher as compared to the three
months ended June 30, 2001. The increase in unit volume in
the three months ended June 29, 2002 compared to the
corresponding period in fiscal year 2001 primarily reflected
slightly increased desktop hard disk drive sales to non-branded
customers in the distribution channel. Total shipments for the
six months ended June 29, 2002 were 26.4 million
units, which was 7.6 million units, or 40.6%, higher as
compared to the corresponding period in fiscal year 2001. The
increase in unit volume in the six months ended June 29,
2002 compared to the corresponding period in fiscal year 2001
was primarily due to the acquisition of the Quantum HDD business.

Although total units increased in the three
months ended June 29, 2002, revenues declined, compared to
the corresponding period in fiscal year 2001, primarily due to
the continued decline in average selling prices in the PC and
server markets, as a result of the continuing economic slowdown
and reduced capital budgets. Revenue in the six months ended
June 29, 2002 increased compared to the corresponding
period in fiscal year 2001 primarily as a result of our
acquisition of the Quantum HDD business. We have historically
experienced seasonal fluctuation in sales volume with a decline
typically occurring in the second quarter of the year. Although
demand in the desktop computer market traditionally strengthens
later in the year as next generation products are introduced and
consumers refresh personal computers, we have limited visibility
as to whether this trend will materialize in 2002.

Revenues on a proforma basis (as if the Quantum
HDD business had been acquired on January 1, 2001) were
$1,940.5 million and $2,325.0 million for the six
months ended June 29, 2002 and June 30, 2001,
respectively. On a pro forma basis, the percentage decrease was
16.5% in the six months ended June 29, 2002 compared to the
corresponding period in fiscal year 2001, primarily reflecting
the slowdown in demand for PCs and servers and the resulting
reduced demand for hard disk drives and the continued pricing
pressures in the market.

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Sales to the top five customers in the three and
six months ended June 29, 2002 represented 36.3% and 31.5%
of revenue, respectively, compared to 35.5% and 36.3% of
revenue, respectively, in the corresponding periods in fiscal
year 2001. Sales to one customer were 11.8% and 10.8% of revenue
in the three and six months ended June 29, 2002; sales to
one customer represented 11.4% and 13.8% of total revenue for
the corresponding period in fiscal year 2001, and there was only
one customer with over 10% of revenue in these periods.

Revenue from sales to computer equipment
manufacturers in the three and six months ended June 29,
2002 represented 50.2% and 46.4% of revenue, respectively,
compared to 59.7% and 63.4% of revenue, respectively, in the
corresponding period in fiscal year 2001. The decline in
percentage of revenue from OEMs was due to lower demand for PCs
and servers, resulting in lower demand for hard disk drives from
the OEM channel. Revenue from sales to the distribution channel
and retail customers in the three and six months ended
June 29, 2002 represented 49.8% and 53.6% of revenue,
respectively, compared to 40.3% and 36.6% of revenue,
respectively, in the corresponding period in fiscal year 2001.
The increase in revenue from sales to the distribution channel
in the three months ended June 29, 2002 compared to the
corresponding period in fiscal year 2001 is primarily due to of
the growth of non-branded PC customers market share of the
overall current desktop PC market and our effort to accommodate
this growth. The increase in the six months ended June 29,
2002 compared to the corresponding period in fiscal year 2001 is
primarily due to our acquisition of the Quantum HDD business and
the growth of non-branded PC customers market share of the
overall current desktop PC market and our effort to accommodate
this growth.

Domestic revenue in the three and six months
ended June 29, 2002 represented 34.2% and 36.1% of total
sales, respectively, compared to 45.2% and 45.4% of total sales,
respectively, in the corresponding period in fiscal year 2001.
International revenue in the three and six months ended
June 29, 2002 represented 65.8% and 63.9% of total sales,
respectively, compared to 54.8% and 54.6% of total sales,
respectively, in the corresponding period in fiscal year 2001.
In absolute terms, international sales increased 3.2% and 35.7%
in the three and six months ended June 29, 2002,
respectively, compared to the corresponding periods in fiscal
year 2001. Revenue from international sales in the three months
ended June 29, 2002 compared to the corresponding period in
the fiscal year 2001 increased primarily as a result of the
growth in sales to the non-branded customers who are primarily
located outside of the United States and Canada. Revenue from
international sales in the six months ended June 29, 2002
compared to the corresponding period in fiscal year 2001
increased primarily as a result of our stronger presence in
Europe and Asia Pacific as a result of the acquisition of the
Quantum HDD business and the growth in sales to the non-branded
customers who are primarily located outside of the United States
and Canada. We plan to continue building our sales efforts in
Europe and Asia Pacific over the course of the year.

Sales to Europe in the three months ended
June 29, 2002 and June 30, 2001 represented 30.4% and
24.7% of total revenue, respectively. In absolute terms,
European sales increased 6.0% compared to the corresponding
period in fiscal year 2001. Sales to Asia Pacific in the three
months ended June 29, 2002 represented 34.8%, or an
absolute increase of 8.9% of total revenue, compared to 27.4% of
total revenue for the corresponding period in fiscal year 2001.
The increases in the sales to Europe and Asia Pacific in the
three month period ended June 29, 2002 were mainly due to
growth in sales to the non-branded customers who are primarily
located outside of the United States and Canada.

Sales to Europe in the six months ended
June 29, 2002 and June 30, 2001 represented 31.7% and
24.0% of total revenue, respectively. In absolute terms,
European sales increased 53.2% compared to the corresponding
period in fiscal year 2001. Sales to Asia Pacific in the six
months ended June 29, 2002 represented 31.3%, or an
absolute increase of 33.0% of total revenue, compared to 27.3%
of total revenue for the corresponding period in fiscal year
2001. The increases in the sales to Europe and Asia Pacific in
the six month period ended June 29, 2002 were primarily due
to the acquisition of the Quantum HDD business and
increased sales to non-branded customers who are primarily
located outside of the United States and Canada.

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| |             
| | ------------
| | Gross Profit

Gross profit decreased to $63.0 million in
the three months ended June 29, 2002, compared to
$77.9 million for the corresponding period in fiscal year
2001. As a percentage of revenue, gross profit decreased to 7.0%
in the three months ended June 29, 2002 from 7.5% in the
corresponding period of fiscal year 2001. Gross profit increased
to $178.6 million in the six months ended June 29,
2002, compared to $167.0 million for the corresponding
period in fiscal year 2001 primarily due to our acquisition of
the Quantum HDD business. As a percentage of revenue, gross
profit decreased to 9.2% in the six months ended June 29,
2002 from 10.0% in the corresponding period of fiscal year 2001.
The decrease in gross profit as a percentage of revenues for the
three and six month periods ended June 29, 2002 compared to
the corresponding periods in fiscal year 2001, was primarily due
to competitive pricing pressures, which caused a decline in
average selling prices compared to the average unit cost, as
well as the negative impact on gross profit in the second
quarter from the transition of the manufacturing of desktop
drive products from MKE to the Maxtor Singapore manufacturing
facility. We may also experience some negative impact in the
third quarter of fiscal year 2002 resulting from this
manufacturing transition. We expect competitive pricing pressure
to continue in the third quarter of 2002. As we complete the
integration of our product development efforts associated with
our acquisition of the Quantum HDD business, we expect to
achieve cost benefits and efficiencies which could favorably
impact our gross profits.



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

|                                                         |                             |                    |       |          |  |                  |       |          |  |          |       |        |  |   |       |  |  |   |       |   |  |   |       |   |  | 
|-------------------------------------------------------- | --------------------------- | ------------------ | ----- | -------- |  | ---------------- | ----- | -------- |  | -------- | ----- | ------ |  | - | ----- |  |  | - | ----- | - |  | - | ----- | - |  | 
|                                                         |                             |                    |       |          |  |                  |       |         
|                                                         |                             | Three Months Ended |       |          |  | Six Months Ended |       |         
|                                                         |                             |                    |       |          |  |                  |       |         
|                                                         |                             | June 29,           |       | June 30, |  |                  |       | June 29, |  | June 30, |       |       
|                                                         |                             | 2002               |       | 2001     |  | Change           |       | 2002     |  | 2001     |       | Change
|                                                         |                             |                    |       |          |  |                  |       |          |  |          |       |       
|                                                         |                             |                   
|                                                         |                             | (Unaudited)       
|                                                         |                             | (In millions)     
|Research and development                                 |                             | $                  | 109.1 |          |  | $                | 139.3 |          |  | $        | (30.2 | )      |  | $ | 218.1 |  |  | $ | 198.3 |   |  | $ | 19.8  |  
|Selling, general and administrative                      |                             | $                  | 38.8  |          |  | $                | 107.9 |          |  | $        | (69.1 | )      |  | $ | 84.9  |  |  | $ | 135.4 |   |  | $ | (50.5 | )
|Amortization of goodwill and other intangible
    assets |                             | $                  | 21.3  |          |  | $                | 61.9  |          |  | $        | (40.6 | )      |  | $ | 42.7  |  |  | $ | 64.4  |   |  | $ | (21.7 | )
|Purchased in-process research and development            |                             | $                  |      |          |  | $                | 94.7  |          |  | $        | (94.7 | )      |  | $ |      |  |  | $ | 94.7  |   |  | $ | (94.7 | )
|                                                         | As a percentage of revenue: |                    |       |          |  |                  |       |          |  |          |       |        |  |   |       |  |  |   |       |   |  |   |       |   | 
|Research and development                                 |                             |                    | 12.2  | %        |  |                  | 13.4  | %        |  |          |       |        |  |   | 11.2% |  |  |   | 11.9  | % |  |   |       |  
|Selling, general and administrative                      |                             |                    | 4.3   | %        |  |                  | 10.4  | %        |  |          |       |        |  |   | 4.4%  |  |  |   | 8.1   | % |  |   |       |  
|Amortization of goodwill and other intangible
    assets |                             |                    | 2.4   | %        |  |                  | 5.9   | %        |  |          |       |        |  |   | 2.2%  |  |  |   | 3.9   | % |  |   |       |  
|Purchased in-process research and                        |                             |                    |      |          |  |                  | 9.1   | %        |  |          |       |        |  |   |      |  |  |   | 5.7   | % |  |   |       |  
|                                                         |                             | development        |       |          |  |                  |       |          |  |          |       |        |  |   |       |  |  |   |       |   |  |   |       |   |  | 



| |                                     
| | ------------------------------------
| | Research and Development
    (R&D)

R&D expense in the three and six months ended
June 29, 2002 was $109.1 million, or 12.2% of revenue and
$218.1 million or 11.2% of revenue, respectively, compared
to $139.3 million, or 13.4% of revenue, and
$198.3 million or 11.9% of revenue, respectively, in the
corresponding period in fiscal year 2001. The decrease in the
three months ended June 29, 2002 compared to the
corresponding period in fiscal year 2001 was primarily due to
merger related costs, such as amortization of stock-based
compensation, associated with the Quantum HDD acquisition
incurred during the three months ended June 30, 2001. The
increase in the six months ended June 29, 2002 compared to
the corresponding period in fiscal year 2001 was due to the
inclusion of Quantum HDD and MMC expenses, our on-going effort
to maintain leadership products to address the requirements of
the PC desktop market and our continued investments to
expand our product portfolio in the enterprise class hard disk
drives and the Network Systems Group.

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As a result of the Quantum HDD acquisition,
R&D expense includes stock-based compensation charges of
$0.4 million and $1.0 million in the three and six
months ended June 29, 2002, respectively, and
$1.3 million in the three and six months ended
June 30, 2001, resulting from options we issued to Quantum
employees who joined Maxtor in connection with the merger on
April 2, 2001. R&D expense in the six months ended
June 29, 2002 includes $2.8 million of stock-based
compensation amortization for Quantum DSS restricted shares
issued to Quantum employees who joined Maxtor in connection with
the merger. R&D expense in the three and six months ended
June 30, 2001 includes $19.7 million of stock-based
compensation amortization related to Quantum DSS restricted
shares issued to Quantum employees who joined Maxtor in
connection with the merger. The following table summarizes the
effect of these merger-related charges:

|                                              |  |                    |       |                  |  |          |       |          |  |   |       |   |  |   |       |  
|--------------------------------------------- |  | ------------------ | ----- | ---------------- |  | -------- | ----- | -------- |  | - | ----- | - |  | - | ----- | -
|                                              |  |                    |       |                 
|                                              |  | Three Months Ended |       | Six Months Ended
|                                              |  |                    |       |                 
|                                              |  | June 29,           |       | June 30,         |  | June 29, |       | June 30,
|                                              |  | 2002               |       | 2001             |  | 2002     |       | 2001    
|                                              |  |                    |       |                  |  |          |       |         
|                                              |  |                   
|                                              |  | (In millions)     
|R&D expense                                   |  | $                  | 109.1 |                  |  | $        | 139.3 |          |  | $ | 218.1 |   |  | $ | 198.3 |  
|Stock-based compensation expense              |  |                    | (0.4  | )                |  |          | (1.3  | )        |  |   | (1.0  | ) |  |   | (1.3  | )
|Amortization related to DSS restricted shares |  |                    |      |                  |  |          | (19.7 | )        |  |   | (2.8  | ) |  |   | (19.7 | )
|                                              |  |                    |       |                  |  |          |       |          |  |   |       |   |  |   |       |  
|                                              |  | $                  | 108.7 |                  |  | $        | 118.3 |          |  | $ | 214.3 |   |  | $ | 177.3 |  
|                                              |  |                    |       |                  |  |          |       |          |  |   |       |   |  |   |       |  

For further information, see discussion below
under the section Stock-based Compensation.



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

SG&A expense in the three and six months
ended June 29, 2002 was $38.8 million, or 4.3% of
revenue and $84.9 million, or 4.4% of revenue,
respectively, compared to $107.9 million, or 10.4% of
revenue, and $135.4 million or 8.1% of revenue,
respectively, in the corresponding period in fiscal year 2001.
SG&A expense decreased in absolute dollars and as a
percentage of revenue in the three and six months ended
June 29, 2002 compared to the corresponding periods in
fiscal year 2001 primarily due to payments associated with the
Quantum HDD acquisition paid subsequent to the merger.

As a result of the Quantum HDD acquisition,
SG&A expense includes stock-based compensation charges of
$0.1 million and $0.3 million in the three and six
months ended June 29, 2002, respectively, and
$0.5 million in the three and six months ended
June 30, 2001, resulting from options we issued to Quantum
employees who joined Maxtor in connection with the merger on
April 2, 2001. SG&A expense in the six months ended
June 29, 2002 includes $1.0 million of stock-based
compensation amortization for Quantum DSS restricted shares
issued to Quantum employees who joined Maxtor in connection with
the merger. SG&A expense in the three and six months ended
June 30, 2001 includes $7.0 million of stock-based
compensation amortization related to the Quantum DSS restricted
shares issued to Quantum employees who joined Maxtor in
connection with the merger. The following table summarizes the
effect of these merger-related charges:

|                                              |  |                    |      |                  |  |          |       |          |  |   |      |   |  |   |       |  
|--------------------------------------------- |  | ------------------ | ---- | ---------------- |  | -------- | ----- | -------- |  | - | ---- | - |  | - | ----- | -
|                                              |  |                    |      |                 
|                                              |  | Three Months Ended |      | Six Months Ended
|                                              |  |                    |      |                 
|                                              |  | June 29,           |      | June 30,         |  | June 29, |       | June 30,
|                                              |  | 2002               |      | 2001             |  | 2002     |       | 2001    
|                                              |  |                    |      |                  |  |          |       |         
|                                              |  |                   
|                                              |  | (In millions)     
|SG&A expense                                  |  | $                  | 38.8 |                  |  | $        | 107.9 |          |  | $ | 84.9 |   |  | $ | 135.4 |  
|Stock-based compensation expense              |  |                    | (0.1 | )                |  |          | (0.5  | )        |  |   | (0.3 | ) |  |   | (0.5  | )
|Amortization related to DSS restricted shares |  |                    |     |                  |  |          | (7.0  | )        |  |   | (1.0 | ) |  |   | (7.0  | )
|                                              |  |                    |      |                  |  |          |       |          |  |   |      |   |  |   |       |  
|                                              |  | $                  | 38.7 |                  |  | $        | 100.4 |          |  | $ | 83.6 |   |  | $ | 127.9 |  
|                                              |  |                    |      |                  |  |          |       |          |  |   |      |   |  |   |       |  

For further information, see discussion below
under the section Stock-based Compensation.

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| |                                                          
| | ---------------------------------------------------------
| | Purchased In-process Research and Development
    (IPR&D)

The Company expensed purchased in-process
research and development costs of $94.7 million on the
acquisition date as a result of the business combination
transaction with Quantum HDD. These amounts were expensed
because the acquired technology had not yet reached
technological feasibility and had no future alternative uses.



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

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



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

In addition, Maxtor assumed vested Quantum HDD
options held by Quantum employees who will continue to provide
services during a transitional period, or transitional
employees. The outstanding options to purchase Quantum HDD
common stock held by transferred employees and vested options to
purchase Quantum HDD common stock held by former Quantum
employees, consultants and transition employees were assumed by
Maxtor and converted into options to purchase Maxtor common
stock according to the exchange ratio of 1.52 shares of
Maxtor common stock for each share of Quantum HDD common stock.
Vested and unvested options for Quantum HDD common stock assumed
in the acquisition represented options for 7,650,965 shares and
4,655,236 shares of Maxtor common stock, respectively.

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

|                                       |  |                    |     |                  |  |          |     |          |  |   |     |  |  |   |     | 
|-------------------------------------- |  | ------------------ | --- | ---------------- |  | -------- | --- | -------- |  | - | --- |  |  | - | --- | 
|                                       |  |                    |     |                 
|                                       |  | Three Months Ended |     | Six Months Ended
|                                       |  |                    |     |                 
|                                       |  | June 29,           |     | June 30,         |  | June 29, |     | June 30,
|                                       |  | 2002               |     | 2001             |  | 2002     |     | 2001    
|                                       |  |                    |     |                  |  |          |     |         
|                                       |  |                    |     |                  |  |         
|                                       |  |                    |     | (In millions)    |  |         
|Cost of revenues                       |  | $                  | 0.1 |                  |  | $        | 0.2 |          |  | $ | 0.2 |  |  | $ | 0.3 | 
|Research and development               |  |                    | 0.6 |                  |  |          | 1.5 |          |  |   | 1.3 |  |  |   | 1.6 | 
|Selling, general and administrative    |  |                    | 0.6 |                  |  |          | 1.0 |          |  |   | 1.2 |  |  |   | 1.6 | 
|                                       |  |                    |     |                  |  |          |     |          |  |   |     |  |  |   |     | 
|Total stock-based compensation expense |  | $                  | 1.3 |                  |  | $        | 2.7 |          |  | $ | 2.7 |  |  | $ | 3.5 | 
|                                       |  |                    |     |                  |  |          |     |          |  |   |     |  |  |   |     | 

As of June 29, 2002, $2.4 million of
stock-based compensation associated with the Quantum HDD
acquisition remains to be amortized, based on vesting schedules,
and this amortization is expected to be completed early in
fiscal year 2004.

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

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of the shares are subject to continued employment
with Maxtor. Amortization as of June 29, 2002 was as
follows:


|                                                        |  |                    |   |                  |  |          |      |          |  |   |     |  |  |   |      | 
|------------------------------------------------------- |  | ------------------ | - | ---------------- |  | -------- | ---- | -------- |  | - | --- |  |  | - | ---- | 
|                                                        |  |                    |   |                 
|                                                        |  | Three Months Ended |   | Six Months Ended
|                                                        |  |                    |   |                 
|                                                        |  | June 29,           |   | June 30,         |  | June 29, |      | June 30,
|                                                        |  | 2002               |   | 2001             |  | 2002     |      | 2001    
|                                                        |  |                    |   |                  |  |          |      |         
|                                                        |  |                    |   |                  |  |         
|                                                        |  |                    |   | (In millions)    |  |         
|Cost of revenues                                        |  | $                  |  |                  |  | $        | 2.3  |          |  | $ | 0.3 |  |  | $ | 2.3  | 
|Research and development                                |  |                    |  |                  |  |          | 19.7 |          |  |   | 2.8 |  |  |   | 19.7 | 
|Selling, general and administrative                     |  |                    |  |                  |  |          | 7.0  |          |  |   | 1.0 |  |  |   | 7.0  | 
|                                                        |  |                    |   |                  |  |          |      |          |  |   |     |  |  |   |      | 
|Total amortization related to DSS restricted
    shares |  | $                  |  |                  |  | $        | 29.0 |          |  | $ | 4.1 |  |  | $ | 29.0 | 
|                                                        |  |                    |   |                  |  |          |      |          |  |   |     |  |  |   |      | 



| |                                                         
| | --------------------------------------------------------
| | Amortization of Goodwill and Other Intangible
    Assets

Amortization of other intangible assets
represents the amortization of customer list and other current
products and technology, arising from our acquisitions of CDS in
September 1999, the Quantum HDD business in April 2001 and MMC
in September 2001. Amortization of other intangible assets
decreased to $21.3 million and $46.7 million, in the
three and six months ended June 29, 2002, respectively,
compared to $61.9 million and $64.4 million in the
corresponding period in fiscal year 2001. The decrease was
primarily as a result of no charges for the amortization of
goodwill and workforce in 2002. The three and six months ended
June 30, 2001 reflects $37.5 million and
$39.2 million of goodwill amortization, respectively. On
December 30, 2001, we adopted SFAS No. 142,
Goodwill and Other Intangible Assets.In compliance with
SFAS No. 142:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On December 30, 2001, we reclassified
    $31.1 million, net of accumulated amortization, in
    workforce assets to goodwill and we ceased amortizing the
    resulting net goodwill balance of $846.0 million.
    Accordingly, there are no charges for the amortization of
    goodwill in 2002 or thereafter.                                                                                                                                                                                                                                                                                                         
|
| |  | The net book value of goodwill will be reviewed
    for impairment annually and whenever there is indication that
    the value of the goodwill may be impaired. Any resulting
    impairment will be recorded in the income statement in the
    period it is identified and quantified.                                                                                                                                                                                                                                                                                                                                  
|
| |  | SFAS No. 142 prescribes a two-phase
    transitional process for impairment testing of goodwill. The
    first phase, required to be completed by June 30, 2002,
    screens for impairment as of January 1, 2002. The second
    phase (if necessary), required to be completed by
    December 31, 2002, measures the impairment. The Company
    completed its first phase impairment analysis during the second
    quarter of 2002 and found no instances of impairment of its
    recorded goodwill; accordingly, the second testing phase, absent
    future indicators of impairment, is not necessary during 2002.
|
| |  | The amortization of intangible assets incurred in
    the three and six months ended June 29, 2002 was due to the
    amortization of other intangible assets. Other intangibles
    comprising customer list and purchased technology resulting from
    our acquisitions of CDS, the Quantum HDD business and MMC
    Technology will continue to be amortized. The net book value of
    these intangibles at June 29, 2002 was $188.8 million
    and amortization for the three and six months ended
    June 29, 2002 was $21.3 million and
    $42.7 million, respectively.                                         

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| |                                     
| | ------------------------------------
| | Interest Expense and Interest Income

|                            |  |                    |      |          |  |                  |      |          |  |          |       |        |  |   |      |  |  |   |      |    |  |   |       |  
|--------------------------- |  | ------------------ | ---- | -------- |  | ---------------- | ---- | -------- |  | -------- | ----- | ------ |  | - | ---- |  |  | - | ---- | -- |  | - | ----- | -
|                            |  |                    |      |          |  |                  |      |         
|                            |  | Three Months Ended |      |          |  | Six Months Ended |      |         
|                            |  |                    |      |          |  |                  |      |         
|                            |  | June 29,           |      | June 30, |  |                  |      | June 29, |  | June 30, |       |       
|                            |  | 2002               |      | 2001     |  | Change           |      | 2002     |  | 2001     |       | Change
|                            |  |                    |      |          |  |                  |      |          |  |          |       |       
|                            |  |                   
|                            |  | (Unaudited)       
|                            |  | (In millions)     
|Interest expense            |  | $                  | 6.6  |          |  | $                | 5.5  |          |  | $        | 1.1   |        |  | $ | 13.1 |  |  | $ | 8.5  |    |  | $ | 4.6   |  
|Interest and other income   |  | $                  | 2.4  |          |  | $                | 12.9 |          |  | $        | (10.5 | )      |  | $ | 5.4  |  |  | $ | 18.6 |    |  | $ | (13.2 | )
|Other income (loss)         |  | $                  | 1.6  |          |  | $                |     |          |  | $        | 1.6   |        |  | $ | 1.6  |  |  | $ | (1.5 | )  |  | $ | 3.1   |  
|As a percentage of revenue: |  |                    |      |          |  |                  |      |          |  |          |       |        |  |   |      |  |  |   |      |    |  |   |       |  
|Interest expense            |  |                    | 0.7% |          |  |                  | 0.5% |          |  |          |       |        |  |   | 0.7% |  |  |   | 0.5  | %  |  |   |       |  
|Interest and other income   |  |                    | 0.3% |          |  |                  | 1.2% |          |  |          |       |        |  |   | 0.3% |  |  |   | 1.1  | %  |  |   |       |  
|Other loss                  |  |                    | 0.2% |          |  |                  | 0.0% |          |  |          |       |        |  |   | 0.1% |  |  |   | (0.1 | )% |  |   |       |  



| |                 
| | ----------------
| | Interest Expense

Interest expense increased by $1.1 million
and by $4.6 million for the three and six months of fiscal
year 2002, as compared to the corresponding periods in fiscal
year 2001. The increase in the three months ended June 29,
2002 compared to the corresponding period in fiscal year 2001
was primarily due to the debt assumed in conjunction with the
acquisition of MMC on capital equipment loan and leases. The
increase in the six months ended June 29, 2002 compared to
the corresponding period in fiscal year 2001 was primarily due
to the debt assumed in conjunction with the acquisition of MMC
on capital equipment loan and leases, the obligation to
reimburse for the interest due on the Quantum HDD pro rata
portion of Quantums convertible subordinated notes and the
monthly accretion of interest expense related to facility exit
costs in connection with the Quantum HDD acquisition. Total
short-term and long-term outstanding borrowings were
$257.3 million as of June 29, 2002 compared to
$231.9 million as of June 30, 2001.



| |                          
| | -------------------------
| | Interest and Other Income

Interest and other income decreased $10.5 and
$13.2 million for the three and six month periods ended
June 29, 2002 compared to the corresponding periods in
fiscal year 2001. The decreases were largely due to reductions
in cash equivalents and marketable securities. Total cash and
cash equivalents, restricted cash and marketable securities were
$489.9 million as of June 29, 2002 compared to
$626.9 million as of June 30, 2001. See the
Liquidity and Capital Resources discussion for
further information.



| |                           
| | --------------------------
| | Provision for income taxes

|                                       |  |                    |        |          |  |                  |        |          |  |          |       |        |  |   |        |   |  |   |        |   |  |   |       |  
|-------------------------------------- |  | ------------------ | ------ | -------- |  | ---------------- | ------ | -------- |  | -------- | ----- | ------ |  | - | ------ | - |  | - | ------ | - |  | - | ----- | -
|                                       |  |                    |        |          |  |                  |        |         
|                                       |  | Three Months Ended |        |          |  | Six Months Ended |        |         
|                                       |  |                    |        |          |  |                  |        |         
|                                       |  | June 29,           |        | June 30, |  |                  |        | June 29, |  | June 30, |       |       
|                                       |  | 2002               |        | 2001     |  | Change           |        | 2002     |  | 2001     |       | Change
|                                       |  |                    |        |          |  |                  |        |          |  |          |       |       
|                                       |  |                   
|                                       |  | (Unaudited)       
|                                       |  | (In millions)     
|Loss before provision for income taxes |  | $                  | (108.9 | )        |  | $                | (318.7 | )        |  | $        | 209.8 |        |  | $ | (173.2 | ) |  | $ | (317.1 | ) |  | $ | 143.9 |  
|Provision for income taxes             |  | $                  | 0.2    |          |  | $                | 1.1    |          |  | $        | (0.9  | )      |  | $ | 0.8    |   |  | $ | 1.3    |   |  | $ | (0.5  | )

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

We were part of the HEA consolidated group for
federal income tax returns for periods from early 1996 to August
1998 (the Affiliation Period). As a member of the
HEA consolidated group, the Company was subject to a tax
allocation agreement. During the Affiliation Period, for
financial reporting purposes, our tax

28



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##### Table of Contents



loss was computed on a separate tax return basis
and, as such, we did not record any tax benefit in its financial
statements for the amount of the net operating loss included in
the HEA consolidated income tax return.


We ceased to be a member of the HEA consolidated
group as of August 1998. We remain liable for our share of the
total consolidated or combined tax return liability of the HEA
consolidated group prior to August 1998. We have agreed to
indemnify or reimburse HEA if there is any increase in our share
of the HEA consolidated or combined tax return liability
resulting from revisions to our taxable income.

Pursuant to a Tax Sharing and Indemnity
Agreement entered into in connection with the
Companys merger with Quantum HDD, Maxtor, as successor to
Quantum HDD, and Quantum are allocated their share of
Quantums income tax liability for periods before the
split-off, consistent with past practices and as if the Quantum
HDD and Quantum DSS business divisions had been separate and
independent corporations. To the extent that the income tax
liability attributable to one business division is reduced by
using NOLs and other tax attributes of the other business
division, the business division utilizing the attributes must
pay the other for the use of those attributes. We must also
indemnify Quantum for additional taxes related to the Quantum
DSS business for all periods before Quantums issuance of
tracking stock and additional taxes related to the Quantum HDD
business for all periods before the split-off, limited in the
aggregate to $142.0 million plus 50% of any excess over
$142.0 million, excluding any required gross-up payment.
The Company recorded approximately $142.0 million in other
liabilities associated with Maxtors agreement to reimburse
Quantum Corporation for income tax liabilities for certain years
prior to the acquisition of the Quantum HDD business by Maxtor.

We purchased a $340.0 million insurance
policy covering the risk that the split-off of the Quantum HDD
business from Quantum DSS could be determined to be subject to
federal income tax or state income or franchise tax. Under the
Tax Sharing and Indemnity Agreement, the Company
agreed to indemnify Quantum for the amount of any tax payable by
Quantum as a result of the split-off to the extent such tax is
not covered by such insurance policy, unless imposition of the
tax is the result of Quantums actions, or acquisitions of
Quantum stock, after the split-off. The amount of the tax not
covered by insurance could be substantial. In addition, if it is
determined that Quantum owes federal or state tax as a result of
the split-off and the circumstances giving rise to the tax are
covered by our indemnification obligations, the Company will be
required to pay Quantum the amount of the tax at that time,
whether or not reimbursement may be allowed under our tax
insurance policy.

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

Liquidity and Capital Resources



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

Cash, cash equivalents, marketable securities and
restricted cash were $489.9 million at June 29, 2002
compared to $645.8 million at December 29, 2001. The
Companys restricted cash balance at June 29, 2002 was
$98.6 million, which is pledged as collateral for certain
stand-by letters of credit issued by commercial banks. We have a
net deferred tax liability of $196.4 million, which could
become payable upon repatriation of the earnings invested abroad.

Operating activities used cash of
$61.1 million in the six months ended June 29, 2002.
Uses of cash from operating activities reflect our net loss of
$174.0 million offset by adjustments for depreciation,
amortization of intangible assets and other non-cash adjustments
of $123.5 million. Sources of cash from operating
activities also include a $78.6 million increase in
accounts payable primarily due to timing differences in payments
to vendors and a $36.0 million decrease in accounts
receivable primarily due to the decrease in revenue. This was
partially offset by a $80.4 million decrease in accrued and
other liabilities primarily due to the satisfaction of warranty
and related obligations, merger related severance and facilities
expenses, and $44.7 million increase in inventory and other
current assets due to managing the transition of production to
our Singapore

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manufacturing facility. We believe this effect on
inventory balances will be resolved by the end of the current
fiscal year.


Net cash used in investing activities was
$10.4 million in the six months ended June 29, 2002.
Investing activities primarily reflects the receipt of
$68.0 million in proceeds from the sale of marketable
securities (net of purchases), and investments made in property
plant and equipment of $78.4 million. We expect that our
investments in property, plant and equipment in 2002 will be
approximately $200.0 million, primarily to fund
manufacturing upgrades and expansion, product development and
updating our information technology systems.

Net cash used in financing activities was
$16.2 million during the quarter ended June 29, 2002.
This was primarily attributed to the repayment of debt and lease
obligations, including the payment in full of the
$5.1 million principal balance owed to Hynix and the
repayments of lease obligations described under
 Related Party Transactions, and purchase
of publicly traded debt in the aggregate amount of
$30.1 million, offset by proceeds from employee stock
purchases and stock options exercised of $14.0 million.

We believe the existing cash and cash
equivalents, short term investment and capital resources,
together with cash generated from operations and available
borrowing capacity will be sufficient to fund our operations
through at least the next twelve months. We require substantial
working capital to fund our business, particularly to finance
accounts receivable and inventory, and to invest in property,
plant and equipment. During 2002, capital expenditures are
expected to be approximately $200 million, primarily used
for manufacturing upgrades and expansion, product development,
and updating our information technology systems. We intend to
seek financing arrangements to fund our future capacity
expansion and working capital, as necessary. However, our
ability to generate cash will depend on, among other things,
demand in the hard disk drive market and pricing conditions. If
we need additional capital, there can be no assurance that such
additional financing can be obtained, or, if obtained, that it
will be available on satisfactory terms. See discussion below
under the heading Certain Factors Affecting Future
Performance.

Certain
Financing Activities

Future payments due under debt and capital lease
obligations as of June 29, 2002 are reflected in the
following table (in thousands):

|                           |  |                |        |                   |  |                   |        |              |  |           |        |       |  |   |        |  |  |   |        |  |  |   |         | 
|-------------------------- |  | -------------- | ------ | ----------------- |  | ----------------- | ------ | ------------ |  | --------- | ------ | ----- |  | - | ------ |  |  | - | ------ |  |  | - | ------- | 
|                           |  |                |        |                   |  | Pro Rata Portion  |        |              |  |           |        |      
|                           |  |                |        | Economic          |  | of Quantum        |        |              |  |           |        |      
|                           |  | 5.75%          |        | Development       |  | Corporations 7%  |        |              |  | Equipment |        |      
|                           |  | Subordinated   |        | Board of          |  | Subordinated      |        |              |  | Loans and |        |      
|                           |  | Debentures Due |        | Singapore Loan    |  | Convertible Notes |        |              |  | Capital   |        |      
|                           |  | 2012(1)        |        | Due March 2004(2) |  | Due 2004(3)       |        | Mortgages(4) |  | Leases(5) |        | Total
|                           |  |                |        |                   |  |                   |        |              |  |           |        |      
|Fiscal Year Ending         |  |                |        |                   |  |                   |        |              |  |           |        |       |  |   |        |  |  |   |        |  |  |   |         | 
|2002(remaining six months) |  | $              |       |                   |  | $                 | 3,253  |              |  | $         |       |       |  | $ | 675    |  |  | $ | 14,450 |  |  | $ | 18,378  | 
|2003                       |  |                | 5,000  |                   |  |                   | 6,506  |              |  |           |       |       |  |   | 1,444  |  |  |   | 23,487 |  |  |   | 36,437  | 
|2004                       |  |                | 5,000  |                   |  |                   | 3,253  |              |  |           | 95,833 |       |  |   | 1,583  |  |  |   | 9,623  |  |  |   | 115,292 | 
|2005                       |  |                | 5,000  |                   |  |                   |       |              |  |           |       |       |  |   | 1,734  |  |  |   |       |  |  |   | 6,734   | 
|2006                       |  |                | 5,000  |                   |  |                   |       |              |  |           |       |       |  |   | 30,847 |  |  |   |       |  |  |   | 35,847  | 
|Thereafter                 |  |                | 44,627 |                   |  |                   |       |              |  |           |       |       |  |   |       |  |  |   |       |  |  |   | 44,627  | 
|                           |  |                |        |                   |  |                   |        |              |  |           |        |       |  |   |        |  |  |   |        |  |  |   |         | 
|Total                      |  | $              | 64,627 |                   |  | $                 | 13,012 |              |  | $         | 95,833 |       |  | $ | 36,283 |  |  | $ | 47,560 |  |  | $ | 257,315 | 
|                           |  |                |        |                   |  |                   |        |              |  |           |        |       |  |   |        |  |  |   |        |  |  |   |         | 



---



|    |                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------
|(1) | For the remainder of fiscal year 2002 through
    fiscal year 2012, we will make interest payments of
    $28.7 million.          
|   
|(2) | For the remainder of fiscal year 2002 through
    fiscal year 2004, we will make interest payments of
    $0.6 million.           
|   
|(3) | For the remainder of fiscal year 2002 through
    fiscal years 2003 and 2004, we will make interest payments of
    $14.0 million.

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|    |                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------
|(4) | For the remainder of fiscal year 2002 through
    fiscal year 2006, we will make interest payments of
    $13.2 million.         
|   
|(5) | For the remainder of fiscal year 2002 through
    fiscal years 2003 and 2004, we will make interest payments of
    $4.7 million.

The Company did not enter into any significant
operating lease obligations during the three month period ended
June 29, 2002. For additional information regarding the
Companys operating lease obligations, see the
Companys Annual Report on Form 10-K for the fiscal
year ended December 29, 2001.

In July 1998, we entered into an accounts
receivable securitization program (the Program) with
a group of commercial banks (the Banks). On
November 15, 2001, we amended and restated the Program,
extending the Program for another three years and increasing the
available size of the Program from $200 million to
$300 million. Under the Program, we sell our U.S. and
Canadian accounts receivable via a special purpose entity,
Maxtor Receivables Corporation (MRC). MRC, our
wholly-owned subsidiary, sells the Banks an ownership interest
in our accounts receivable on a revolving basis, in an amount
determined by an eligible pool of receivables. The
Banks purchases of interests in our accounts receivable
results in the amount of the purchases being excluded from our
consolidated accounts receivable, and the proceeds of the sale
being included in our consolidated cash balance. The Banks had
purchased a $45.0 million interest in our accounts
receivable under this Program at June 29, 2002.

We are subject to certain defined
Liquidation Events under this Program, including a
minimum tangible net worth test and a requirement to maintain a
specified minimum unrestricted cash balance. Our Singapore Loan
is subject to two financial covenants, including a minimum
tangible net worth test, the calculation of which is the same as
defined in the Program, and a minimum consolidated cash balance
requirement. As of December 29, 2001, we concluded that we
would not be in compliance with our tangible net worth covenant
under the Program and under the Singapore loan. We were,
however, in compliance with the minimum cash balance
requirements under the Program and the Singapore loan.

On February 15, 2002, we received a waiver
and amendment from the lender for the Singapore loan relating to
the tangible net worth covenant. On the same date, the Banks
participating in the Program agreed to a first amendment through
May 15, 2002 to the Program. In each case, the definition
for calculating tangible net worth was amended to include an
adjustment associated with the purchase price accounting for the
acquisition of the Quantum HDD business. After giving effect to
this first amendment, we were in compliance with the tangible
net worth covenant.

On March 15, 2002, the first amendment was
superceded by a second amendment reflecting the terms of the
first amendment and extending the terms of the first amendment
for the duration of the Program. At this time the Program was
reduced from $300 million to $210 million due to the
withdrawal of one participating bank. We, at our discretion, can
seek additional banks to expand the facility back to
$300 million. However, there is no assurance that a
particular level of expansion can be achieved. We do not expect
that the reduction in the size of the Program will have any
adverse impact on our liquidity. In 2001, the Banks
monthly purchases of interests in our receivables under the
Program fluctuated between $45.2 million and
$150.0 million and averaged $103.9 million. We expect
that the Program will be similarly used in 2002.

On May 28, 2002, the banks participating in
the Program approved a third amendment, which modified the
tangible net worth covenant and the minimum unrestricted cash
requirement. On June 20, 2002, our Singapore loan was
amended to the same effect. After giving effect to the third
amendment and the amendment of the Singapore loan, the Company
was in compliance with all covenants.

If a Liquidation Event were to occur, the Banks
would be entitled to all cash collections on our accounts
receivables in the United States until its net investment had
been recovered. We do not expect that such an event by itself
would have a significant adverse impact on our liquidity, given
the fact that we believe the Banks net investment would be
satisfied shortly following such Liquidation Event, based on our
historical collection rate of receivables. However, we would no
longer have access to the Program following such Liquidation
Event. We do not expect that the unavailability of the Program
would have a material adverse effect on our liquidity.

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We anticipate that we may be unable to satisfy
the minimum tangible net worth covenants contained in each of
the Singapore loan and the Program at the end of the third
fiscal quarter of 2002. We are in the process of seeking
amendments under each of the Program and our Singapore loan,
which would allow us to remain in compliance with our
agreements; however, there can be no assurance that the Banks
and the Singapore lender will agree to any such amendments or
alternatively provide a waiver for any covenant violation. In
the event that a default occurs in a financial covenant under
our Singapore loan, and we do not receive a waiver we may be
required to repay the loan earlier than anticipated; however, we
do not expect that such an earlier repayment of the Singapore
loan would have a material adverse impact on our liquidity.



| |                           
| | --------------------------
| | Related Party Transactions

In 1994, Hyundai Electronics Industries
HEI and certain of its affiliates had purchased 40%
of our outstanding common stock for $150.0 million in cash.
In early 1996, Hynix, formerly Hyundai Electronics America, or
HEA, acquired all of the remaining shares of our common stock in
a tender offer and merger for $215.0 million in cash and
also acquired all of our common stock held by HEI and its
affiliates. We operated as a wholly-owned subsidiary of Hynix
until completion of our initial public offering on July 31,
1998, which reduced the ownership interest of Hynix to below
50%. In April 2001 as a result of our acquisition of the Quantum
HDD business, Hynixs ownership in Maxtor was reduced to
approximately 17% of the outstanding common stock. As described
below, Hynix sold Maxtor shares to the public and to us in
October 2001, reducing Hynixs ownership to 5.17% at
December 29, 2001 and distributed the balance of Maxtor
shares to the beneficiaries of the DECS Trust in February 2002,
and accordingly is no longer an investor in Maxtor.

On September 2, 2001, we completed our
acquisition of MMC which had previously been a wholly-owned
subsidiary of Hynix. MMC, based in San Jose, California,
designs, develops and manufactures media for hard disk drives.
Prior to the acquisition, sales to Maxtor constituted 95% of
MMCs annual revenues. The primary business reason for our
acquisition of MMC was to provide us with a reliable source of
supply of media for hard disk drives. A fairness opinion was
delivered to Maxtors Board of Directors by a nationally
recognized investment banking firm in connection with the MMC
acquisition. The fairness opinion concluded that the
consideration to be paid by Maxtor for MMC was fair to Maxtor,
from a financial point of view. The acquisition of MMC was
approved by the Maxtor Boards Affiliated Transactions
Committee and was determined by the Committee to be fair to and
in the best interests of Maxtor and its stockholders. The
Affiliated Transactions Committee was comprised entirely of
directors with no relationship with Hynix and its affiliates.
The acquisition was accounted for as a purchase with a total
cost of $17.9 million, which consisted of cash
consideration of $1 million, $16 million of loan
forgiveness, and $0.9 million of direct transaction costs.
In connection with the acquisition, we also assumed liabilities
of $105.7 million. As part of these liabilities, we assumed
a note for $7.3 million owing to Hynix, which bore no
interest through March 31, 2002; thereafter, unpaid
principal amounts bore interest at 9% per annum (the
Maxtor Note). On January 5, 2001, Hynix issued
a promissory note to Maxtor for $2 million in principal
amount, representing Hynixs share of a settlement relating
to litigation between Maxtor, Hynix and Stormedia. This note
bore interest at 9% per annum, with the payment of principal and
interest due on December 31, 2001 (the Hynix
Note). Hynix and Maxtor agreed that the principal and
accrued interest on the Hynix Note as of December 28, 2001
was offset against the principal amount of the Maxtor Note, such
that the Hynix Note was fully paid and the Maxtor Note had a
principal amount of approximately $5.1 million as of
December 29, 2001; the outstanding balance under the Maxtor
Note was fully paid on April 5, 2002. As a result of the
MMC acquisition, MMCs results of operations are included
in our financial statements from the date of acquisition.

In October 2001, Hynix sold approximately
23.3 million shares of Maxtor common stock in a registered
public offering. At the same time as Hynixs sale of Maxtor
common stock to the public, we purchased an additional
5.0 million shares of its common stock from Hynix. Our
purchase of our shares from Hynix was on the same terms as
Hynixs sale of shares to the public at $4 per share
for an aggregate purchase price of $20.0 million. The
repurchase of our shares was intended to improve our capital
structure, increase shareholder returns, and increase the price
of our stock. The repurchase of the shares from Hynix was
approved by the Maxtor Boards Affiliated Transaction
Committee and determined to be in the best interest of Maxtor
and its stockholders. As a result of Hynixs sale of its
Maxtor shares to the public and to Maxtor,

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Hynixs ownership in Maxtor was reduced to
5.17% of the outstanding common stock as of December 29,
2001. In February 2002, Hynix distributed all of its remaining
shares of Maxtor common stock to the beneficiaries of the DECS
trust and thus is no longer a stockholder of Maxtor.


In connection with the acquisition of MMC, we
assumed equipment loans and capital leases. As of June 29,
2002, there was $47.6 million outstanding under these
obligations, which have maturity dates ranging from December
2001 to October 2004 and interest rates averaging 9.9%. Hynix is
continued as a guarantor on these leases. As a result of the MMC
acquisition, MMCs results of operations are included in
our financial statements from the date of acquisition.

Our cost of revenue includes certain component
parts Maxtor purchased from MMC. These purchases amounted to
$34 million and $72 million for the three and six
months ended June 30, 2001, respectively. In August 1998,
Maxtor entered into an agreement with MMC with respect to the
pricing of future purchases that provided for pricing discounts
in return for a purchase volume commitment based on a percentage
of our total media purchases through September 30, 2001.
The pricing discounts generally ranged from 2% to 4% off of
competitive prices. As described above, Maxtor completed its
acquisition of MMC on September 2, 2001.

Our cost of revenue also includes certain DRAM
chip purchases from Hynix Semiconductor, Inc., HSI,
formerly HEI. Hynix is treated identically to its competitors in
the process by which commodity electronics, principally DRAMs,
are selected, qualified, and purchased; pricing is negotiated
with selected suppliers on the basis of suppliers bids and
market information. Our purchases from HSI totaled
$26.5 million in fiscal year 1999, $41.6 million in
fiscal year 2000 and $19.3 million in fiscal year 2001.

Pursuant to a sublicense agreement with HEI, we
are obligated to pay a portion of an IBM license royalty fee
otherwise due from HEI. Such payments are due in annual
installments through 2007, and are based upon the license fee
separately negotiated on an arms length basis between HEI
and IBM. For the years ended January 1, 2000,
December 30, 2000 and December 29, 2001, we recorded
$1.9 million of expenses each year in connection with this
obligation.

Hynix was an unconditional guarantor of one of
our facilities leases in Milpitas, California. The aggregate
rent under the lease was $3.24 million per annum in each of
the years ended January 1, 2000, December 30, 2000 and
December 29, 2001. The lease rate was established by
arms length negotiations with the lessor based on
applicable market rates. The lease expired on March 31,
2002 and was not extended.

Recent Accounting Pronouncements

In August 2001, the FASB issued Statement of
Financial Accounting Standards No. 143 (SFAS
143), Accounting for Asset Retirement
Obligations. This statement addresses financial accounting
and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement
costs. This Statement applies to all entities. It applies to
legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction,
development and/or the normal operation of a long-lived asset,
except for certain obligations or lessees. SFAS 143 is
effective for financial statements issued for fiscal years
beginning after June 25, 2002. The Company is currently
assessing the impact of SFAS 143 on its financial
statements.

In August 2001, the FASB issued Statement of
Financial Accounting Standards No. 144
(SFAS 144), Accounting for the Impairment
or Disposal of Long-lived Assets. SFAS 144 replaces
SFAS 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. The
FASB issued SFAS 144 to establish a single accounting
model, based on the framework established in SFAS 121, as
SFAS 121 did not address the accounting for a segment of a
business accounted for as a discontinued operation under
APB 30, Reporting The Results of Operations-Reporting
The Effects of Disposal of a Segment of a Business, and
Extraordinary Unusual and Infrequently Occurring Events and
Transactions. SFAS 144 also resolves significant
implementation issues related to SFAS 121. Companies are
required to adopt SFAS 144 for fiscal year beginning after
December 15, 2001, but early adoption is permitted. The
adoption of SFAS 144 did not have a significant impact on
Maxtors financial statements.

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On December 30, 2001, the Company adopted
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets(SFAS 142). SFAS 142 requires goodwill
to be tested for impairment under certain circumstances, written
down when impaired, and requires purchased intangible assets
other than goodwill to be amortized over their useful lives
unless these lives are determined to be indefinite.

The Company ceased amortizing goodwill totaling
$846.0 million as of the beginning of fiscal 2002,
including $31.1 million, net of accumulated amortization,
of acquired workforce intangibles previously classified as
purchased intangible assets.

Purchased intangible assets are carried at cost
less accumulated amortization. Amortization is computed over the
estimated useful lives of the respective assets, generally one
to seven years. The Company expects amortization expense on
purchased intangible assets to be $41.5 million for the
remainder of fiscal 2002, $82.3 million in fiscal 2003,
$37.1 million in fiscal 2004, $22.0 million in fiscal
2005, and $5.9 million in fiscal 2006, at which time
purchased intangible assets will be fully amortized.

SFAS No. 142 prescribes a two-phase transitional
process for impairment testing of goodwill. The first phase,
required to be completed by June 30, 2002, screens for
impairment as of January 1, 2002. The second phase (if
necessary), required to be completed by December 31, 2002,
measures the impairment. The Company completed its first phase
impairment analysis during the second quarter of 2002 and found
no instances of impairment of its recorded goodwill;
accordingly, the second testing phase, absent future indicators
of impairment, is not necessary during 2002.

The following table presents the impact of
SFAS 142 on net loss and net loss per share had the
standard been in effect for the three and six months ended
June 30, 2001 (in thousands, except per share amounts):

|                                                                                                        |  |                    |          |                  |  |          |          |          |  |   |          |   |  |   |          |  
|------------------------------------------------------------------------------------------------------- |  | ------------------ | -------- | ---------------- |  | -------- | -------- | -------- |  | - | -------- | - |  | - | -------- | -
|                                                                                                        |  |                    |          |                 
|                                                                                                        |  | Three Months Ended |          | Six Months Ended
|                                                                                                        |  |                    |          |                 
|                                                                                                        |  | June 29,           |          | June 30,         |  | June 29, |          | June 30,
|                                                                                                        |  | 2002               |          | 2001             |  | 2002     |          | 2001    
|                                                                                                        |  |                    |          |                  |  |          |          |         
|Net loss  as reported                                                                                  |  | $                  | (109,002 | )                |  | $        | (319,768 | )        |  | $ | (174,040 | ) |  | $ | (318,429 | )
|Adjustments:                                                                                            |  |                    |          |                  |  |          |          |          |  |   |          |   |  |   |          |  
|Amortization of goodwill                                                                                |  |                    |         |                  |  |          | 37,484   |          |  |   |         |   |  |   | 39,168   |  
|Amortization of acquired workforce intangibles
    previously classified as purchased intangible assets |  |                    |         |                  |  |          | 3,326    |          |  |   |         |   |  |   | 3,362    |  
|                                                                                                        |  |                    |          |                  |  |          |          |          |  |   |          |   |  |   |          |  
|Net adjustments                                                                                         |  |                    |         |                  |  |          | 40,810   |          |  |   |         |   |  |   | 42,530   |  
|                                                                                                        |  |                    |          |                  |  |          |          |          |  |   |          |   |  |   |          |  
|Net loss  adjusted                                                                                     |  | $                  | (109,002 | )                |  | $        | (278,958 | )        |  | $ | (174,040 | ) |  | $ | (275,899 | )
|                                                                                                        |  |                    |          |                  |  |          |          |          |  |   |          |   |  |   |          |  
|Basic and diluted net loss per share 
    as reported                                                  |  | $                  | (0.46    | )                |  | $        | (1.35    | )        |  | $ | (0.73    | ) |  | $ | (1.81    | )
|Basic and diluted net loss per share 
    adjusted                                                     |  | $                  | (0.46    | )                |  | $        | (1.18    | )        |  | $ | (0.73    | ) |  | $ | (1.57    | )

In May 2002, the FASB issued SFAS No. 145,
Rescission of SFAS Nos. 4, 44, and 64, Amendment of
SFAS No. 13, and Technical Corrections
(SFAS 145). Among other things, SFAS 145
rescinds various pronouncements regarding early extinguishment
of debt and allows extraordinary accounting treatment for early
extinguishment only when the provisions of Accounting Principles
Board Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions are met. SFAS 145 provisions
regarding early extinguishment of debt are generally effective
for fiscal years beginning after May 15, 2002. The Company
is currently assessing the impact of SFAS 145 on its financial
statements.

In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities (SFAS 146). This Statement addresses
financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including

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Certain Costs Incurred in a Restructuring).
This Statement requires that a liability for costs associated
with an exit or disposal activity be recognized and measured
initially at fair value only when the liability is incurred. The
provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002. The
Company is currently assessing the impact of SFAS 146 on
its financial statements.


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CERTAIN FACTORS AFFECTING FUTURE
PERFORMANCE

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

We have a history of significant losses and may
not achieve profitability. In the last five fiscal years, we
were profitable in only fiscal years 1998 and 2000 and Quantum
HDD was profitable only in fiscal year 1997. In the three and
six-month periods ended June 29, 2002, our net loss was
$109.0 million, and $174.0 million, respectively,
which included $21.3 million and $42.7 million,
respectively, for the amortization of intangible assets and
charges of $0.6 million and $5.5 million,
respectively, for stock-based compensation related to the
Quantum HDD acquisition.

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
profitability.

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

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

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



| |   |                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | consolidate or establish strategic relationships
    among themselves to lower their product costs or to otherwise
    compete more effectively against us;
|
| |  | lower their product prices to gain market share;                                                                                                           
|
| |  | bundle their products with other products to
    increase demand for their products; or                                                                    
|
| |  | develop new technology which would significantly
    reduce the cost of their products.                                                                    

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

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

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



| |   |                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the average selling price of our products;                                                                                                                                                                           
|
| |  | fluctuations in the demand for our products as a
    result of the seasonal nature of the desktop computer industry
    and the markets for our customers products, as well as the
    overall economic environment;
|
| |  | our ability to successfully qualify our products
    with our customers;                                                                                                                                             
|
| |  | the availability, and efficient use, of
    manufacturing capacity;                                                                                                                                                  
|
| |  | our customers canceling, rescheduling or
    deferring orders; and                                                                                                                                                   
|
| |  | our ability to purchase components at competitive
    prices.                                                                                                                                                        

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

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

Most of our products are sold to desktop computer
and Intel-based server manufacturers or to their subcontractors.
These manufacturers select or qualify their hard disk drive
suppliers, either directly or through their subcontractors,
based on quality, storage capacity, performance and price.
Manufacturers typically seek to qualify two or more suppliers
for each hard disk drive product generation. To qualify
consistently, and thus succeed in the desktop and Intel-based
server hard disk drive industry, we must consistently be among
the first-to-market introduction and first-to-volume production
at leading storage capacity per disk, offering competitive
prices and high quality. Once a manufacturer or subcontractor
has chosen its hard disk drive suppliers for a given desktop
computer or Intel-based server product, it often will purchase
hard disk drives from those suppliers for the commercial
lifetime of that product line. If we miss a qualification
opportunity, we may not have another opportunity to do business
with that manufacturer or subcontractor until it introduces its
next generation of products. The effect of missing a product
qualification opportunity is magnified by the limited number of
high-volume manufacturers of personal computers and Intel-based
servers. If we do not reach the market or deliver volume
production in a timely manner, we may lose opportunities to
qualify our products and may need to deliver lower margin, older
products or products with higher capacity then required in order
to meet our customers demands. In such case, our business,
financial condition and operating results would be adversely
affected.

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

Our revenue growth and profitability depend
significantly on the overall demand for desktop computers and
related products and services. In recent quarters, demand for
desktop computers has been adversely affected by unfavorable
economic conditions. If the economic conditions in the United
States and globally do not improve, or if we experience a
worsening in the global economic slowdown, we may experience a
further decrease in demand for desktop computers. Because we
sell a significant portion of our products to the desktop

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segment of the personal computer industry, we
will be affected more by changes in market conditions for
desktop computers than a company with a broader range of
products. Any decrease in the demand for desktop computers could
reduce the demand for our products, harming our business.


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

We sell most of our products to a limited number
of customers. For the fiscal year ended December 29, 2001,
one customer, Dell Computer Corporation, accounted for
approximately 11.3% of our total revenue, and our top five
customers accounted for approximately 33.8% of our revenue. We
expect that a relatively small number of customers will continue
to account for a significant portion of our revenue, and the
proportion of our revenue from these customers could continue to
increase in the future. These customers have a wide variety of
suppliers to choose from and therefore can make substantial
demands on us. Even if we successfully qualify a product for a
given customer, the customer generally will not be obligated to
purchase any minimum volume of products from us and generally
will be able to terminate its relationship with us at any time.
Our ability to maintain strong relationships with our principal
customers is essential to our future performance. If we lose a
key customer or if any of our key customers reduce their orders
of our products or require us to reduce our prices before we are
able to reduce costs, our business, financial condition and
operating results could suffer.

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

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

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

To remain a significant supplier of hard disk
drives to major manufacturers of personal computers and
Intel-based servers, we will need to offer a broad range of hard
disk drive products to our customers. Although almost all of our
current products are designed for the desktop computer and the
Intel-based server markets, demand in these segments may shift
to products we do not offer or volume demand may shift to other
segments. Such segments may include laptop computers or handheld
consumer products, which none of our products currently serves.
Accordingly, we will need to develop and manufacture new
products that address additional hard disk drive market segments
to remain competitive in the hard disk drive industry. We cannot
assure you that we will successfully or timely develop or market
any new hard disk drives in response to technological changes or
evolving industry standards or avoid technical or other
difficulties that could delay or prevent the successful
development, introduction or marketing of new hard disk drives.
Any failure to successfully develop and introduce new products
for our existing customers or to address additional market
segments could result in loss of customer business or require us
to deliver product not targeted effectively to customer
requirements, which in turn could adversely affect our business,
financial condition and operating results.

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

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

If we fail to match production with product
demand or to manage inventory, we may incur additional
costs.

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

We may fail to complete successfully the
integration of the Quantum HDD business, and in that event our
product development efforts and our operating results may
suffer.

We acquired the Quantum HDD business in April
2001 and since then we have made substantial progress in merging
the two companies. However, we have further work to do to
complete the integration of the two operations, primarily
related to migration to a common product roadmap. The risks of
unsuccessful integration of the product development process
include delays in time to market and time to volume production,
which would in turn adversely impact our operating results.

We are reviewing our alternatives for our
network attached storage business consistent with the need for
contributions to profit, and any significant reduction in our
commitment to this business segment may adversely impact our
operating results.

We have made substantial investments in the
network attached storage business. This emerging industry is
continuing to evolve rapidly and certain segments are becoming
commoditized. We are exploring alternatives for this business
consistent with the need to provide contributions to profit. Any
significant reduction in our commitment to this business segment
will result in charges which may adversely impact our operating
results.

Because we are dependent on a limited number
of suppliers, component shortages could result in delays of
product shipments and damage our business and operating
results.

Both we and MKE depend on a limited number of
qualified suppliers for components and subassemblies, including
recording heads, media and integrated circuits. Currently, we
purchase recording heads from three sources, digital signal
processor/ controllers from two sources and spin/ servo
integrated circuits from one source. Although our recent
purchase of our primary supplier of media, MMC, has reduced our
dependence on outside suppliers for this component, MMC cannot
supply all of our media needs, and therefore we are still
required to purchase media from a limited number of outside
sources. As we have experienced in the past, some required parts
may be periodically in short supply. As a result, we will have
to allow for significant ordering lead times for some
components. In addition, we may have to pay significant
cancellation charges to

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suppliers if we cancel orders for components
because we reduce production due to market oversupply, reduced
demand, transition to new products or technologies or for other
reasons. We order the majority of our components on a purchase
order basis and we have limited long-term volume purchase
agreements with only some of our existing suppliers. If we
cannot obtain sufficient quantities of high-quality parts when
needed, product shipments would be delayed and our business,
financial condition and operating results could suffer.


Because we purchase a significant portion of
our parts from third party suppliers, we are subject to the risk
that we may be unable to acquire quality components in a timely
manner, or effectively integrate parts from different suppliers,
and these problems would cause our business to suffer.

Unlike some of our competitors, we do not
manufacture any of the parts used in our products, other than
media as a result of our acquisition of MMC. Instead, our
products incorporate parts designed by and purchased from third
party suppliers. Consequently, the success of our products
depends on our ability to gain access to and integrate parts
that use leading-edge technology. To successfully manage the
integration of parts, we must:



| |   |                                                                       
| | - | ----------------------------------------------------------------------
| |  | acquire technologically advanced parts;                               
|
| |  | effectively integrate different parts from a
    variety of suppliers;
|
| |  | manage difficult scheduling and delivery
    problems; and            
|
| |  | develop and maintain relationships with key
    suppliers.            

If we are unable to successfully manage the
integration of parts obtained from third party suppliers, our
business, financial condition and operating results could suffer.

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

Our Maxtor-owned facility in Singapore and our
relationship with MKE for the manufacture of hard disk drives
are currently our only sources of production for our hard disk
drive products. We intend to consolidate manufacturing of our
desktop drive products to our Singapore facility by the end of
third quarter of 2002. Unexpected difficulties in such
consolidation may significantly harm our business, financial
condition and operating results. Following this consolidation,
MKE will continue to manufacture a substantial portion of our
enterprise hard disk drives pursuant to a master agreement and a
purchase agreement. The purchase agreement has been extended
pursuant to an agreement in principle through November 2,
2002. If the purchase agreement is not extended further and if
we are unable to reach agreement with MKE on mutually acceptable
terms for the manufacture of enterprise hard disk drives, we
will need to arrange for alternative manufacturing capacity. If
we fail to make such arrangements in a timely manner, in
adequate volumes or on acceptable terms, our revenue might be
lower than projected and our business, financial condition and
operating results would suffer. We will need to acquire
additional manufacturing capacity in the future. Our inability
to add capacity to allow us to meet customers demands in a
timely manner may limit our future growth and could harm our
business, financial condition and operating results.

In addition, our entire volume manufacturing
operations, and a portion of MKEs, are based in Singapore.
A flood, earthquake, political instability, act of terrorism or
other disaster or condition in Singapore that adversely affects
our or MKEs facilities or ability to manufacture our hard
disk drive products could significantly harm our business,
financial condition and operating results.

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

Our products may contain defects. We generally
warrant our products for three to five years and prior to the
merger, Quantum HDD generally warranted its products for
one to five years. We assumed Quantum HDDs warranty
obligations as a result of the merger. The standard warranties
used by us and Quantum HDD contain limits on damages and
exclusions of liability for consequential damages and for
negligent or improper use of the products. We generally
establish and, prior to the merger, Quantum HDD
established, a warranty provision at the time of product
shipment in an amount equal to estimated warranty expenses. We
determined that there were issues with certain Quantum HDD
products that we acquired in the merger, and which are no longer
being manufactured. We have established a warranty provision for
these products and have increased goodwill associated with the
merger to reflect pre-acquisition contingencies related to these
issues. We may incur additional operating expenses if these
steps do not reflect the actual cost of resolving such issues;
and if these expenses are significant, our business, financial
condition and results of operations will suffer.

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

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

If Quantum incurs non-insured tax as a result
of its split-off of Quantum HDD, our financial condition
and operating results could be negatively affected.

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

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Our ability to use our equity for financings
or acquisitions and our attractiveness as an acquisition target
could be limited until April 3, 2003 due to restrictions we
must comply with to mitigate the risk of triggering a tax
obligation to Quantum for which we are indemnitor.

Under the federal tax rules applicable to the
treatment of our acquisition of the Quantum HDD business as
a tax-free split-off, the following events occurring during the
two-year period after the merger may cause the split-off to
become taxable to Quantum under circumstances in which the tax
opinion insurance policy will not cover the tax:



| |   |                                                                                      
| | - | -------------------------------------------------------------------------------------
| |  | we issue our equity securities to acquire other
    businesses or to raise financing;
|
| |  | a 50% or greater interest in us is acquired by
    another party.                    

In addition, these restrictions could discourage
potential acquisition proposals and could delay or prevent a
change of control of the company, including offers at a price
above the then-current market price for our common stock.

We may need additional capital in the future
which may not be available on favorable terms or at all and our
ability until April 3, 2003 to issue equity securities has
been severely limited by our acquisition of
Quantum HDD.

Our business is capital intensive and we may need
more capital in the future. Our future capital requirements will
depend on many factors, including:



| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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; and                                                                         
|
| |  | the timing of introductions of new products and
    enhancements to our existing products.                                                  

To mitigate the risk of triggering a tax
obligation of Quantum for which we have indemnification
obligations as a result of our acquisition of the
Quantum HDD business, we are restricted in our ability to
issue additional equity securities to raise capital for two
years after the split-off and merger, or until April 3,
2003. In the event we decide to raise capital by issuing equity
securities, such financing will decrease the percentage equity
ownership of our stockholders and may, depending on the price at
which the equity is sold, result in significant economic
dilution to them. Our board of directors is authorized under our
charter documents to issue preferred stock with rights,
preferences or privileges senior to those of the common stock
without stockholder approval.

We may be unable to satisfy a financial
covenant in our asset securitization program or under our
Singapore loan at the end of our third fiscal quarter and if we
are unable to obtain a waiver for any such default, we will not
have access to the asset securitization program and may be
required to pay down our Singapore loan earlier than
anticipated.

In July 1998, we entered into an accounts
receivable securitization program (the Program) with
a group of commercial banks (the Banks). On
November 15, 2001, we amended and restated the Program,
extending the Program for another three years and increasing the
available size of the Program from $200 million to
$300 million. Under the Program, we sell our U.S. and
Canadian accounts receivable via a special purpose entity,
Maxtor Receivables Corporation (MRC). MRC, our
wholly-owned subsidiary, sells the Banks an ownership interest
in our accounts receivable on a revolving basis, in an amount
determined by an eligible pool of receivables. The
Banks purchases of interests in our accounts receivable
results in the amount of the purchases being excluded from our
consolidated accounts receivable, and the proceeds of the sale
being included in our consolidated cash balance. The Banks had
purchased a $45.0 million interest in our accounts
receivable under this Program at June 29, 2002.

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We are subject to certain defined
Liquidation Events under this Program, including a
minimum tangible net worth test and a requirement to maintain a
specified minimum unrestricted cash balance. Our Singapore Loan
is subject to two financial covenants, including a minimum
tangible net worth test, the calculation of which is the same as
defined in the Program, and a minimum consolidated cash balance
requirement. As of December 29, 2001, we concluded that we
would not be in compliance with our tangible net worth covenant
under the Program and under the Singapore loan. We were,
however, in compliance with the minimum cash balance
requirements under the Program and the Singapore loan.

On February 15, 2002, we received a waiver
and amendment from the lender for the Singapore loan relating to
the tangible net worth covenant. On the same date, the Banks
participating in the Program agreed to a first amendment through
May 15, 2002 to the Program. In each case, the definition
for calculating tangible net worth was amended to include an
adjustment associated with the purchase price accounting for the
acquisition of the Quantum HDD business. After giving effect to
this first amendment, we were in compliance with the tangible
net worth covenant.

On March 15, 2002, the first amendment was
superceded by a second amendment reflecting the terms of the
first amendment and extending the terms of the first amendment
for the duration of the Program. At this time the Program was
reduced from $300 million to $210 million due to the
withdrawal of one participating bank. We, at our discretion, can
seek additional banks to expand the facility back to
$300 million. However, there is no assurance that a
particular level of expansion can be achieved. We do not expect
that the reduction in the size of the Program will have any
adverse impact on our liquidity. In 2001, the Banks
monthly purchases of interests in our receivables under the
Program fluctuated between $45.2 million and
$150.0 million and averaged $103.9 million. We expect
that the Program will be similarly used in 2002.

On May 28, 2002, the banks participating in
the Program approved a third amendment, which modified the
tangible net worth covenant and the minimum unrestricted cash
requirement. On June 20, 2002, our Singapore loan was
amended to the same effect. After giving effect to the third
amendment and the amendment of the Singapore loan, the Company
was in compliance with all covenants.

If a Liquidation Event were to occur, the Banks
would be entitled to all cash collections on our accounts
receivables in the United States until its net investment had
been recovered. We do not expect that such an event by itself
would have a significant adverse impact on our liquidity, given
the fact that we believe the Banks net investment would be
satisfied shortly following such Liquidation Event, based on our
historical collection rate of receivables. However, we would no
longer have access to the Program following such Liquidation
Event. We do not expect that the unavailability of the Program
would have a material adverse effect on our liquidity.

We anticipate that we may be unable to satisfy
the minimum tangible net worth covenants contained in each of
the Singapore loan and the Program at the end of the third
fiscal quarter of 2002. We are in the process of seeking
amendments under each of the Program and our Singapore loan,
which would allow us to remain in compliance with our
agreements; however, there can be no assurance that the Banks
and the Singapore lender will agree to any such amendments or
alternatively provide a waiver for any covenant violation. In
the event that a default occurs in a financial covenant under
our Singapore loan, and we do not receive a waiver we may be
required to repay the loan earlier than anticipated; however, we
do not expect that such an earlier repayment of the Singapore
loan would have a material adverse impact on our liquidity.

Protection of our intellectual property is
limited and it is exposed to third party claims of
infringement.

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

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


We are subject to existing infringement claims
which are costly to defend and may harm our business.

Prior to our acquisition of the Quantum HDD
business, we, on the one hand, and Quantum and MKE, on the other
hand, were sued by Papst Licensing, GmbH, a German corporation,
for infringement of a number of patents that relate to hard disk
drives. Papsts complaint against Quantum and MKE was filed
on July 30, 1998, and Papsts complaint against Maxtor
was filed on March 18, 1999. Both lawsuits, filed in the
United States District Court for the Northern District of
California, were transferred by the Judicial Panel on
Multidistrict Litigation to the United States District Court for
the Eastern District of Louisiana for coordinated pre-trial
proceedings with several other pending litigations involving the
Papst patents. The matters will be transferred back to the
District Court for the Northern District of California for
trial. Papsts infringement allegations are based on
spindle motors that Maxtor and Quantum purchased from third
party motor vendors, including MKE, and the use of such spindle
motors in hard disk drives. Maxtor purchased the overwhelming
majority of the spindle motors used in our hard disk drives from
vendors that were licensed under the Papst patents. Quantum
purchased many spindle motors used in its hard disk drives from
vendors that were not licensed under the Papst patents,
including MKE. As a result of the merger with Quantum HDD,
we assumed Quantums potential liabilities to Papst arising
from the patent infringement allegations Papst asserted against
Quantum. Papst and MKE recently entered into an agreement to
settle Papsts pending patent infringement claims against
MKE. That agreement includes a license of the Papst patents to
MKE which might provide Quantum, and thus us, with additional
defenses to Papsts patent infringement claims.

The results of any litigation are inherently
uncertain and Papst may assert other infringement claims
relating to current patents, pending patent applications, and/or
future patent applications or issued patents. Additionally, we
cannot assure you we will be able to successfully defend
ourselves against this or any other Papst lawsuit. The Papst
complaint asserts claims to an unspecified dollar amount of
damages. A favorable outcome for Papst in this lawsuit could
result in the issuance of an injunction against us and our
products and/or the payment of monetary damages equal to a
reasonable royalty. In the case of a finding of a willful
infringement, we also could be required to pay treble damages
and Papsts attorneys fees. Accordingly, a litigation
outcome favorable to Papst could harm our business, financial
condition and operating results. Management believes that it has
valid defenses to the claims of Papst and is defending this
matter vigorously.

We face risks from our substantial
international operations and sales.

We conduct most of our manufacturing and testing
operations and purchase a substantial portion of our key parts
outside the United States. In particular, manufacturing
operations for our products are concentrated in Singapore, where
both our and MKEs principal manufacturing operations are
located. Such concentration of operations in Singapore will
likely magnify the effects on us of any disruptions or disasters
relating to Singapore. In addition, we also sell a significant
portion of our products to foreign distributors and retailers. As

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a result, we will be dependent on revenue from
international sales. Inherent risks relating to our overseas
operations include:




| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | difficulties with staffing and managing
    international operations;                                                                                 
|
| |  | transportation and supply chain disruptions as a
    result of terrorist activity;                                                                    
|
| |  | economic slowdown and/or downturn in the foreign
    markets;                                                                                         
|
| |  | international currency fluctuations;                                                                                                                  
|
| |  | political and economic uncertainty caused by
    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;
|
| |  | general strikes or other disruptions in working
    conditions;                                                                                       
|
| |  | labor shortages;                                                                                                                                      
|
| |  | political instability;                                                                                                                                
|
| |  | trade restrictions;                                                                                                                                   
|
| |  | 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; and                                                                                                           
|
| |  | difficulty in obtaining export licenses and other
    trade barriers.                                                                                 

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

The loss of key personnel could harm our
business.

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

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

Because of the chemicals we use in our
manufacturing and research operations, we are subject to a wide
range of environmental protection regulations in the United
States and Singapore. While we do not believe our operations to
date have been harmed as a result of such laws, future
regulations may increase our expenses and harm our business,
financial condition and results of operations. Even if we are in
compliance in all material respects with all present
environmental regulations, in the United States environment
regulations often require parties to fund remedial action
regardless of fault. As a consequence, it is often difficult to
estimate the future impact of environmental matters, including
potential liabilities. Moreover, we may be subject to liability
in connection with our acquisition of the Quantum HDD and
MMC businesses to the extent that contamination requiring
remediation at our expense is present on properties currently or
formerly occupied by those businesses, or those businesses sent
wastes to sites at which remediation is required. If we have to
make significant capital expenditures or pay significant expense
in connection with future remedial actions or to continue to
comply with applicable environmental laws, our business,
financial condition and operating results could suffer.

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

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



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

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

We have a number of protective provisions in
place designed to provide our board of directors with time to
consider whether a hostile takeover is in our best interests and
that of our stockholders. For example, in connection with our
merger with Quantum HDD, we amended our certificate of
incorporation to eliminate temporarily the requirement that our
three classes of directors be reasonably equal in number. As a
result of this amendment, a person could not take control of the
board until the third annual meeting after the closing of the
merger, since a majority of our directors will not stand for
election until that third annual meeting. This and other
provisions could discourage potential acquisition proposals and
could delay or prevent a change in control of the company and
also could diminish the opportunities for a holder of our common
stock to participate in tender offers, including offers at a
price above the then-current market price for our common stock.
These provisions also may inhibit fluctuations in our stock
price that could result from takeover attempts.

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Item 3.     Quantitative
and Qualitative Disclosures about Market Risk

Derivatives

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

Investment

We maintain an investment portfolio of various
holdings, types and maturities. These marketable securities are
generally classified as available for sale and, consequently,
are recorded on the balance sheet at fair value with unrealized
gains or losses reported as a separate component of accumulated
other comprehensive income. Part of this portfolio includes
investments in bank issues, corporate bonds and commercial
papers.

The following table presents the hypothetical
changes in fair values in the financial instruments held
June 29, 2002 that are sensitive to changes in interest
rates. These instruments are not leveraged and are held for
purposes other than trading. The hypothetical changes assume
immediate shifts in the U.S. Treasury yield curve of plus
or minus 50 basis points (bps), 100 bps,
and 150 bps.

|                      |  |          |        |          |  |         |        |            |  |         |        |          |  |          |        |  |  |  |        |   |  |  |        |   |  |  |         |  
|--------------------- |  | -------- | ------ | -------- |  | ------- | ------ | ---------- |  | ------- | ------ | -------- |  | -------- | ------ |  |  |  | ------ | - |  |  | ------ | - |  |  | ------- | -
|                      |  |          |        |          |  |         |        | Fair Value |  |         |        |          |  |         
|                      |  |          |        |          |  |         |        | as of      |  |         |        |          |  |         
|                      |  |          |        |          |  |         |        | June 29,   |  |         |        |          |  |         
|                      |  |          |        |          |  |         |        | 2002       |  |         |        |          |  |         
|                      |  | +150 bps |        | +100 bps |  | +50 bps |        | ($000)     |  | -50 bps |        | -100 bps |  | -150 bps
|                      |  |          |        |          |  |         |        |            |  |         |        |          |  |         
|Financial Instruments |  |          | 97,874 |          |  |         | 98,243 |            |  |         | 98,616 |          |  |          | 98,994 |  |  |  | 99,368 |   |  |  | 99,749 |   |  |  | 100,133 |  
|% Change              |  |          | (1.13  | )%       |  |         | (0.76  | )%         |  |         | (0.38  | )%       |  |          |        |  |  |  | 0.38   | % |  |  | 0.76   | % |  |  | 1.15    | %

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

|                             |  |                                |       |          |  |                                |       |            |  |  |       |    |  |  |       |  |  |  |       |   |  |  |       |   |  |  |       |  
|---------------------------- |  | ------------------------------ | ----- | -------- |  | ------------------------------ | ----- | ---------- |  |  | ----- | -- |  |  | ----- |  |  |  | ----- | - |  |  | ----- | - |  |  | ----- | -
|                             |  |                                |       |          |  |                                |       | Fair Value |  |  |       |    |  | 
|                             |  |                                |       |          |  |                                |       | as of      |  |  |       |    |  | 
|                             |  |                                |       | June 29, |  |                               
|                             |  | Valuation of Security Given X% |       | 2002     |  | Valuation of Security Given X%
|                             |  | Decrease in the Security Price |       | ($000)   |  | Increase in the Security Price
|                             |  |                                |       |          |  |                               
|                             |  |                                |       |          |  |                                |       |            |  | 
|Corporate equity investments |  |                                | 2,890 |          |  |                                | 4,335 |            |  |  | 4,913 |    |  |  | 5,780 |  |  |  | 6,647 |   |  |  | 7,225 |   |  |  | 8,670 |  
|% Change                     |  |                                | (50   | )%       |  |                                | (25   | )%         |  |  | (15   | )% |  |  |       |  |  |  | 15    | % |  |  | 25    | % |  |  | 50    | %

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PART II.     OTHER
INFORMATION




Item 1.     Legal
Proceedings

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

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

On April 15, 2002, the Judicial Panel on
Multidistrict Litigation ordered a separation of claims and
remand to the District of Columbia of certain claims between
Papst and another party involved in the MDL Proceeding. By order
entered June 4, 2002, the court stayed the MDL Proceeding
pending resolution by the District of Columbia court of the
remanded claims. The first status conference in that District of
Columbia action is scheduled for August 15, 2002.

The results of any litigation are inherently
uncertain and Papst may assert other infringement claims
relating to current patents, pending patent applications, and/or
future patent applications or issued patents. Additionally, we
cannot assure you we will be able to successfully defend
ourselves against this or any other Papst lawsuit. The Papst
complaints assert claims to an unspecified dollar amount of
damages. A favorable outcome for Papst in these lawsuits could
result in the issuance of an injunction against us and our
products and/or the payment of monetary damages equal to a
reasonable royalty. In the case of a finding of a willful
infringement, we also could be required to pay treble damages
and Papsts attorneys fees. Accordingly, a litigation
outcome favorable to Papst could harm our business, financial
condition and operating results. Management believes that it has
valid defenses to the claims of Papst and is defending this
matter vigorously.

In addition to the Papst lawsuit, on
June 13, 2002, we filed suit against Koninklijke Philips
Electronics N.V. and several other Philips-related companies in
the Superior Court of California, County of Santa Clara. On
June 26, 2002, we filed a First Amended Complaint. The
lawsuit alleges that an integrated circuit chip supplied by
Philips was defective and caused significant levels of failure
of the Quantum HDD Corona Plus, Eagle, and Eagle Plus products,
each of which is a product line we acquired as part of our
acquisition of the Quantum HDD business. By agreement, the
Philips entities will file responsive pleadings on or before
September 9, 2002. In the lawsuit, we are claiming damages
of at least $77 million, however, the results of litigation
are inherently uncertain and we cannot assure you that we will
achieve a favorable outcome.

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

At our annual meeting of stockholders held on
May 10, 2001, the stockholders elected the nominee for
Class I director to our Board of Directors. The votes were
as follows:

|                  |  |     |             |                    |  |  |           | 
|----------------- |  | --- | ----------- | ------------------ |  |  | --------- | 
|Nominee           |  | For |             | Withheld Authority
|                  |  |     |             |                   
|Charles F. Christ |  |     | 212,953,221 |                    |  |  | 5,206,814 | 

Mr. Christs term will expire at the
2005 annual meeting. The following directors terms of
office continue until the annual meeting indicated:
Dr. C.S. Park and Michael R. Cannon (Class III
term expires at the 2004 annual meeting); and Thomas Lyman Chun,
Charles Hill and Roger W. Johnson (Class II term expires at
the 2003 annual meeting).

The following matters were also submitted to and
approved by a vote of the stockholders with the results of the
voting being as shown:

Proposal to approve the amendment of our 1998
Employee Stock Purchase Plan to increase the number of shares of
common stock authorized for issuance thereunder from 8,000,000
to 17,000,000:

|           |  |  |             | 
|---------- |  |  | ----------- | 
|For:       |  |  | 204,209,011 | 
|Against:   |  |  | 12,415,411  | 
|Abstained: |  |  | 1,535,613   | 

Proposal to ratify the appointment of
PricewaterhouseCoopers LLP as our independent accountants for
the fiscal year ending December 28, 2002:

|           |  |  |             | 
|---------- |  |  | ----------- | 
|For:       |  |  | 211,318,861 | 
|Against:   |  |  | 6,341,678   | 
|Abstained: |  |  | 499,496     | 




Item 5.     Other
Information

Effective July 5, 2002, the employment of
Dr. Victor B. Jipson, formerly Executive Vice President and
General Manager of the Desktop Products Group, was terminated.




Item 6.     Exhibits
and Reports on Form 8-K

(a) Exhibits.

|     |  |                                                                                                                                                                                                                                                                          
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Form of Second Amendment To Executive Retention
    Agreement between Registrant and Pantelis S. Alexopoulos,
    Michael D. Cordano, Phillip C. Duncan, Michael J. Wingert, David
    L. Beaver, Misha Rozenberg and Glenn H. Stevens each dated as of
    May 24, 2002.
|10.2 |  | Third Amendment to Amended and Restated
    Receivables Purchase Agreement, dated as of May 28, 2002 by
    and among Registrant, Maxtor Receivables Corporation, the
    Conduit Purchasers, the Committed Purchasers, the Agents and
    Fleet National Bank.          
|10.3 |  | Bank Guarantee Facility of SGD23,000,000,
    Amendments to Covenants on Tangible Networth and Consolidated
    Cash Balance, dated as of June 20, 2002, between the Bank
    of Nova Scotia, Singapore Branch and Maxtor Peripherals (s) Pte
    Ltd.                   
|10.4 |  | Revolving Bank Guarantee Facility of SGD666,000,
    Amendments to Covenants on Tangible Networth and Consolidated
    Cash Balance, dated as of June 20, 2002, between the Bank
    of Nova Scotia, Singapore Branch and Maxtor Peripherals (s) Pte
    Ltd.            
|99.1 |  | Certification of Michael R. Cannon, President and
    Chief Executive Officer of the Registrant pursuant to 18 U.S.C.
    § 1350, as adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                                                              
|99.2 |  | Certification of Paul J. Tufano, Executive Vice
    President, Chief Operating Officer and Chief Financial Officer
    of the Registrant pursuant to 18 U.S.C. § 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.                     

None

(b) Reports on Form 8-K.

None

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SIGNATURES

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



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



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

| |                             
| | ----------------------------
| |                             
| | Paul J. Tufano              
| | Executive Vice President,   
| | Chief Financial Officer, and
| | Chief Operating Officer     

Date: August 13, 2002

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EXHIBIT INDEX

|        |      |             |  |                                                                                                                                                                                                                                                                          
|------- | ---- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 10.1 |             |  | Form of Second Amendment To Executive Retention
    Agreement between Registrant and Pantelis S. Alexopoulos,
    Michael D. Cordano, Phillip C. Duncan, Michael J.
    Wingert, David L. Beaver, Misha Rozenberg and Glenn H.
    Stevens each dated as of May 24, 2002.
|        | 10.2 |             |  | Third Amendment to Amended and Restated
    Receivables Purchase Agreement, dated as of May 28, 2002 by
    and among Registrant, Maxtor Receivables Corporation, the
    Conduit Purchasers, the Committed Purchasers, the Agents and
    Fleet National Bank.          
|        | 10.3 |             |  | Bank Guarantee Facility of SGD23,000,000,
    Amendments to Covenants on Tangible Networth and Consolidated
    Cash Balance, dated as of June 20, 2002, between the Bank
    of Nova Scotia, Singapore Branch and Maxtor Peripherals (s) Pte
    Ltd.                   
|        | 10.4 |             |  | Revolving Bank Guarantee Facility of SGD666,000,
    Amendments to Covenants on Tangible Networth and Consolidated
    Cash Balance, dated as of June 20, 2002, between the Bank
    of Nova Scotia, Singapore Branch and Maxtor Peripherals (s) Pte
    Ltd.            
|        | 99.1 |             |  | Certification of Michael R. Cannon,
    President and Chief Executive Officer of the Registrant pursuant
    to 18 U.S.C. § 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                              
|        | 99.2 |             |  | Certification of Paul J. Tufano, Executive
    Vice President, Chief Operating Officer and Chief Financial
    Officer of the Registrant pursuant to 18 U.S.C.
    § 1350, as adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.