##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-Q/ A


Amendment No. 1





|                                   |  |                                                                                             
|---------------------------------- |  | --------------------------------------------------------------------------------------------
|(Mark One)                         |  |                                                                                             
|þ                                  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
|For the period ended June 26, 2004
|or                                
|                                  
|o                                  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|                                   |  | For the transition period
    from           to                                             

Commission file number: 001-16447


Maxtor Corporation


(Exact name of registrant as specified in its charter)


|                                         |  |                    
|---------------------------------------- |  | -------------------
|Delaware                                 |  | 77-0123732         
|(State or other jurisdiction of          |  | (I.R.S. Employer   
|incorporation or organization)           |  | Identification No.)
|                                        
|500 McCarthy Boulevard,                  |  | 95035              
|Milpitas, CA                             |  | (Zip Code)         
|(Address of principal executive offices) |  |                    

Registrants telephone number, including area code:


(408) 894-5000


þ o


þ o












---










MAXTOR CORPORATION


FORM 10-Q/A


June 26, 2004


INDEX


|                                  |  |                                                                                                                                   |    |      |    | 
|--------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                  |  |                                                                                                                                   |    | Page |   
|                                  |  |                                                                                                                                   |    |      |   
|PART I. FINANCIAL
    INFORMATION
|Item 1.                           |  | Condensed Consolidated Financial Statements
    (Unaudited)                                                                       |    |      | 4  | 
|                                  |  | Condensed Consolidated Balance
    Sheets  June 26, 2004, and December 27,
    2003 (Unaudited)                                  |    |      | 4  | 
|                                  |  | Condensed Consolidated Statements of
    Operations  Three and six months ended June 26,
    2004, and June 28, 2003 (Unaudited) |    |      | 5  | 
|                                  |  | Condensed Consolidated Statements of Cash
    Flows  Six months ended June 26, 2004, and
    June 28, 2003 (Unaudited)           |    |      | 6  | 
|                                  |  | Notes to Condensed Consolidated Financial
    Statements (Unaudited)                                                              |    |      | 7  | 
|Item 2.                           |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                                         |    |      | 22 | 
|Item 3.                           |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                                    |    |      | 46 | 
|Item 4.                           |  | Controls and Procedures                                                                                                           |    |      | 47 | 
|                                 
|PART II. OTHER INFORMATION       
|Item 1.                           |  | Legal Proceedings                                                                                                                 |    |      | 50 | 
|Item 2.                           |  | Changes in Securities and Use of
    Proceeds                                                                                     |    |      | 52 | 
|Item 3.                           |  | Defaults Upon Senior Securities                                                                                                   |    |      | 52 | 
|Item 4.                           |  | Submission of Matters to a Vote of Security
    Holders                                                                           |    |      | 52 | 
|Item 5.                           |  | Other Information                                                                                                                 |    |      | 52 | 
|Item 6.                           |  | Exhibits and Reports on Form 8-K                                                                                                  |    |      | 52 | 
|Signature Page                    |  |                                                                                                                                   | 53 |     
|EXHIBIT 31.1                     
|EXHIBIT 31.2                     
|EXHIBIT 32.1                     
|EXHIBIT 32.2                     



1



---



##### Table of Contents



EXPLANATORY NOTE










2



---



##### Table of Contents









| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | Item 1. Condensed Consolidated Financial Statements
    (Unaudited)                              
|
| |  | Item 2. Managements Discussion and Analysis of
    Financial Condition and Results of Operations
|
| |  | Item 4. Controls and Procedures                                                                  





| |   |                                         
| | - | ----------------------------------------
| |  | Item 6. Exhibits and Reports on Form 8-K



3



---



##### Table of Contents






PART I. FINANCIAL INFORMATION







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

MAXTOR CORPORATION





CONDENSED CONSOLIDATED BALANCE SHEETS


|                                           |                                                                                                                                                                                                                                                   |                                            |            |         |              |  |            |         |           | 
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | ------- | ------------ |  | ---------- | ------- | --------- | 
|                                           |                                                                                                                                                                                                                                                   | June 26,                                   |            |         | December 27, | 
|                                           |                                                                                                                                                                                                                                                   | 2004                                       |            |         | 2003         | 
|                                           |                                                                                                                                                                                                                                                   |                                            |            |         |              | 
|                                           |                                                                                                                                                                                                                                                   | Restated                                   |            |         |             
|                                           |                                                                                                                                                                                                                                                   | (Unaudited)                                |           
|                                           |                                                                                                                                                                                                                                                   | (In thousands, except share                |           
|                                           |                                                                                                                                                                                                                                                   | and per share amounts)                     |           
|ASSETS                                    
|Current assets:                            |                                                                                                                                                                                                                                                   |                                            |            |         |              |  |            |        
|                                           | Cash and cash equivalents                                                                                                                                                                                                                         |                                            | $          | 387,667 |              |  | $          | 530,816 |          
|                                           | Restricted cash                                                                                                                                                                                                                                   |                                            |            | 23,460  |              |  |            | 37,154  |          
|                                           | Marketable securities                                                                                                                                                                                                                             |                                            |            | 63,674  |              |  |            | 44,543  |          
|                                           | Restricted marketable securities                                                                                                                                                                                                                  |                                            |            | 41,686  |              |  |            | 42,337  |          
|                                           | Accounts receivable, net of allowance of doubtful accounts of
    $10,095 at June 26, 2004 and $11,220 at December 27,
    2003                                                                                                                   |                                            |            | 372,145 |              |  |            | 540,943 |          
|                                           | Other receivables                                                                                                                                                                                                                                 |                                            |            | 39,232  |              |  |            | 37,964  |          
|                                           | Inventories                                                                                                                                                                                                                                       |                                            |            | 259,339 |              |  |            | 218,011 |          
|                                           | Prepaid expenses and other                                                                                                                                                                                                                        |                                            |            | 37,174  |              |  |            | 38,301  |          
|                                           |                                                                                                                                                                                                                                                   |                                            |            |         |              | 
|                                           |                                                                                                                                                                                                                                                   | Total current assets                       |            |         | 1,224,377    |  |            |         | 1,490,069 | 
|Property, plant and equipment, net         |                                                                                                                                                                                                                                                   |                                            | 367,668    |         |              |  | 342,679    |        
|Goodwill                                   |                                                                                                                                                                                                                                                   |                                            | 628,463    |         |              |  | 628,463    |        
|Other intangible assets, net               |                                                                                                                                                                                                                                                   |                                            | 35,730     |         |              |  | 61,619     |        
|Other assets                               |                                                                                                                                                                                                                                                   |                                            | 34,348     |         |              |  | 13,908     |        
|                                           |                                                                                                                                                                                                                                                   |                                            |            |         |              | 
|                                           |                                                                                                                                                                                                                                                   | Total assets                               |            | $       | 2,290,586    |  |            | $       | 2,536,738 | 
|                                           |                                                                                                                                                                                                                                                   |                                            |            |         |              | 
|                                          
|LIABILITIES AND STOCKHOLDERS EQUITY      
|Current liabilities:                       |                                                                                                                                                                                                                                                   |                                            |            |         |              |  |            |        
|                                           | Short-term borrowings, including current portion of long-term
    debt                                                                                                                                                                            |                                            | $          | 72,976  |              |  | $          | 77,037  |          
|                                           | Accounts payable                                                                                                                                                                                                                                  |                                            |            | 620,669 |              |  |            | 730,056 |          
|                                           | Accrued and other liabilities                                                                                                                                                                                                                     |                                            |            | 313,676 |              |  |            | 445,576 |          
|                                           | Liabilities of discontinued operations                                                                                                                                                                                                            |                                            |            | 692     |              |  |            | 1,487   |          
|                                           |                                                                                                                                                                                                                                                   |                                            |            |         |              | 
|                                           |                                                                                                                                                                                                                                                   | Total current liabilities                  |            |         | 1,008,013    |  |            |         | 1,254,156 | 
|Long-term debt, net of current portion     |                                                                                                                                                                                                                                                   |                                            | 371,405    |         |              |  | 355,809    |        
|Other liabilities                          |                                                                                                                                                                                                                                                   |                                            | 173,643    |         |              |  | 180,088    |        
|                                           |                                                                                                                                                                                                                                                   |                                            |            |         |              | 
|                                           |                                                                                                                                                                                                                                                   | Total liabilities                          |            |         | 1,553,061    |  |            |         | 1,790,053 | 
|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; 260,818,982 shares issued and
    247,573,244 shares outstanding at June 26, 2004 and
    259,246,819 shares issued and 246,001,081 shares
    outstanding at December 27, 2003 |                                            |            | 2,608   |              |  |            | 2,592   |          
|Additional paid-in capital                 |                                                                                                                                                                                                                                                   |                                            | 2,421,051  |         |              |  | 2,410,082  |        
|Deferred stock-based compensation          |                                                                                                                                                                                                                                                   |                                            |           |         |              |  | (110       | )      
|Accumulated deficit                        |                                                                                                                                                                                                                                                   |                                            | (1,629,465 | )       |              |  | (1,611,744 | )      
|Cumulative other comprehensive income      |                                                                                                                                                                                                                                                   |                                            | 8,270      |         |              |  | 10,804     |        
|Treasury stock (13,245,738 shares) at cost |                                                                                                                                                                                                                                                   |                                            | (64,939    | )       |              |  | (64,939    | )      
|                                           |                                                                                                                                                                                                                                                   |                                            |            |         |              | 
|                                           |                                                                                                                                                                                                                                                   | Total stockholders equity                 |            |         | 737,525      |  |            |         | 746,685   | 
|                                           |                                                                                                                                                                                                                                                   |                                            |            |         |              | 
|                                           |                                                                                                                                                                                                                                                   | Total liabilities and stockholders equity |            | $       | 2,290,586    |  |            | $       | 2,536,738 | 
|                                           |                                                                                                                                                                                                                                                   |                                            |            |         |              | 



4



---



##### Table of Contents



MAXTOR CORPORATION





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                 |                                     |                                                    |             |             |                  |   |             |             |         |   |             |             |         |   |             |             |         | 
|------------------------------------------------ | ----------------------------------- | -------------------------------------------------- | ----------- | ----------- | ---------------- | - | ----------- | ----------- | ------- | - | ----------- | ----------- | ------- | - | ----------- | ----------- | ------- | 
|                                                 |                                     | Three Months Ended                                 |             |             | Six Months Ended |  
|                                                 |                                     |                                                    |             |             |                  |  
|                                                 |                                     | June 26,                                           |             |             | June 28,         |   |             | June 26,    |         |   | June 28,    |            
|                                                 |                                     | 2004                                               |             |             | 2003             |   |             | 2004        |         |   | 2003        |            
|                                                 |                                     |                                                    |             |             |                  |   |             |             |         |   |             |            
|                                                 |                                     | Restated                                           |             |             | Restated         |   |             | Restated    |         |   | Restated    |            
|                                                 |                                     | (Unaudited)                                        |             |             | (Unaudited)      |  
|                                                 |                                     | (In thousands, except share and per share amounts) |            
|Net revenues                                     |                                     | $                                                  | 818,254     |             |                  | $ | 910,903     |             |         | $ | 1,837,942   |             |         | $ | 1,849,792   |            
|Cost of revenues                                 |                                     |                                                    | 744,468     |             |                  |   | 761,657     |             |         |   | 1,609,093   |             |         |   | 1,528,699   |            
|                                                 |                                     |                                                    |             |             |                  |   |             |             |         |   |             |            
|                                                 | Gross profit                        |                                                    |             | 73,786      |                  |   |             | 149,246     |         |   |             | 228,849     |         |   |             | 321,093     |        
|Operating expenses:                              |                                     |                                                    |             |             |                  |   |             |             |         |   |             |             |         |   |             |            
|                                                 | Research and development            |                                                    |             | 81,191      |                  |   |             | 84,752      |         |   |             | 166,294     |         |   |             | 171,777     |        
|                                                 | Selling, general and administrative |                                                    |             | 32,383      |                  |   |             | 30,967      |         |   |             | 64,897      |         |   |             | 62,899      |        
|                                                 | Amortization of intangible assets   |                                                    |             | 5,053       |                  |   |             | 20,562      |         |   |             | 25,889      |         |   |             | 41,124      |        
|                                                 |                                     |                                                    |             |             |                  |   |             |             |         |   |             |            
|                                                 |                                     | Total operating expenses                           |             |             | 118,627          |   |             |             | 136,281 |   |             |             | 257,080 |   |             |             | 275,800 | 
|                                                 |                                     |                                                    |             |             |                  |   |             |             |         |   |             |            
|Income (loss) from operations                    |                                     |                                                    | (44,841     | )           |                  |   | 12,965      |             |         |   | (28,231     | )           |         |   | 45,293      |            
|Interest expense                                 |                                     |                                                    | (7,141      | )           |                  |   | (8,126      | )           |         |   | (16,073     | )           |         |   | (13,703     | )          
|Interest income                                  |                                     |                                                    | 1,082       |             |                  |   | 1,423       |             |         |   | 2,370       |             |         |   | 2,631       |            
|Income from litigation settlement                |                                     |                                                    | 24,750      |             |                  |   |            |             |         |   | 24,750      |             |         |   |            |            
|Other gain                                       |                                     |                                                    | 16          |             |                  |   | 36          |             |         |   | 54          |             |         |   | 243         |            
|                                                 |                                     |                                                    |             |             |                  |   |             |             |         |   |             |            
|Income (loss) before income taxes                |                                     |                                                    | (26,134     | )           |                  |   | 6,298       |             |         |   | (17,130     | )           |         |   | 34,464      |            
|Provision for income taxes                       |                                     |                                                    | 317         |             |                  |   | 437         |             |         |   | 591         |             |         |   | 1,714       |            
|                                                 |                                     |                                                    |             |             |                  |   |             |             |         |   |             |            
|Net income (loss)                                |                                     | $                                                  | (26,451     | )           |                  | $ | 5,861       |             |         | $ | (17,721     | )           |         | $ | 32,750      |            
|                                                 |                                     |                                                    |             |             |                  |   |             |             |         |   |             |            
|Net income (loss) per share  basic              |                                     | $                                                  | (0.11       | )           |                  | $ | 0.02        |             |         | $ | (0.07       | )           |         | $ | 0.14        |            
|Net income (loss) per share  diluted            |                                     | $                                                  | (0.11       | )           |                  | $ | 0.02        |             |         | $ | (0.07       | )           |         | $ | 0.13        |            
|Shares used in per share calculation
     basic |                                     |                                                    | 247,367,176 |             |                  |   | 241,120,075 |             |         |   | 246,981,817 |             |         |   | 242,382,530 |            
|                                                 |  diluted                           |                                                    |             | 247,367,176 |                  |   |             | 245,259,831 |         |   |             | 246,981,817 |         |   |             | 245,999,915 |        



5



---



##### Table of Contents



MAXTOR CORPORATION





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                                         |                                                                                     |                                   |                                                                                    |        |          |          |         |        |          |         |  
|-------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | --------------------------------- | ---------------------------------------------------------------------------------- | ------ | -------- | -------- | ------- | ------ | -------- | ------- | -
|                                                                                                         |                                                                                     | Six Months Ended                  |                                                                                   
|                                                                                                         |                                                                                     |                                   |                                                                                   
|                                                                                                         |                                                                                     | June 26,                          |                                                                                    |        | June 28, |         
|                                                                                                         |                                                                                     | 2004                              |                                                                                    |        | 2003     |         
|                                                                                                         |                                                                                     |                                   |                                                                                    |        |          |         
|                                                                                                         |                                                                                     | Restated                          |                                                                                    |        | Restated |         
|                                                                                                         |                                                                                     | (Unaudited)                       |                                                                                   
|                                                                                                         |                                                                                     | (In thousands)                    |                                                                                   
|Cash Flows from Operating Activities:                                                                    |                                                                                     |                                   |                                                                                    |        |          |          |         |       
|Net income (loss)                                                                                        |                                                                                     | $                                 | (17,721                                                                            | )      |          | $        | 32,750  |       
|Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities:   |                                                                                     |                                   |                                                                                    |        |          |          |         |       
|                                                                                                         | Depreciation and amortization                                                       |                                   |                                                                                    | 69,464 |          |          |         | 83,130 |         
|                                                                                                         | Amortization of intangible assets                                                   |                                   |                                                                                    | 25,889 |          |          |         | 41,124 |         
|                                                                                                         | Stock-based compensation expense                                                    |                                   |                                                                                    | 182    |          |          |         | 511    |         
|                                                                                                         | Loss on sale of property, plant and equipment and other assets                      |                                   |                                                                                    | 460    |          |          |         | 2,555  |         
|                                                                                                         | Gain on retirement of bond                                                          |                                   |                                                                                    |       |          |          |         | (111   | )       
|                                                                                                         | Change in assets and liabilities:                                                   |                                   |                                                                                    |        |          |          |         |        |         
|                                                                                                         |                                                                                     | Accounts receivable               |                                                                                    |        | 168,798  |          |         |        | (209,610 | )      
|                                                                                                         |                                                                                     | Other receivables                 |                                                                                    |        | (1,268   | )        |         |        | 136,474  |        
|                                                                                                         |                                                                                     | Inventories                       |                                                                                    |        | (41,328  | )        |         |        | (57,085  | )      
|                                                                                                         |                                                                                     | Prepaid expenses and other assets |                                                                                    |        | 1,131    |          |         |        | (8,866   | )      
|                                                                                                         |                                                                                     | Accounts payable                  |                                                                                    |        | (110,988 | )        |         |        | 1,574    |        
|                                                                                                         |                                                                                     | Accrued and other liabilities     |                                                                                    |        | (138,345 | )        |         |        | (21,349  | )      
|                                                                                                         |                                                                                     |                                   |                                                                                    |        |          |         
|                                                                                                         |                                                                                     |                                   | Net cash provided by (used in) operating activities from
    continuing operations |        |          | (43,726  | )       |        |          | 1,097   |  
|                                                                                                         |                                                                                     |                                   | Net cash flow used in discontinued operations                                      |        |          | (795     | )       |        |          | (6,140  | )
|                                                                                                         |                                                                                     |                                   |                                                                                    |        |          |         
|                                                                                                         |                                                                                     |                                   | Net cash used in operating activities                                              |        |          | (44,521  | )       |        |          | (5,043  | )
|                                                                                                         |                                                                                     |                                   |                                                                                    |        |          |         
|Cash Flows from Investing Activities:                                                                    |                                                                                     |                                   |                                                                                    |        |          |          |         |       
|Proceeds from sale of property, plant and equipment                                                      |                                                                                     |                                   | 736                                                                                |        |          |          | 274     |       
|Purchase of property, plant and equipment                                                                |                                                                                     |                                   | (94,048                                                                            | )      |          |          | (39,290 | )     
|Decrease (Increase) in restricted cash                                                                   |                                                                                     |                                   | (7,882                                                                             | )      |          |          | 1,727   |       
|Proceeds from sale of marketable securities                                                              |                                                                                     |                                   | 25,892                                                                             |        |          |          | 28,761  |       
|Purchase of marketable securities                                                                        |                                                                                     |                                   | (45,522                                                                            | )      |          |          | (29,493 | )     
|                                                                                                         |                                                                                     |                                   |                                                                                    |        |          |         
|                                                                                                         |                                                                                     |                                   | Net cash used in investing activities                                              |        |          | (120,824 | )       |        |          | (38,021 | )
|                                                                                                         |                                                                                     |                                   |                                                                                    |        |          |         
|Cash Flows from Financing Activities:                                                                    |                                                                                     |                                   |                                                                                    |        |          |          |         |       
|Proceeds from issuance of debt, including short-term borrowings                                          |                                                                                     |                                   | 24,655                                                                             |        |          |          | 223,858 |       
|Principal payments of debt including short-term borrowings                                               |                                                                                     |                                   | (4,401                                                                             | )      |          |          | (5,327  | )     
|Principal payments under capital lease obligations                                                       |                                                                                     |                                   | (8,719                                                                             | )      |          |          | (14,004 | )     
|Purchase of treasury shares at cost                                                                      |                                                                                     |                                   |                                                                                   |        |          |          | (44,939 | )     
|Net proceeds from receivable-backed borrowing                                                            |                                                                                     |                                   | 49,748                                                                             |        |          |          | 47,908  |       
|Payment of receivable-backed borrowing                                                                   |                                                                                     |                                   | (50,000                                                                            | )      |          |          |        |       
|Proceeds from issuance of common stock from employee stock
    purchase plan and stock options exercised |                                                                                     |                                   | 10,913                                                                             |        |          |          | 13,108  |       
|                                                                                                         |                                                                                     |                                   |                                                                                    |        |          |         
|                                                                                                         |                                                                                     |                                   | Net cash provided by financing activities                                          |        |          | 22,196   |         |        |          | 220,604 |  
|                                                                                                         |                                                                                     |                                   |                                                                                    |        |          |         
|Net change in cash and cash equivalents                                                                  |                                                                                     |                                   | (143,149                                                                           | )      |          |          | 177,540 |       
|Cash and cash equivalents at beginning of period                                                         |                                                                                     |                                   | 530,816                                                                            |        |          |          | 306,444 |       
|                                                                                                         |                                                                                     |                                   |                                                                                    |        |          |         
|Cash and cash equivalents at end of period                                                               |                                                                                     | $                                 | 387,667                                                                            |        |          | $        | 483,984 |       
|                                                                                                         |                                                                                     |                                   |                                                                                    |        |          |         
|Supplemental Disclosures of Cash Flow Information:                                                       |                                                                                     |                                   |                                                                                    |        |          |          |         |       
|                                                                                                         | Cash paid during the period for:                                                    |                                   |                                                                                    |        |          |          |         |        |         
|                                                                                                         |                                                                                     | Interest                          |                                                                                    | $      | 14,225   |          |         | $      | 10,550   |        
|                                                                                                         |                                                                                     | Income taxes                      |                                                                                    | $      | 2,807    |          |         | $      | 993      |        
|Schedule of Non-Cash Investing and Financing Activities:                                                 |                                                                                     |                                   |                                                                                    |        |          |          |         |       
|                                                                                                         | Purchase of property, plant and equipment financed by accounts
    payable          |                                   | $                                                                                  | 7,469  |          |          | $       | 4,999  |         
|                                                                                                         | Retirement of debt in exchange for bond redemption                                  |                                   | $                                                                                  | 5,000  |          |          | $       | 5,000  |         
|                                                                                                         | Change in unrealized gain (loss) on investments                                     |                                   | $                                                                                  | (2,534 | )        |          | $       | 12,801 |         
|                                                                                                         | Purchase of property, plant and equipment financed by capital
    lease obligations |                                   | $                                                                                  |       |          |          | $       | 5,526  |         



6



---



##### Table of Contents



MAXTOR CORPORATION





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




|   |                                           
|-- | ------------------------------------------
|1. | Summary of Significant Accounting Policies



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





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





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





7



---



##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                     |                             |                    |         |         |                  |   |       |             |  |   |             |         |   |   |        |        | 
|---------------------------------------------------------------------------------------------------- | --------------------------- | ------------------ | ------- | ------- | ---------------- | - | ----- | ----------- |  | - | ----------- | ------- | - | - | ------ | ------ | 
|                                                                                                     |                             | Three Months Ended |         |         | Six Months Ended |  
|                                                                                                     |                             |                    |         |         |                  |  
|                                                                                                     |                             | June 26,           |         |         | June 28,         |   |       | June 26,    |  |   | June 28,    |        
|                                                                                                     |                             | 2004               |         |         | 2003             |   |       | 2004        |  |   | 2003        |        
|                                                                                                     |                             |                    |         |         |                  |   |       |             |  |   |             |        
|                                                                                                     |                             | Restated(1)        |         |         | Restated(1)      |   |       | Restated(1) |  |   | Restated(1) |        
|Net income (loss) applicable to common stockholders, as reported                                     |                             | $                  | (26,451 | )       |                  | $ | 5,861 |             |  | $ | (17,721     | )       |   | $ | 32,750 |       
|Add: Stock-based employee compensation expense included in
    reported net income (loss)            |                             |                    | 38      |         |                  |   | 256   |             |  |   | 182         |         |   |   | 511    |       
|Deduct: Total stock-based compensation expense determined under
    fair value method for all awards |                             |                    | 4,392   |         |                  |   | 5,590 |             |  |   | 9,895       |         |   |   | 11,358 |       
|                                                                                                     |                             |                    |         |         |                  |   |       |             |  |   |             |        
|                                                                                                     | Pro forma net income (loss) |                    | $       | (30,805 | )                |   | $     | 527         |  |   | $           | (27,434 | ) |   | $      | 21,903 | 
|                                                                                                     |                             |                    |         |         |                  |   |       |             |  |   |             |        
|Net income (loss) per share                                                                          |                             |                    |         |         |                  |   |       |             |  |   |             |         |   |   |        |       
|As reported  basic                                                                                  |                             | $                  | (0.11   | )       |                  | $ | 0.02  |             |  | $ | (0.07       | )       |   | $ | 0.14   |       
|Pro forma  basic                                                                                    |                             | $                  | (0.12   | )       |                  | $ | 0.00  |             |  | $ | (0.11       | )       |   | $ | 0.09   |       
|As reported  diluted                                                                                |                             | $                  | (0.11   | )       |                  | $ | 0.02  |             |  | $ | (0.07       | )       |   | $ | 0.13   |       
|Pro forma  diluted                                                                                  |                             | $                  | (0.12   | )       |                  | $ | 0.00  |             |  | $ | (0.11       | )       |   | $ | 0.09   |       






|    |                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------
|(1) | For additional information regarding the restatement, see
    note 2 of the Notes to Condensed Consolidated Financial
    Statements.



|                               |  |                    |           |   |                  |  |           |          |  |  |           |   |  |  |           |  
|------------------------------ |  | ------------------ | --------- | - | ---------------- |  | --------- | -------- |  |  | --------- | - |  |  | --------- | -
|                               |  | Three Months Ended |           |   | Six Months Ended | 
|                               |  |                    |           |   |                  | 
|                               |  | June 26,           |           |   | June 28,         |  |           | June 26, |  |  | June 28,  |  
|                               |  | 2004               |           |   | 2003             |  |           | 2004     |  |  | 2003      |  
|                               |  |                    |           |   |                  |  |           |          |  |  |           |  
|Risk-free interest rate        |  |                    | 2.82      |   |                  |  | 2.52      |          |  |  | 2.82      |   |  |  | 2.52      |  
|Weighted average expected life |  |                    | 4.5 years |   |                  |  | 4.5 years |          |  |  | 4.5 years |   |  |  | 4.5 years |  
|Volatility                     |  |                    | 73        | % |                  |  | 78        | %        |  |  | 73        | % |  |  | 78        | %
|Dividend yield                 |  |                    |          |   |                  |  |          |          |  |  |          |   |  |  |          |  



|                               |  |                    |           |   |                  |  |           |          |  |  |           |   |  |  |           |  
|------------------------------ |  | ------------------ | --------- | - | ---------------- |  | --------- | -------- |  |  | --------- | - |  |  | --------- | -
|                               |  | Three Months Ended |           |   | Six Months Ended | 
|                               |  |                    |           |   |                  | 
|                               |  | June 26,           |           |   | June 28,         |  |           | June 26, |  |  | June 28,  |  
|                               |  | 2004               |           |   | 2003             |  |           | 2004     |  |  | 2003      |  
|                               |  |                    |           |   |                  |  |           |          |  |  |           |  
|Risk-free interest rate        |  |                    | 1.01      |   |                  |  | 1.12      |          |  |  | 1.01      |   |  |  | 1.12      |  
|Weighted average expected life |  |                    | 0.6 years |   |                  |  | 0.6 years |          |  |  | 0.6 years |   |  |  | 0.6 years |  
|Volatility                     |  |                    | 76        | % |                  |  | 78        | %        |  |  | 76        | % |  |  | 78        | %
|Dividend yield                 |  |                    |          |   |                  |  |          |          |  |  |          |   |  |  |          |  



8



---



##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





|   |                                    
|-- | -----------------------------------
|2. | Restatement of Financial Statements







9



---



##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                |  |                     |            |   |             |   |            |  
|----------------------------------------------- |  | ------------------- | ---------- | - | ----------- | - | ---------- | -
|                                                |  | As of June 26, 2004 |           
|                                                |  |                     |           
|Changes to Condensed Consolidated Balance Sheet |  | As Reported         |            |   | As Restated |  
|                                                |  |                     |            |   |             |  
|Goodwill                                        |  | $                   | 813,951    |   |             | $ | 628,463    |  
|Accrued and other liabilities                   |  |                     | 322,451    |   |             |   | 313,676    |  
|Deferred taxes                                  |  |                     | 196,455    |   |             |   |           |  
|Other liabilities                               |  |                     | 179,291    |   |             |   | 173,643    |  
|Accumulated deficit                             |  | $                   | (1,654,855 | ) |             | $ | (1,629,465 | )

|                                                           |  |                     |         |   |                     |   |         |             |  |   |             |   |  |   |         |  
|---------------------------------------------------------- |  | ------------------- | ------- | - | ------------------- | - | ------- | ----------- |  | - | ----------- | - |  | - | ------- | -
|                                                           |  | Three Months Ended  |         |   | Six Months Ended    |  
|                                                           |  | as of June 26, 2004 |         |   | as of June 26, 2004 |  
|                                                           |  |                     |         |   |                     |  
|Changes to Condensed Consolidated Statements of Operations |  | As Reported         |         |   | As Restated         |   |         | As Reported |  |   | As Restated |  
|                                                           |  |                     |         |   |                     |   |         |             |  |   |             |  
|Research and development                                   |  | $                   | 80,615  |   |                     | $ | 81,191  |             |  | $ | 165,385     |   |  | $ | 166,294 |  
|Interest expense                                           |  |                     | (7,364  | ) |                     |   | (7,141  | )           |  |   | (16,196     | ) |  |   | (16,073 | )
|Net loss                                                   |  | $                   | (26,098 | ) |                     | $ | (26,451 | )           |  | $ | (16,935     | ) |  | $ | (17,721 | )

|                                                           |  |                     |        |   |                     |   |        |             |  |   |             |   |  |   |         |  
|---------------------------------------------------------- |  | ------------------- | ------ | - | ------------------- | - | ------ | ----------- |  | - | ----------- | - |  | - | ------- | -
|                                                           |  | Three Months Ended  |        |   | Six Months Ended    |  
|                                                           |  | as of June 28, 2003 |        |   | as of June 28, 2003 |  
|                                                           |  |                     |        |   |                     |  
|Changes to Condensed Consolidated Statements of Operations |  | As Reported         |        |   | As Restated         |   |        | As Reported |  |   | As Restated |  
|                                                           |  |                     |        |   |                     |   |        |             |  |   |             |  
|Research and development                                   |  | $                   | 84,218 |   |                     | $ | 84,752 |             |  | $ | 170,879     |   |  | $ | 171,777 |  
|Interest expense                                           |  |                     | (8,325 | ) |                     |   | (8,126 | )           |  |   | (13,747     | ) |  |   | (13,703 | )
|Net income                                                 |  | $                   | 6,196  |   |                     | $ | 5,861  |             |  | $ | 33,604      |   |  | $ | 32,750  |  
|Net income per share  basic                               |  | $                   | 0.03   |   |                     | $ | 0.02   |             |  |   |             |   |  |   |         |  
|Net income per share  diluted                             |  | $                   | 0.03   |   |                     | $ | 0.02   |             |  | $ | 0.14        |   |  | $ | 0.13    |  



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

|                            |                                                            |                |         |         |              |   |         |         | 
|--------------------------- | ---------------------------------------------------------- | -------------- | ------- | ------- | ------------ | - | ------- | ------- | 
|                            |                                                            | June 26,       |         |         | December 27, |  
|                            |                                                            | 2004           |         |         | 2003         |  
|                            |                                                            |                |         |         |              |  
|                            |                                                            | (In thousands) |        
|Inventories:                |                                                            |                |         |         |              |   |         |        
|                            | Raw materials                                              |                | $       | 65,627  |              |   | $       | 56,132  | 
|                            | Work-in-process                                            |                |         | 41,486  |              |   |         | 44,650  | 
|                            | Finished goods                                             |                |         | 152,226 |              |   |         | 117,229 | 
|                            |                                                            |                |         |         |              |  
|                            |                                                            | $              | 259,339 |         |              | $ | 218,011 |        
|                            |                                                            |                |         |         |              |  
|Prepaid expenses and other: |                                                            |                |         |         |              |   |         |        
|                            | Investments in marketable equity securities, at fair value |                | $       | 13,649  |              |   | $       | 15,536  | 
|                            | Prepaid expenses and other                                 |                |         | 23,525  |              |   |         | 22,765  | 
|                            |                                                            |                |         |         |              |  
|                            |                                                            | $              | 37,174  |         |              | $ | 38,301  |        
|                            |                                                            |                |         |         |              |  

10



---



##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                               |                                              |                |           |         |              |   |          |         | 
|---------------------------------------------- | -------------------------------------------- | -------------- | --------- | ------- | ------------ | - | -------- | ------- | 
|                                               |                                              | June 26,       |           |         | December 27, |  
|                                               |                                              | 2004           |           |         | 2003         |  
|                                               |                                              |                |           |         |              |  
|                                               |                                              | (In thousands) |          
|Property, plant and equipment, at cost:        |                                              |                |           |         |              |   |          |        
|                                               | Buildings                                    |                | $         | 166,202 |              |   | $        | 152,381 | 
|                                               | Machinery and equipment                      |                |           | 639,965 |              |   |          | 608,735 | 
|                                               | Software                                     |                |           | 82,164  |              |   |          | 79,682  | 
|                                               | Furniture and fixtures                       |                |           | 26,480  |              |   |          | 26,583  | 
|                                               | Leasehold improvements                       |                |           | 87,333  |              |   |          | 86,430  | 
|                                               |                                              |                |           |         |              |  
|                                               |                                              | $              | 1,002,144 |         |              | $ | 953,811  |        
|Less accumulated depreciation and amortization |                                              |                | (634,476  | )       |              |   | (611,132 | )      
|                                               |                                              |                |           |         |              |  
|Net property, plant and equipment              |                                              | $              | 367,668   |         |              | $ | 342,679  |        
|                                               |                                              |                |           |         |              |  
|Accrued and other liabilities:                 |                                              |                |           |         |              |   |          |        
|                                               | Income taxes payable                         |                | $         | 21,830  |              |   | $        | 23,763  | 
|                                               | Accrued payroll and payroll-related expenses |                |           | 55,994  |              |   |          | 132,967 | 
|                                               | Accrued warranty                             |                |           | 179,612 |              |   |          | 209,426 | 
|                                               | Restructuring liabilities, short-term        |                |           | 9,303   |              |   |          | 9,096   | 
|                                               | Accrued expenses (Restated)(1)               |                |           | 47,629  |              |   |          | 71,811  | 
|                                               |                                              |                |           |         |              |  
|                                               |                                              | $              | 314,368   |         |              | $ | 447,063  |        
|                                               |                                              |                |           |         |              |  
|Other liabilities:                             |                                              |                |           |         |              |   |          |        
|                                               | Tax indemnification liability                |                | $         | 134,025 |              |   | $        | 135,559 | 
|                                               | Restructuring liabilities, long-term         |                |           | 38,951  |              |   |          | 29,727  | 
|                                               | Other (Restated)(1)                          |                |           | 667     |              |   |          | 14,802  | 
|                                               |                                              |                |           |         |              |  
|                                               |                                              | $              | 173,643   |         |              | $ | 180,088  |        
|                                               |                                              |                |           |         |              |  






|    |                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------
|(1) | For additional information regarding the restatement, see
    note 2 of the Notes to Condensed Consolidated Financial
    Statements.





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





11



---



##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                              |                     |                      |   |                |          |   |                   |              |         |   |          |        |          |        |         |             |              |   |         |       |         |   |          |        |         |   |         |       |        | 
|----------------------------- | ------------------- | -------------------- | - | -------------- | -------- | - | ----------------- | ------------ | ------- | - | -------- | ------ | -------- | ------ | ------- | ----------- | ------------ | - | ------- | ----- | ------- | - | -------- | ------ | ------- | - | ------- | ----- | ------ | 
|                              |                     |                      |   | June 26, 2004  |          |   | December 27, 2003 |             
|                              |                     |                      |   |                |          |   |                   |             
|                              |                     |                      |   | Gross          |          |   |                   |              | Gross   |   |          |       
|                              |                     | Useful               |   |                | Carrying |   |                   | Accumulated  |         |   |          |        | Carrying |        |         | Accumulated |              |   |        
|                              |                     | Life                 |   |                | Amount   |   |                   | Amortization |         |   | Net      |        |          | Amount |         |             | Amortization |   |         | Net   |        
|                              |                     |                      |   |                |          |   |                   |              |         |   |          |        |          |        |         |             |              |   |         |       |        
|                              |                     | (Years)              |   |                |          |   |                  
|                              |                     |                      |   | (In thousands) |          |   | (In thousands)    |             
|Goodwill (Restated)(1)        |                     |                      |  |                |          | $ | 628,463           |              |         | $ |         |        |          | $      | 628,463 |             |              | $ | 628,463 |       |         | $ |         |        |         | $ | 628,463 |      
|                              |                     |                      |   |                |          |   |                   |              |         |   |          |        |          |        |         |             |              |   |         |       |        
|Quantum HDD                   |                     |                      |   |                |          |   |                   |              |         |   |          |        |          |        |         |             |              |   |         |       |         |   |          |        |         |   |         |      
|                              | Existing Technology |                      |   |                |          |   |                   |              |         |   |          |        |          |        |         |             |              |   |         |       |         |   |          |        |         |   |         |       |       
|                              |                     | Core technology      |   |                | 5        |   |                   | $            | 96,700  |   |          | $      | (62,855  | )      |         | $           | 33,845       |   |         | $     | 96,700  |   |          | $      | (53,185 | ) |         | $     | 43,515 | 
|                              |                     | Consumer electronics |   |                | 3        |   |                   |              | 8,900   |   |          |        | (8,900   | )      |         |             |             |   |         |       | 8,900   |   |          |        | (8,158  | ) |         |       | 742    | 
|                              |                     | High-end             |   |                | 3        |   |                   |              | 75,500  |   |          |        | (75,500  | )      |         |             |             |   |         |       | 75,500  |   |          |        | (69,208 | ) |         |       | 6,292  | 
|                              |                     | Desktop              |   |                | 3        |   |                   |              | 105,000 |   |          |        | (105,000 | )      |         |             |             |   |         |       | 105,000 |   |          |        | (96,250 | ) |         |       | 8,750  | 
|                              |                     |                      |   |                |          |   |                   |              |         |   |          |        |          |        |         |             |              |   |         |       |        
|MMC Technology                |                     |                      |   |                |          |   |                   |              |         |   |          |        |          |        |         |             |              |   |         |       |         |   |          |        |         |   |         |      
|                              | Existing technology |                      |   | 5              |          |   |                   | 4,350        |         |   |          | (2,465 | )        |        |         | 1,885       |              |   |         | 4,350 |         |   |          | (2,030 | )       |   |         | 2,320 |       
|                              |                     |                      |   |                |          |   |                   |              |         |   |          |        |          |        |         |             |              |   |         |       |        
|Total other intangible assets |                     |                      |   |                |          | $ | 290,450           |              |         | $ | (254,720 | )      |          | $      | 35,730  |             |              | $ | 290,450 |       |         | $ | (228,831 | )      |         | $ | 61,619  |      
|                              |                     |                      |   |                |          |   |                   |              |         |   |          |        |          |        |         |             |              |   |         |       |        






|    |                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------
|(1) | For additional information regarding the restatement, see
    note 2 of the Notes to Condensed Consolidated Financial
    Statements.





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



|                                                |  |          |         |   |              |   |         |  
|----------------------------------------------- |  | -------- | ------- | - | ------------ | - | ------- | -
|                                                |  | June 26, |         |   | December 27, |  
|                                                |  | 2004     |         |   | 2003         |  
|                                                |  |          |         |   |              |  
|6.8% Convertible Senior Notes due 2010          |  | $        | 230,000 |   |              | $ | 230,000 |  
|5.75% Subordinated Debentures due March 1, 2012 |  |          | 59,311  |   |              |   | 59,352  |  
|Receivable-backed Borrowing                     |  |          | 50,000  |   |              |   | 50,000  |  
|Manufacturing Facility Loan, Suzhou, China      |  |          | 30,000  |   |              |   | 15,000  |  
|Economic Development Board of Singapore Loans   |  |          | 30,206  |   |              |   | 24,138  |  
|Mortgages                                       |  |          | 33,391  |   |              |   | 34,164  |  
|Equipment Loans and Capital Leases              |  |          | 11,473  |   |              |   | 20,192  |  
|                                                |  |          |         |   |              |  
|                                                |  |          | 444,381 |   |              |   | 432,846 |  
|Less amounts due within one year                |  |          | (72,976 | ) |              |   | (77,037 | )
|                                                |  |          |         |   |              |  
|                                                |  | $        | 371,405 |   |              | $ | 355,809 |  
|                                                |  |          |         |   |              |  

12



---



##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










13



---



##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)
















|   |           
|-- | ----------
|6. | Guarantees



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



14



---



##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



|                                            |  |                    |         |   |                  |   |         |          |  |   |          |   |  |   |         |  
|------------------------------------------- |  | ------------------ | ------- | - | ---------------- | - | ------- | -------- |  | - | -------- | - |  | - | ------- | -
|                                            |  | Three Months Ended |         |   | Six Months Ended |  
|                                            |  |                    |         |   |                  |  
|                                            |  | June 26,           |         |   | June 28,         |   |         | June 26, |  |   | June 28, |  
|                                            |  | 2004               |         |   | 2003             |   |         | 2004     |  |   | 2003     |  
|                                            |  |                    |         |   |                  |   |         |          |  |   |          |  
|Balance at beginning of period              |  | $                  | 191,325 |   |                  | $ | 266,583 |          |  | $ | 209,426  |   |  | $ | 278,713 |  
|Charges to operations                       |  |                    | 40,403  |   |                  |   | 35,567  |          |  |   | 79,834   |   |  |   | 96,391  |  
|Settlements                                 |  |                    | (48,689 | ) |                  |   | (45,100 | )        |  |   | (105,196 | ) |  |   | (94,136 | )
|Changes in estimates, primarily expirations |  |                    | (3,427  | ) |                  |   | (389    | )        |  |   | (4,452   | ) |  |   | (24,307 | )
|                                            |  |                    |         |   |                  |   |         |          |  |   |          |  
|Balance at end of period                    |  | $                  | 179,612 |   |                  | $ | 256,661 |          |  | $ | 179,612  |   |  | $ | 256,661 |  
|                                            |  |                    |         |   |                  |   |         |          |  |   |          |  



|   |                        
|-- | -----------------------
|7. | Quantum HDD Acquisition





15



---



##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                             |  |             |      |               |          |   |       |       |             |   |       |   |  |   |       |  
|---------------------------- |  | ----------- | ---- | ------------- | -------- | - | ----- | ----- | ----------- | - | ----- | - |  | - | ----- | -
|                             |  |             |      | Severance     |          |   |       |       |            
|                             |  | Facility    |      |               | and      |   |       | Other |             |   |      
|                             |  | Costs       |      |               | Benefits |   |       | Costs |             |   | Total |  
|                             |  |             |      |               |          |   |       |       |             |   |       |  
|                             |  | Restated(1) |      |               |          |   |       |       | Restated(1) |  
|                             |  |             |      | (In millions) |          |   |      
|Provision at April 2, 2001   |  | $           | 45.3 |               |          | $ | 29.2  |       |             | $ | 12.7  |   |  | $ | 87.2  |  
|Amounts paid                 |  |             | (0.9 | )             |          |   | (15.5 | )     |             |   | (12.7 | ) |  |   | (29.1 | )
|                             |  |             |      |               |          |   |       |       |             |   |       |  
|Balance at December 29, 2001 |  |             | 44.4 |               |          |   | 13.7  |       |             |   |      |   |  |   | 58.1  |  
|Amounts paid                 |  |             | (4.5 | )             |          |   | (13.7 | )     |             |   |      |   |  |   | (18.2 | )
|                             |  |             |      |               |          |   |       |       |             |   |       |  
|Balance at December 28, 2002 |  |             | 39.9 |               |          |   |      |       |             |   |      |   |  |   | 39.9  |  
|Amounts paid                 |  |             | (8.5 | )             |          |   |      |       |             |   |      |   |  |   | (8.5  | )
|                             |  |             |      |               |          |   |       |       |             |   |       |  
|Balance at December 27, 2003 |  |             | 31.4 |               |          |   |      |       |             |   |      |   |  |   | 31.4  |  
|Amounts paid                 |  |             | (1.9 | )             |          |   |      |       |             |   |      |   |  |   | (1.9  | )
|                             |  |             |      |               |          |   |       |       |             |   |       |  
|Balance at March 27, 2004    |  |             | 29.5 |               |          |   |      |       |             |   |      |   |  |   | 29.5  |  
|Amounts paid                 |  |             | (1.8 | )             |          |   |      |       |             |   |      |   |  |   | (1.8  | )
|                             |  |             |      |               |          |   |       |       |             |   |       |  
|Balance at June 26, 2004     |  | $           | 27.7 |               |          | $ |      |       |             | $ |      |   |  | $ | 27.7  |  
|                             |  |             |      |               |          |   |       |       |             |   |       |  






|    |                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------
|(1) | For additional information regarding the restatement, see
    note 2 of the Notes to Condensed Consolidated Financial
    Statements.





|   |                        
|-- | -----------------------
|8. | Discontinued Operations

tm




|   |              
|-- | -------------
|9. | Restructuring



16



---



##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                            
|--- | ---------------------------
|10. | Net Income (Loss) Per Share



|                                                   |                                         |                    |             |   |                  |   |             |             |  |   |             |   |  |   |             |           | 
|-------------------------------------------------- | --------------------------------------- | ------------------ | ----------- | - | ---------------- | - | ----------- | ----------- |  | - | ----------- | - |  | - | ----------- | --------- | 
|                                                   |                                         | Three Months Ended |             |   | Six Months Ended |  
|                                                   |                                         |                    |             |   |                  |  
|                                                   |                                         | June 26,           |             |   | June 28,         |   |             | June 26,    |  |   | June 28,    |  
|                                                   |                                         | 2004               |             |   | 2003             |   |             | 2004        |  |   | 2003        |  
|                                                   |                                         |                    |             |   |                  |   |             |             |  |   |             |  
|                                                   |                                         | Restated(1)        |             |   | Restated(1)      |   |             | Restated(1) |  |   | Restated(1) |  
|Numerator  Basic and Diluted                      |                                         |                    |             |   |                  |   |             |             |  |   |             |   |  |   |             |          
|Net income (loss)                                  |                                         | $                  | (26,451     | ) |                  | $ | 5,861       |             |  | $ | (17,721     | ) |  | $ | 32,750      |          
|                                                   |                                         |                    |             |   |                  |   |             |             |  |   |             |  
|Net income (loss) available to common stockholders |                                         | $                  | (26,451     | ) |                  | $ | 5,861       |             |  | $ | (17,721     | ) |  | $ | 32,750      |          
|                                                   |                                         |                    |             |   |                  |   |             |             |  |   |             |  
|Denominator                                        |                                         |                    |             |   |                  |   |             |             |  |   |             |   |  |   |             |          
|Basic weighted average common shares outstanding   |                                         |                    | 247,367,176 |   |                  |   | 241,120,075 |             |  |   | 246,981,817 |   |  |   | 242,382,530 |          
|Effect of dilutive securities:                     |                                         |                    |             |   |                  |   |             |             |  |   |             |   |  |   |             |          
|                                                   | Common stock options                    |                    |             |  |                  |   |             | 4,043,577   |  |   |             |  |  |   |             | 3,521,206 | 
|                                                   | Restricted shares subject to repurchase |                    |             |  |                  |   |             | 96,179      |  |   |             |  |  |   |             | 96,179    | 
|                                                   |                                         |                    |             |   |                  |   |             |             |  |   |             |  
|Diluted weighted average common shares             |                                         |                    | 247,367,176 |   |                  |   | 245,259,831 |             |  |   | 246,981,817 |   |  |   | 245,999,915 |          
|                                                   |                                         |                    |             |   |                  |   |             |             |  |   |             |  
|Net income (loss) per share  basic                |                                         | $                  | (0.11       | ) |                  | $ | 0.02        |             |  | $ | (0.07       | ) |  | $ | 0.14        |          
|Net income (loss) per share  diluted              |                                         | $                  | (0.11       | ) |                  | $ | 0.02        |             |  | $ | (0.07       | ) |  | $ | 0.13        |          






|    |                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------
|(1) | For additional information regarding the restatement, see
    note 2 of the Notes to Condensed Consolidated Financial
    Statements.



|                                                                                                   |  |                    |            |  |                  |  |            |          |  |  |            |  |  |  |            | 
|-------------------------------------------------------------------------------------------------- |  | ------------------ | ---------- |  | ---------------- |  | ---------- | -------- |  |  | ---------- |  |  |  | ---------- | 
|                                                                                                   |  | Three Months Ended |            |  | Six Months Ended | 
|                                                                                                   |  |                    |            |  |                  | 
|                                                                                                   |  | June 26,           |            |  | June 28,         |  |            | June 26, |  |  | June 28,   | 
|                                                                                                   |  | 2004               |            |  | 2003             |  |            | 2004     |  |  | 2003       | 
|                                                                                                   |  |                    |            |  |                  |  |            |          |  |  |            | 
|Common stock options                                                                               |  |                    | 26,988,243 |  |                  |  | 13,825,057 |          |  |  | 26,988,243 |  |  |  | 13,825,057 | 
|Restricted shares subject to repurchase                                                            |  |                    | 75,000     |  |                  |  |           |          |  |  | 75,000     |  |  |  |           | 
|As-if converted shares related to 6.8% Convertible Senior
    Notes due 2010 issued on May 7, 2003 |  |                    | 18,756,362 |  |                  |  | 18,756,362 |          |  |  | 18,756,362 |  |  |  | 18,756,362 | 



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



17



---



##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                                             |  |                    |         |   |                  |   |        |             |  |   |             |   |  |   |        | 
|---------------------------------------------------------------------------- |  | ------------------ | ------- | - | ---------------- | - | ------ | ----------- |  | - | ----------- | - |  | - | ------ | 
|                                                                             |  | Three Months Ended |         |   | Six Months Ended |  
|                                                                             |  |                    |         |   |                  |  
|                                                                             |  | June 26,           |         |   | June 28,         |   |        | June 26,    |  |   | June 28,    |  
|                                                                             |  | 2004               |         |   | 2003             |   |        | 2004        |  |   | 2003        |  
|                                                                             |  |                    |         |   |                  |   |        |             |  |   |             |  
|                                                                             |  | Restated(1)        |         |   | Restated(1)      |   |        | Restated(1) |  |   | Restated(1) |  
|Net income (loss)                                                            |  | $                  | (26,451 | ) |                  | $ | 5,861  |             |  | $ | (17,721     | ) |  | $ | 32,750 | 
|Unrealized gain (loss) on investments in securities                          |  |                    | (1,636  | ) |                  |   | 11,118 |             |  |   | (2,501      | ) |  |   | 12,917 | 
|Less: reclassification adjustment for gain included in net
    income (loss) |  |                    | 1       |   |                  |   | 28     |             |  |   | 33          |   |  |   | 116    | 
|                                                                             |  |                    |         |   |                  |   |        |             |  |   |             |  
|Comprehensive income (loss)                                                  |  | $                  | (28,088 | ) |                  | $ | 16,951 |             |  | $ | (20,255     | ) |  | $ | 45,551 | 
|                                                                             |  |                    |         |   |                  |   |        |             |  |   |             |  






|    |                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------
|(1) | For additional information regarding the restatement, see
    note 2 of the Notes to Condensed Consolidated Financial
    Statements.



|    |                                                   
|--- | --------------------------------------------------
|12. | Segment, Geography and Major Customers Information









18



---



##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                               |  |                    |         |  |                  |   |         |          |  |   |           |  |  |   |           | 
|------------------------------ |  | ------------------ | ------- |  | ---------------- | - | ------- | -------- |  | - | --------- |  |  | - | --------- | 
|                               |  | Three Months Ended |         |  | Six Months Ended |  
|                               |  |                    |         |  |                  |  
|                               |  | June 26,           |         |  | June 28,         |   |         | June 26, |  |   | June 28,  | 
|                               |  | 2004               |         |  | 2003             |   |         | 2004     |  |   | 2003      | 
|                               |  |                    |         |  |                  |   |         |          |  |   |           | 
|United States                  |  | $                  | 282,506 |  |                  | $ | 304,469 |          |  | $ | 601,153   |  |  | $ | 608,438   | 
|Asia Pacific and Japan         |  |                    | 270,295 |  |                  |   | 288,434 |          |  |   | 577,132   |  |  |   | 571,761   | 
|Europe, Middle East and Africa |  |                    | 246,401 |  |                  |   | 298,424 |          |  |   | 627,635   |  |  |   | 629,017   | 
|Latin America and other        |  |                    | 19,052  |  |                  |   | 19,576  |          |  |   | 32,022    |  |  |   | 40,576    | 
|                               |  |                    |         |  |                  |   |         |          |  |   |           | 
|Total                          |  | $                  | 818,254 |  |                  | $ | 910,903 |          |  | $ | 1,837,942 |  |  | $ | 1,849,792 | 
|                               |  |                    |         |  |                  |   |         |          |  |   |           | 



|                               |  |             |           |  |              |   |           | 
|------------------------------ |  | ----------- | --------- |  | ------------ | - | --------- | 
|                               |  | June 26,    |           |  | December 27, |  
|                               |  | 2004        |           |  | 2003         |  
|                               |  |             |           |  |              |  
|                               |  | Restated(1) |           |  | Restated(1)  |  
|United States                  |  | $           | 896,022   |  |              | $ | 916,401   | 
|Asia Pacific and Japan         |  |             | 169,403   |  |              |   | 129,380   | 
|Europe, Middle East and Africa |  |             | 573       |  |              |   | 731       | 
|Latin America and other        |  |             | 211       |  |              |   | 157       | 
|                               |  |             |           |  |              |  
|Total                          |  | $           | 1,066,209 |  |              | $ | 1,046,669 | 
|                               |  |             |           |  |              |  






|    |                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------
|(1) | For additional information regarding the restatement, see
    note 2 of the Notes to Condensed Consolidated Financial
    Statements.





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







19



---



##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












20



---



##### Table of Contents



MAXTOR CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|    |                      
|--- | ---------------------
|14. | Litigation Settlement





|    |                          
|--- | -------------------------
|15. | Related Party Transaction





|    |                 
|--- | ----------------
|16. | Subsequent Event



21



---



##### Table of Contents








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





Restatement






22



---



##### Table of Contents





Background










tm




23



---



##### Table of Contents





Executive Overview












Critical Accounting Policies




24



---



##### Table of Contents







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



Results of Operations




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

|                                |  |                    |       |    |          |   |                  |        |  |          |       |   |          |      |         |    |        |   |         |   |  |   |       |  
|------------------------------- |  | ------------------ | ----- | -- | -------- | - | ---------------- | ------ |  | -------- | ----- | - | -------- | ---- | ------- | -- | ------ | - | ------- | - |  | - | ----- | -
|                                |  | Three Months Ended |       |    |          |   | Six Months Ended |        |  |         
|                                |  |                    |       |    |          |   |                  |        |  |         
|                                |  | June 26,           |       |    | June 28, |   |                  |        |  | June 26, |       |   | June 28, |      |         |   
|                                |  | 2004               |       |    | 2003     |   |                  | Change |  |          | 2004  |   |          | 2003 |         |    | Change |  
|                                |  |                    |       |    |          |   |                  |        |  |          |       |   |          |      |         |    |        |  
|                                |  | (In millions)      |       |    |          |   | (In millions)    |        |  |         
|Total revenues                  |  | $                  | 818.3 |    |          | $ | 910.9            |        |  | $        | (92.6 | ) |          | $    | 1,837.9 |    |        | $ | 1,849.8 |   |  | $ | (11.9 | )
|Gross profit                    |  | $                  | 73.8  |    |          | $ | 149.2            |        |  | $        | (75.4 | ) |          | $    | 228.8   |    |        | $ | 321.1   |   |  | $ | (92.3 | )
|Net income (loss) (Restated)(1) |  | $                  | (26.5 | )  |          | $ | 5.9              |        |  | $        | (32.4 | ) |          | $    | (17.7   | )  |        | $ | 32.8    |   |  | $ | (50.5 | )
|As a percentage of revenue:     |  |                    |       |    |          |   |                  |        |  |          |       |   |          |      |         |    |        |   |         |   |  |   |       |  
|Total revenues                  |  |                    | 100.0 | %  |          |   | 100.0            | %      |  |          |       |   |          |      | 100.0   | %  |        |   | 100.0   | % |  |   |       |  
|Gross profit                    |  |                    | 9.0   | %  |          |   | 16.4             | %      |  |          |       |   |          |      | 12.4    | %  |        |   | 17.4    | % |  |   |       |  
|Net income (loss) (Restated)(1) |  |                    | (3.2  | )% |          |   | 0.6              | %      |  |          |       |   |          |      | (1.0    | )% |        |   | 1.8     | % |  |   |       |  






|    |                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------
|(1) | For additional information regarding the restatement, see
    note 2 of the Notes to Condensed Consolidated Financial
    Statements.

Revenues.




25



---



##### Table of Contents



















26



---



##### Table of Contents







| |                               
| | ------------------------------
| | Cost of Revenues; Gross Profit



Operating Expenses


|                                       |  |                    |      |   |          |   |                  |        |  |          |       |   |          |      |       |   |        |   |       |   |  |   |       |  
|-------------------------------------- |  | ------------------ | ---- | - | -------- | - | ---------------- | ------ |  | -------- | ----- | - | -------- | ---- | ----- | - | ------ | - | ----- | - |  | - | ----- | -
|                                       |  | Three Months Ended |      |   |          |   | Six Months Ended |        |  |         
|                                       |  |                    |      |   |          |   |                  |        |  |         
|                                       |  | June 26,           |      |   | June 28, |   |                  |        |  | June 26, |       |   | June 28, |      |       |  
|                                       |  | 2004               |      |   | 2003     |   |                  | Change |  |          | 2004  |   |          | 2003 |       |   | Change |  
|                                       |  |                    |      |   |          |   |                  |        |  |          |       |   |          |      |       |   |        |  
|                                       |  | (In millions)      |      |   |          |   | (In millions)    |        |  |         
|Research and development (Restated)(1) |  | $                  | 81.2 |   |          | $ | 84.8             |        |  | $        | (3.6  | ) |          | $    | 166.3 |   |        | $ | 171.8 |   |  | $ | (5.5  | )
|Selling, general and administrative    |  | $                  | 32.4 |   |          | $ | 31.0             |        |  | $        | 1.4   |   |          | $    | 64.9  |   |        | $ | 62.9  |   |  | $ | 2.0   |  
|Amortization of intangible assets      |  | $                  | 5.1  |   |          | $ | 20.6             |        |  | $        | (15.5 | ) |          | $    | 25.9  |   |        | $ | 41.1  |   |  | $ | (15.2 | )
|As a percentage of revenue:            |  |                    |      |   |          |   |                  |        |  |          |       |   |          |      |       |   |        |   |       |   |  |   |       |  
|Research and development (Restated)(1) |  |                    | 9.9  | % |          |   | 9.3              | %      |  |          |       |   |          |      | 9.0   | % |        |   | 9.3   | % |  |   |       |  
|Selling, general and administrative    |  |                    | 4.0  | % |          |   | 3.4              | %      |  |          |       |   |          |      | 3.5   | % |        |   | 3.4   | % |  |   |       |  
|Amortization of intangible assets      |  |                    | 0.6  | % |          |   | 2.3              | %      |  |          |       |   |          |      | 1.4   | % |        |   | 2.2   | % |  |   |       |  






|    |                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------
|(1) | For additional information regarding the restatement, see
    note 2 of the Notes to Condensed Consolidated Financial
    Statements.



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



27



---



##### Table of Contents







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







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





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



28



---



##### Table of Contents





|                                       |  |                    |   |          |                  |   |          |  |          |   |   |  |  |   |     | 
|-------------------------------------- |  | ------------------ | - | -------- | ---------------- | - | -------- |  | -------- | - | - |  |  | - | --- | 
|                                       |  | Three Months Ended |   |          | Six Months Ended |  
|                                       |  |                    |   |          |                  |  
|                                       |  | June 26,           |   | June 28, |                  |   | June 26, |  | June 28, |  
|                                       |  | 2004               |   | 2003     |                  |   | 2004     |  | 2003     |  
|                                       |  |                    |   |          |                  |   |          |  |          |  
|                                       |  | (In millions)      |   |          | (In millions)    |  
|Cost of revenues                       |  | $                  |  |          |                  | $ |         |  |          | $ |  |  |  | $ |    | 
|Research and development               |  |                    |  |          |                  |   | 0.2      |  |          |   |  |  |  |   | 0.3 | 
|Selling, general and administrative    |  |                    |  |          |                  |   |         |  |          |   |  |  |  |   | 0.1 | 
|                                       |  |                    |   |          |                  |   |          |  |          |   |   | 
|Total stock-based compensation expense |  | $                  |  |          |                  | $ | 0.2      |  |          | $ |  |  |  | $ | 0.4 | 
|                                       |  |                    |   |          |                  |   |          |  |          |   |   | 





| |                                  
| | ---------------------------------
| | Amortization of Intangible Assets







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





29



---



##### Table of Contents





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

|                                  |  |                    |      |   |          |   |                  |        |  |          |      |   |          |      |       |   |        |   |       |   |  |   |      |  
|--------------------------------- |  | ------------------ | ---- | - | -------- | - | ---------------- | ------ |  | -------- | ---- | - | -------- | ---- | ----- | - | ------ | - | ----- | - |  | - | ---- | -
|                                  |  | Three Months Ended |      |   |          |   | Six Months Ended |        |  |         
|                                  |  |                    |      |   |          |   |                  |        |  |         
|                                  |  | June 26,           |      |   | June 28, |   |                  |        |  | June 26, |      |   | June 28, |      |       |  
|                                  |  | 2004               |      |   | 2003     |   |                  | Change |  |          | 2004 |   |          | 2003 |       |   | Change |  
|                                  |  |                    |      |   |          |   |                  |        |  |          |      |   |          |      |       |   |        |  
|                                  |  | (In millions)      |      |   |          |   | (In millions)    |        |  |         
|Interest expense (Restated)(1)    |  | $                  | (7.1 | ) |          | $ | (8.1             | )      |  | $        | (1.0 | ) |          | $    | (16.1 | ) |        | $ | (13.7 | ) |  | $ | 2.4  |  
|Interest income                   |  | $                  | 1.0  |   |          | $ | 1.5              |        |  | $        | (0.5 | ) |          | $    | 2.4   |   |        | $ | 2.6   |   |  | $ | (0.2 | )
|Income from litigation settlement |  | $                  | 24.8 |   |          | $ |                 |        |  | $        | 24.8 |   |          | $    | 24.8  |   |        | $ |      |   |  | $ | 24.8 |  
|Other gain                        |  | $                  |     |   |          | $ |                 |        |  | $        |     |   |          | $    |      |   |        | $ | 0.2   |   |  | $ | (0.2 | )
|As a percentage of revenue:       |  |                    |      |   |          |   |                  |        |  |          |      |   |          |      |       |   |        |   |       |   |  |   |      |  
|Interest expense (Restated(1)     |  |                    | 0.9  | % |          |   | 0.9              | %      |  |          |      |   |          |      | 0.9   | % |        |   | 0.7   | % |  |   |      |  
|Interest income                   |  |                    | 0.1  | % |          |   | 0.2              | %      |  |          |      |   |          |      | 0.1   | % |        |   | 0.2   | % |  |   |      |  
|Income from settlement            |  |                    | 3.0  | % |          |   | 0.0              | %      |  |          |      |   |          |      | 1.3   | % |        |   | 0.0   | % |  |   |      |  
|Other gain                        |  |                    | 0.0  | % |          |   | 0.0              | %      |  |          |      |   |          |      | 0.0   | % |        |   | 0.1   | % |  |   |      |  






|    |                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------
|(1) | For additional information regarding the restatement, see
    note 2 of the Notes to Condensed Consolidated Financial
    Statements.



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





| |                
| | ---------------
| | Interest Income





| |                                  
| | ---------------------------------
| | Income from Litigation Settlement





| |           
| | ----------
| | Other Gain



30



---



##### Table of Contents





| |                           
| | --------------------------
| | Provision for Income Taxes

|                                                              |  |                    |       |   |          |   |                  |        |  |          |       |   |          |      |       |   |        |   |      |  |  |   |       |  
|------------------------------------------------------------- |  | ------------------ | ----- | - | -------- | - | ---------------- | ------ |  | -------- | ----- | - | -------- | ---- | ----- | - | ------ | - | ---- |  |  | - | ----- | -
|                                                              |  | Three Months Ended |       |   |          |   | Six Months Ended |        |  |         
|                                                              |  |                    |       |   |          |   |                  |        |  |         
|                                                              |  | June 26,           |       |   | June 28, |   |                  |        |  | June 26, |       |   | June 28, |      |       |  
|                                                              |  | 2004               |       |   | 2003     |   |                  | Change |  |          | 2004  |   |          | 2003 |       |   | Change |  
|                                                              |  |                    |       |   |          |   |                  |        |  |          |       |   |          |      |       |   |        |  
|                                                              |  | (In millions)      |       |   |          |   | (In millions)    |        |  |         
|Income (loss) before provision for income taxes (Restated)(1) |  | $                  | (26.1 | ) |          | $ | 6.3              |        |  | $        | (32.4 | ) |          | $    | (17.1 | ) |        | $ | 34.5 |  |  | $ | (51.6 | )
|Provision for income taxes                                    |  | $                  | 0.3   |   |          | $ | 0.4              |        |  | $        | (0.1  | ) |          | $    | 0.6   |   |        | $ | 1.7  |  |  | $ | (1.1  | )






|    |                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------
|(1) | For additional information regarding the restatement, see
    note 2 of the Notes to Condensed Consolidated Financial
    Statements.







Liquidity and Capital Resources




31



---



##### Table of Contents

















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



|                          |  |          |           |           |        |   |         |           |           |           |         |         |  |        |         |  |  |   |         | 
|------------------------- |  | -------- | --------- | --------- | ------ | - | ------- | --------- | --------- | --------- | ------- | ------- |  | ------ | ------- |  |  | - | ------- | 
|                          |  |          |           |           |        |   |         |           |           | More than |        
|                          |  |          |           | Less than |        |   |         |           | 3-5 Years |           |         | 5 Years | 
|                          |  | Total(5) |           |           | 1 Year |   |         | 1-3 Years |           |           | (1)(2)  |         |  | (1)(2) |        
|                          |  |          |           |           |        |   |         |           |           |           |         |         |  |        |        
|Long-term Debt            |  | $        | 432,908   |           |        | $ | 65,287  |           |           | $         | 58,994  |         |  | $      | 44,316  |  |  | $ | 264,311 | 
|Capital Lease Obligations |  |          | 11,473    |           |        |   | 7,689   |           |           |           | 3,784   |         |  |        |        |  |  |   |        | 
|Operating Leases(3)       |  |          | 292,386   |           |        |   | 34,678  |           |           |           | 63,461  |         |  |        | 61,796  |  |  |   | 132,451 | 
|Purchase Obligations(4)   |  |          | 762,076   |           |        |   | 736,204 |           |           |           | 14,607  |         |  |        | 11,265  |  |  |   |        | 
|                          |  |          |           |           |        |   |         |           |           |           |         |         |  |        |        
|Total                     |  | $        | 1,498,843 |           |        | $ | 843,858 |           |           | $         | 140,846 |         |  | $      | 117,377 |  |  | $ | 396,762 | 
|                          |  |          |           |           |        |   |         |           |           |           |         |         |  |        |        

32



---



##### Table of Contents








|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Does not include $103 million which may be borrowed under a
    facility in a U.S.-dollar-denominated loan, to be secured by our
    facilities in Suzhou, China, drawable until April 2007, and
    repayable in eight semi- annual installments commencing October
    2007; the borrowings under this facility will bear interest at
    LIBOR plus 50 basis points (subject to adjustment to
    60 basis points).                                                                                                                                                                                                                                                      
|   
|(2) | Does not include $67 million which we are obligated to
    contribute to our China subsidiary to allow drawdowns under the
    facilities described under footnote (1).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(3) | Includes future minimum annual rental commitments, including
    amounts accrued as restructuring liabilities as of June 26,
    2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(4) | Purchase obligations are defined as contractual obligations for
    purchase of goods or services, which are enforceable and legally
    binding on the Company and that specify all significant terms,
    including fixed or minimum quantities to be purchased, fixed,
    minimum or variable price provisions and the approximate timing
    of the transaction. The expected timing of payment of the
    obligations set forth above is estimated based on current
    information. Timing of payments and actual amounts paid may be
    different depending on the time of receipt of goods or services
    or changes to agreed-upon amounts for some obligations.
|   
|(5) | We have excluded $134.0 million relating to our tax sharing
    indemnification agreement with Quantum Corporation as the time
    period within which the obligations may become due and owing is
    not specified.                                                                                                                                                                                                                                                                                                                                                                                                                                                       









33



---



##### Table of Contents







34



---



##### Table of Contents



CERTAIN FACTORS AFFECTING FUTURE PERFORMANCE




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





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





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





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



35



---



##### Table of Contents





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





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





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



36



---



##### Table of Contents







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





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





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





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



37



---



##### Table of Contents







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





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





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



38



---



##### Table of Contents











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







39



---



##### Table of Contents





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





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





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





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



40



---



##### Table of Contents







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









41



---



##### Table of Contents









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





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

42



---



##### Table of Contents





| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | significant unexpected duties or taxes or other adverse tax
    consequences;
|
| |  | difficulty in obtaining export licenses and other trade barriers;            
|
| |  | seasonality;                                                                 
|
| |  | increased transportation/shipping costs; and                                 
|
| |  | credit and access to capital issues faced by our international
    customers.





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



43



---



##### Table of Contents







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





| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We entered into a new asset securitization facility of up
    to $100 million which has certain financial covenants with
    which we will have to comply to use the facility.





| |                                                   
| | --------------------------------------------------
| | The loss of key personnel could harm our business.



44



---



##### Table of Contents







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





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





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



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



45



---



##### Table of Contents








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

Derivatives




Investments






|                      |  |          |         |    |          |   |         |            |  |   |         |    |  |         |         |  |          |   |         |          |  |   |         |   |  |   |         |  
|--------------------- |  | -------- | ------- | -- | -------- | - | ------- | ---------- |  | - | ------- | -- |  | ------- | ------- |  | -------- | - | ------- | -------- |  | - | ------- | - |  | - | ------- | -
|                      |  |          |         |    |          |   |         | Fair Value |  |   |         |    |  |         |        
|                      |  |          |         |    |          |   |         | as of      |  |   |         |    |  |         |        
|                      |  |          |         |    |          |   |         | June 26,   |  |   |         |    |  |         |        
|                      |  | +150 bps |         |    | +100 bps |   |         | +50 bps    |  |   | 2004    |    |  | -50 bps |         |  | -100 bps |   |         | -150 bps | 
|                      |  |          |         |    |          |   |         |            |  |   |         |    |  |         |         |  |          |   |         |          | 
|                      |  |          |         |    |          |   |         | ($000)     |  |   |         |    |  |         |        
|Financial Instruments |  | $        | 104,021 |    |          | $ | 104,464 |            |  | $ | 104,909 |    |  | $       | 105,360 |  |          | $ | 105,811 |          |  | $ | 106,269 |   |  | $ | 106,729 |  
|% Change              |  |          | (1.27   | )% |          |   | (0.85   | )%         |  |   | (0.43   | )% |  |         |         |  |          |   | 0.43    | %        |  |   | 0.86    | % |  |   | 1.30    | %



|                             |  |                          |       |            |          |   |        |                          |  |   |        |    |  |   |        |  |  |   |        |   |  |   |        |   |  |   |        |  
|---------------------------- |  | ------------------------ | ----- | ---------- | -------- | - | ------ | ------------------------ |  | - | ------ | -- |  | - | ------ |  |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                             |  |                          |       | Fair Value |          |   |       
|                             |  | Valuation of Security    |       |            | as of    |   |        | Valuation of Security    | 
|                             |  | Given X% Decrease in the |       |            | June 26, |   |        | Given X% Increase in the | 
|                             |  | Security Price           |       |            | 2004     |   |        | Security Price           | 
|                             |  |                          |       |            |          |   |        |                          | 
|                             |  |                          |       |            |          |   |        | ($000)                   |  |   |       
|Corporate equity investments |  | $                        | 6,824 |            |          | $ | 10,237 |                          |  | $ | 11,601 |    |  | $ | 13,649 |  |  | $ | 15,696 |   |  | $ | 17,061 |   |  | $ | 20,473 |  
|% Change                     |  |                          | (50   | )%         |          |   | (25    | )%                       |  |   | (15    | )% |  |   |        |  |  |   | 15     | % |  |   | 25     | % |  |   | 50     | %

46



---



##### Table of Contents








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

Changes in Internal Control Over Financial Reporting




| |                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------
| | Controls Over the Application of Generally Accepted
    Accounting Principles to Complex, Non-Routine
    Transactions



Internal Control  Integrated
Framework






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) Hiring additional accounting personnel and engaging
    outside contractors with technical accounting expertise, as
    needed, and reorganizing the accounting and finance department
    to ensure that accounting personnel with adequate experience,
    skills and knowledge relating to complex, non-routine
    transactions are directly involved in the review and accounting
    evaluation of our complex, non-routine transactions;
|
| | (2) Involving both internal accounting personnel and
    outside contractors with technical accounting expertise, as
    needed, early in the evaluation of a complex, non-routine
    transaction to obtain additional guidance as to the application
    of generally accepted accounting principles to such a proposed
    transaction;                                                                                                         
|
| | (3) Documenting to standards established by senior
    accounting personnel and the principal accounting officer the
    review, analysis and related conclusions with respect to
    complex, non- routine transactions; and                                                                                                                                                                                                                      
|
| | (4) Requiring senior accounting personnel and the principal
    accounting officer to review complex non-routine transactions to
    evaluate and approve the accounting treatment for such
    transactions.                                                                                                                                                                                                                                      



47



---



##### Table of Contents











48



---



##### Table of Contents





| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Controls Over Accuracy of Data Entry of Journal Entry
    For Inventory and Cost of Goods Sold













49



---



##### Table of Contents





Evaluation of Effectiveness of Disclosure Controls and
Procedures







PART II. OTHER INFORMATION







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









50



---



##### Table of Contents









51



---



##### Table of Contents








|        |                                          
|------- | -----------------------------------------
|Item 2. | Changes in Securities and Use of Proceeds








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








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



|                      |  |     |             |  |                    |  |            | 
|--------------------- |  | --- | ----------- |  | ------------------ |  | ---------- | 
|Nominee               |  | For |             |  | Withheld Authority | 
|                      |  |     |             |  |                    | 
|Paul J. Tufano        |  |     | 217,982,032 |  |                    |  | 8,207,584  | 
|Charles M. Boesenberg |  |     | 221,561,360 |  |                    |  | 4,628,256  | 
|Michael R. Cannon     |  |     | 180,725,056 |  |                    |  | 45,464,560 | 







| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | Proposal to ratify the appointment of PricewaterhouseCoopers LLP
    as our independent accountants for the fiscal year ending
    December 25, 2004:

|          |  |  |             | 
|--------- |  |  | ----------- | 
|For       |  |  | 223,600,749 | 
|Against   |  |  | 2,420,105   | 
|Abstained |  |  | 168,762     | 






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








|        |                                 
|------- | --------------------------------
|Item 6. | Exhibits and Reports on Form 8-K

Exhibits.


Reports on Form 8-K.






52



---



##### Table of Contents






SIGNATURES






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



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

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



53



---



##### Table of Contents






EXHIBIT INDEX


|        |    |             |  |                                                                                                                                                                                                                                                                               
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .1(1)       |  | U.S. $100,000,000 Receivables Loan and Security Agreement
    dated as of June 24, 2004 among Maxtor Receivables LLC,
    Maxtor Corporation, Merrill Lynch Commercial Finance Corp. and
    U.S. Bank National Association.                                                  
|       
|        | 10 | .2(1)       |  | Purchase and Contribution Agreement dated as of June 24,
    2004 between Maxtor Corporation and Maxtor Receivables LLC.                                                                                                                                                      
|       
|        | 10 | .3(1)       |  | Amendment No. 1 to Maxtor Standard Volume Purchase
    Agreement dated as of July 1, 2004 between Maxtor
    Corporation and Agere Systems Inc.*                                                                                                                              
|       
|        | 10 | .4(1)       |  | Agreement dated as of July 19, 2004 between Maxtor
    Corporation and Phillip C. Duncan.**                                                                                                                                                                                   
|       
|        | 10 | .5(1)       |  | Employment Offer Letter dated as of July 19, 2004 from
    Maxtor Corporation to John Viera.**                                                                                                                                                                                
|       
|        | 31 | .1          |  | Certification of Dr. C.S. Park, Chairman and Chief
    Executive Officer of the Registrant pursuant to Rule 13a-14
    adopted under the Securities Exchange Act of 1934, as amended,
    and Section 302 of the Sarbanes-Oxley Act of 2002.                                  
|       
|        | 31 | .2          |  | Certification of Duston M. Williams, Executive Vice President,
    Finance and Chief Financial Officer of the Registrant pursuant
    to Rule 13a-14 adopted under the Securities Exchange Act of
    1934, as amended, and Section 302 of the Sarbanes-Oxley Act
    of 2002.
|       
|        | 32 | .1          |  | Certification of Dr. C.S. Park, Chairman and Chief
    Executive Officer of the Registrant furnished pursuant to
    18U.S.C. § 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                               
|       
|        | 32 | .2          |  | Certification of Duston M. Williams, Executive Vice President,
    Finance and Chief Financial Officer of the Registrant furnished
    pursuant to 18 U.S.C. § 1350, as adopted pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002.                                






|  |                                                                                                                                                                                                                                    
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Portions of this exhibit have been filed separately with the
    Commission pursuant to an application for confidential
    treatment. The confidential portions of this Exhibit have been
    omitted and are marked by asterisks.



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



|    |                                                                             
|--- | ----------------------------------------------------------------------------
|(1) | Incorporated by reference to exhibits of Form 10-Q filed
    August 4, 2004.

54