MAXTOR CORP - 10-K Annual Report

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54

UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark one)
{X}Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended March 30, 1996
---------------------------------------------------
or
{ }Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from o
Commission file Number: 0-14016
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Maxtor Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)

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

211 River Oaks Parkway, San Jose, CA 95134
- ----------------------------------------- --------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (408) 432-1700 ---------
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Securities registered pursuant to Section 12(b) of the Act: None
---
Securities registered pursuant to Section 12(g) of the Act: 5.75% Convertible
Subordinated
Debentures,
due 2012
----------------
Indicate by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
------ -------

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

As of June 28, 1996, 58,208,955 shares of the registrant's Series A
Preferred Stock, $.01 par value, and no shares of the registrant's Common
Stock, $.01 par value, were issued and outstanding, respectively. As of
such date, none of the outstanding shares of Series A Preferred Stock or
Common Stock were held by persons other than affiliates of the registrant,
and there was no public market for the Company's equity securities.

This Annual Report on Form 10-K contains 140 pages of which this is number
1. The Index to Exhibits begins on page 50.

PART I
Item 1. BUSINESS

This report includes a number of forward-looking statements which reflect
the Company's current views with respect to future events and
financial performance. These forward-looking statements are subject to
certain
risks and uncertainties, including those discussed in Item 7.
Management's Discussions and Analysis of Financial Condition and Results of
Operations, "General", "-Manufacturing Characteristics," "-Industry
Characteristics" and "Liquidity and Capital Resources", and elsewhere in
this report, that could cause actual results to differ materially from
historical results or those anticipated. In this report, the words
"anticipates," "believes," "expects," "intends," "future" and similar
expressions identify forward-looking statements. Readers are
cautioned not be place undue reliance on these forward-looking
statements, which speak only as of the date hereof.

Maxtor Corporation (Maxtor or the Company) was organized in 1982 and
develops, manufactures and markets mass-storage products for desktop and
mobile computer systems. Products range from 2.5-inch mobile storage
products to 3.5-inch ATA drives for the desktop in capacities up to 2.0
gigabytes.

In November 1994, the Company formed a wholly-owned subsidiary,
IMS International Manufacturing Services, Ltd., whose primary business
was contract manufacturing for electronic original equipment manufacturers
(OEMs). The Company's printed circuit board (PCB) assembly plant in Hong
Kong formed the foundation of the business, and a second plant was added
in Thailand in May 1995. In early June 1996, the Company reorganized
all of the operations under a wholly-owed Delaware subsidiary, International
Manufacturing Services, Inc. (IMS). IMS not only supplies the Company,
but a variety of external customers, with PCB assemblies, sub-assemblies
and fully integrated box-build products. In May 1996, the Company
entered into an agreement to sell a majority interest in IMS to
certain IMS management and other investors (collectively, "Buyer"). At
completion of the transaction in June 1996, the Company received $25
million in cash and $20 million in notes from IMS, and retained a 23.5%
ownership interest in IMS. Pursuant to the Agreements, the Company made
various representations and warranties as to itself and IMS and has agreed
to indemnify Buyer for any breaches thereof. Generally, in the event
that losses from such breaches when aggregated exceed $500,000, Buyer
shall be entitled to indemnification for all losses, including the
first $500,000 up to a maximum total of $17,500,000, provided that
tax and environmental representations are not subject to the liability
limit.

In January 1996, Hyundai Acquisition, Inc. (HAI) acquired by a cash
tender offer for $6.70 per share 32,044,065 shares of the Company's common
stock (the Acquisition). With the 19,480,000 Class A shares already
owned, HAI owned over 90% of the Company's outstanding voting capital. On
January 11,1996, HAI was merged into the Company in a short form merger
(the Merger), and the Company became a wholly owned subsidiary of Hyundai
Electronics America (HEA). Shares of common stock outstanding immediately
prior to the Acquisition and Merger which were not owned by HEA or its
affiliates were converted into the right to receive $6.70 in cash per
share pursuant to the Merger. As the Merger, trading of Maxtor common
stock on the NASDAQ National Market was suspended. Currently, there is
no public market for the Company's equity securities. The Company's
5.75% convertible subordinated Debentures, due 2012, remain publicly
traded.

The Agreement and Plan of Merger was filed as an exhibit to the
Company's Schedule 14D-9, as amended. See the Company's Schedule 14D-9
for further information concerning the tender offer and merger.

In May 1995, the Company entered into a definitive manufacturing
agreement with Hyundai Electronics Industries Company, Limited (HEI).
Under the terms of the agreement, HEI manufactures Maxtor-designed hard
disk drives for the Company at a site in Korea. Production at the Korean
manufacturing site has commenced during the first fiscal quarter of 1997.

PRODUCTS

The Company's financial results continue to be heavily dependent on
the success of certain products. The Company's strategy in part is
focused on accelerating the end-of-life of certain older 3.5-inch desktop
products and replacing them with new 3.5-inch products developed on lower-
cost platforms, and introducing its family of 2.5-inch disk drives
for OEM notebook manufacturers.

Industry Characteristics

Data storage manufacturers continually strive for larger storage
capacities, higher performance and lower cost. Short product life cycles
also increase the importance of the Company's ability to successfully
manage product transitions. During fiscal year 1996, the Company has
successfully managed certain product transitions. However, certain new
products introduced by competitors, as well as those introduced by the
Company, tend to displace older products. The failure to adequately
manage product transitions could result in the loss of market
opportunities, decreased sales of existing products, cancellation of
products or product lines, the accumulation of obsolete and excess
inventory, and unanticipated charges related to obsolete capital equipment.
The Company's ability to anticipate market trends and to successfully
develop, manufacture in volume and sell new products in a timely manner and
at favorable gross margins will be important factors affecting the
Company's future results. There can be no assurance that the Company will
be successful in such efforts.

Desktop Personal Computer Products

The 7000 SeriesTM of 3.5-inch disk drives addresses the demand for
desktop personal computer (PC) disk drives and presently includes a broad
range of capacity points from 541 megabytes (MB) to 2.0 gigabytes
(GB). Current product offerings primarily consist of products which were
introduced
during fiscal year 1996.

The value line of 7000 Series 3.5-inch drives was designed to meet the
needs of the highly price-sensitive entry level to mid-range desktop PC
market. During the fourth quarter of fiscal year 1995, the Company added
the 850MB 7850AV and the 425MB 7425AV disk drives, while phasing out
the initial offerings of the 540MB 7540AV and the 270MB 7270AV. The
7850AV combined the low-cost electronics architecture of previously
introduced 7000 Series value line of drives with the integrated heads,
disks and channel technology developed for the high-end ExcaliburTM
71260A and 71050A products. During the fourth quarter of fiscal year
1996, the Company phased out the value line while ramping shipments of
higher capacity drives which still provide the lowcost initiatives of the
value line.

Another extension to its 7000 Series, the Excalibur Family of products,
is intended to address the high-end PC market's storage-intensive
applications, such as CAD/CAE and multimedia. The 1.2GB Excalibur
71260A and 1.0GB Excalibur 71050A disk drives feature enhanced IDE
interface, allowing the Company's 7000 Series to be used in ATA systems.
During the second quarter of fiscal year 1996, the Company decided to phase
out the Excalibur Family due to pressures from competitors with lower
manufacturing costs and better performing products.

In May 1995, the Company announced the DurangoTM Family of products, the
next extension of the 7000 Series of 3.5-inch disk drives. The Durango
Family of products is available in capacities of 541MBs, 1.0GBs and 1.6GBs.
This family of products offers ATA disk aerial density of 400 M/bits per
square
inch through a refinement of thin film head technology referred to as
proximity recording, which reduces head flying height and improves head/media
interface signal quality. The 1.6GB drive in particular is intended to
meet the increasing storage demands of power-users to fully utilize
Internet services and operate storage-intensive multimedia applications.
The Company commenced volume production of this family of products by the
end of the first quarter of fiscal year 1996.

In the third quarter of fiscal year 1996, the Company began volume
shipments of the latest extension to the 7000 Series which addresses
the growing capacity and cost effective requirements of the PC market.
Initial offerings included the 1.3GB 71336AP/A, 1.6GB 71670AP/A and the
2.0GB 72004AP/A. The drives are ATA/IDE interface compatible and use
the same technological advances developed in the Company's previous
generation of 7000 Series drives. With the 72004AP/A, the Company became
the first disk drive manufacturer to announce volume shipments of a 2.0GB,
three platter, 3.5 inch drive.

During fiscal years 1996, 1995 and 1994, the 7000 Series drives accounted
for 93%, 91% and 67% of the Company's revenue, respectively.

Notebook Computer Products

In June 1996, the Company announced its MobileMax Family of high-capacity
2.5inch disk drives for the portable computer market. Introduced with
capacities of 840MB, 1.01GB, and 1.35GB, these drives meet the
increasing storage requirements of the notebook and sub-notebook computer
market. The Company has successfully reduced the Z-height, or thickness,
of ultra-high capacity 2.5-inch drives from the industry standard 19mm to
just 12.5mm, enabling original equipment manufacturers to design the
next generation of highcapacity notebook and sub-notebook computer systems
that are slimmer, lighter and more powerful. The Company commenced
shipment of this family of products in the first fiscal quarter of 1997.

MARKETING AND CUSTOMERS

The Company markets and sells its products through a direct sales force
to OEMs, distributors and other emerging sales channels such as
computer specialty retailers and computer superstores. As the market for
Maxtor's products has become increasingly segmented, diverse sales
channels have developed for different products.

Market demand for the Company's products generally follows the demand
cycles experienced in the personal computer (PC) industry, which
typically rise during the late summer and fall months, peak during the
winter months and drop off in the spring and early summer months of the
calendar year. The Company is currently experiencing weakness in the market
similar to trends occurring in the PC industry. However, market demand is
highly volatile and there can be no assurances that the demand cycle will
follow historical trends.

As a result of volatile business conditions in the PC industry, including
the trend toward consolidation among PC manufacturers, sales to OEMs have
become increasingly important to the success of the disk drive industry
participants. Shipments to OEMs were 61% of revenues in fiscal 1996,
as compared to approximately one-half of revenues in 1995 and 1994. The
Company attributes this growth primarily to the Company's ability to be
among the first to market at the industry's most recent key capacity
points. Although the Company intends to continue in its efforts to
increase its share of the OEM market for disk drives, particularly in the
marketing of its new products, there can be no assurance that the Company
will be successful in such efforts.

Although OEM revenues have increased as a percentage of total
revenues compared to fiscal years 1995 and 1994 as mentioned above, the
Company is still heavily dependent upon the distribution channel.
Distributors generally market the Company's products to value-added
resellers, dealers and small OEMs. Additionally, the Company currently
sells its retail-packaged
products directly and through distributors to major retail computer
superstores, warehouse clubs, dealers, aggregators and catalog houses.
The Company's distributors are located worldwide, and its retailers are
generally located in the United States and Canada. The Company believes
that distributors and retailers are important in supporting a large
aftermarket, and that the market for replacement drives in particular
should result in the growth of retail sales. Sales to distributors and
retailers accounted for approximately 39% of total revenue in fiscal 1996,
and approximately one-half of total revenues in fiscal 1995 and 1994. The
Company's dependence on distributors and retailers is greater than most
other disk drive producers. This dependence subjects the Company to certain
pricing pressures and other factors unique to distribution, including
historically higher levels of product returns compared to the levels of
returns experienced with OEM customers.

During fiscal years 1996 and 1995, no customer accounted for more than 10%
of the Company's revenue. During fiscal year 1994, sales to one
customer accounted for approximately 24% of the Company's revenue.

The Company's export sales represented 41%, 48% and 43% of total revenue
in fiscal years 1996, 1995 and 1994, respectively. Approximately 60%, 53%,
and 53% of export sales were to Europe, while 35%, 38% and 35% of export
sales were to Asia Pacific in fiscal years 1996, 1995 and 1994,
respectively.

For financial data relating to major customers and geographic
information refer to Part II, Item 8, Footnote 4 on page 29.

MANUFACTURING AND SUPPLIERS

The Company has sought to maintain the flexibility necessary to
accommodate the continuous changes in product mix and volume requirements
that result from the short product life cycles characteristic of the disk
drive industry. The Company accomplished this by a relatively low level
of vertical integration and utilizing capital equipment for the manufacture
of multiple product lines.

The Company's disk drive manufacturing operations consist primarily of
the final assembly of high-level subassemblies and testing of completed
products. The Company manufactures disk drive products in volume
production at its manufacturing facility located in Singapore and conducts
all PCB assembly in IMS's facilities in Hong Kong and Thailand. Upon
the sale of a majority interest in IMS, the Company entered into a
manufacturing services agreement with IMS for its PCB assembly parts. In
May 1995, the Company entered into a definitive manufacturing agreement
with Hyundai Electronics Industries Company, Limited (HEI). Under the
terms of the agreement, HEI manufactures Maxtor-designed hard disk
drives for the Company at a site in Korea. Production at the Korean
manufacturing site has commenced during the first fiscal quarter of 1997.
In addition to risks typically associated with the concentration of
vital operations, foreign manufacturing is subject to additional
risks, including changes in governmental policies, transportation delays
and interruptions, and the imposition of tariffs and export controls. A
disruption of manufacturing operations at the Company's facilities could
have an adverse effect on the Company's results of operations and
customer relations.

Pilot production of the Company's products, and cost reduction, quality
and product improvement engineering on current products are conducted
in the Company's Longmont, Colorado facilities. When a new product or
a design change to a current product is ready for volume production, it is
transferred from the Longmont, Colorado facilities to the Company's
Asia Pacific manufacturing facilities.

The Company's manufacturing processes require large volumes of high-
quality components supplied by outside suppliers. The Company periodically
receives communication from vendors that they may be unable to supply
required volumes of certain key components. While the Company has
qualified and continues to qualify multiple sources for many components,
it is reliant on, and
will continue to be reliant on, single sources for many semi-custom and
custom integrated circuits and other key components. Generally, the Company
does not have long-term supply agreements with most of its single source
vendors, some of which are companies with limited financial and operational
resources. In light of current industry conditions, including consolidation of
competitors and decreased demand for hard disk storage products, the
Company is reassessing its requirements for volume components.

The Company intends to continue to pursue qualification of alternative
sources for single source components where practical. However, the Company
believes that it will have to continue to utilize leading edge components
which may only be available from a single source. The Company will
continue to aggressively work with its vendor base to minimize its
component supply exposure. There can be no assurance, however, that
the Company will be successful in such efforts or that in the future the
Company's vendors will meet the Company's needs for required volumes of
high-quality components in a timely and cost effective manner.

The quality and yield of the Company's products is highly dependent on
the Company's ability to obtain high-quality components and sub-
assemblies, and its internal manufacturing processes. In the past, the
Company's operating results have been affected by production delays and
quality problems resulting from its inability to obtain certain key
components and by the failure of certain components to meet requisite
quality standards. The Company has implemented a number of programs to
improve the quality of its key
components and subassemblies, and its internal manufacturing processes. As
a result of these efforts, the Company continues to strive to improve the
quality of its products. The Company believes that it must continue to
focus on product quality to improve its competitive position in the disk
drive industry.

RESEARCH AND DEVELOPMENT

As previously mentioned, the Company participates in an industry that
is characterized by rapid technological change and short product life
cycles. The Company's ability to compete effectively will depend on,
among other things, its ability to anticipate such change. To compete
effectively, the Company has and will continue to devote substantial
resources to developing high-quality products which address the needs of
expanding segments of the disk drive market and which can be produced
in volume on a cost effective basis.

The Company has focused its efforts on developing products that
incorporate components which may be shared by a broad range of products,
thereby reducing the time to develop a product and the cost of
components. The Company believes that the integration of low-cost
manufacturing design into the development of a broad range of the
Company's products, combined with its ability to utilize common platforms
and electronics within product families, will enable the Company to compete
more effectively.

The Company believes that success in developing smaller form
factors, increasing storage capacities, increasing performance and
lowering cost depends in part on developing and incorporating new data
storage technologies into the Company's products. While the Company
believes that it needs to utilize new technologies in order to achieve
technology and product
leadership, to the extent that such development efforts result in
more advanced technology and components, it may be more difficult to
transition disk drives to volume manufacturing or to obtain acceptable
production yields.

In order to effectively implement its product strategy, the Company intends
to continue to make significant investments in R&D. In fiscal years 1996,
1995 and 1994, the Company's R&D expenses amounted to $94.7 million, $60.8
million, and $97.2 million, respectively. The Company believes that it
must continue to make substantial investments in R&D since the timely
introduction and transition to volume production of new products is
essential to its success.

COMPETITION

The Company presently competes primarily with independent manufacturers of
3.5inch disk drives, including Quantum, Seagate Technology and Western
Digital. The Company also competes directly and indirectly with disk drive
divisions of large computer manufacturers such as Fujitsu, Hewlett-Packard,
Hitachi, NEC, Toshiba and IBM. Should other major OEMs develop disk
drive manufacturing capabilities, the demand for the Company's products
could be reduced.

The disk drive industry is experiencing a number of changes that will
affect the competitive position of companies now and in the future. A
number of companies, including Maxtor, have either merged or been
acquired,
thereby reducing the number of competitors in the market. Examples include
not only the Maxtor / HEA Acquisition, but the Seagate / Conner
merger, and the Singapore Technologies acquisition of the disk drive
business of Micropolis. The surviving companies are better positioned
from a market share and financial resources availability perspective.
During 1996, the Company expects that the industry will experience a
turbulent period as the effects of this consolidation takes hold. The
merging of separate product lines and the elimination of duplication could
force a sell off of less profitable product families which could have a
significant impact on financial performance of drive companies. As a
result of the above factors and the effects of weaker seasonal demand,
discussed previously in "Marketing and Customers," the Company has
experienced lower than expected revenues during the first quarter of fiscal
1997. Any change in this trend in the second half of fiscal 1997 is
dependent on stronger OEM PC demand and successful introduction of
new products by the Company. Further, the Company expects this trend to
continue into the foreseeable future. During calendar 1997, the Company
anticipates a higher degree of stability within in the industry as product
families are merged and unprofitable products eliminated. However,
there can be no assurance that the industry will experience a higher
degree of stability and that the Company will be successful in addressing
the issues raised in the new competitive environment.

Short product life cycles also increase the importance of the
Company's ability to successfully manage product transitions. During fiscal
year 1996, the Company successfully managed certain product transitions,
however, certain new products introduced by competitors, as well as those
introduced by the Company, tend to displace older products. The failure
to adequately manage product transitions could result in the loss of
market opportunities, decreased sales of existing products, cancellation
of products or product lines, the accumulation of obsolete and excess
inventory, and unanticipated charges related to obsolete capital
equipment. The Company's ability to anticipate market trends and to
successfully develop, manufacture in volume and sell new products in a
timely manner and at favorable gross margins will be important factors
affecting the Company's future results. There can be no assurance that the
Company will be successful in such efforts.

When competitors introduce products which offer greater capacity,
better performance, lower prices or any combination of these factors, and
when the Company's new products are not brought to market on a timely
basis, the selling price of its older products generally must be reduced
in order to compete effectively with competitors' new products. Due to the
narrowness of the Company's product offerings relative to its competition,
any delay in bringing a product to market will have a more significant
adverse effect on the Company's results of operations than a similar delay
would have on its competitors' results of operations. The Company
expects to continue to experience price erosion for certain products in
fiscal year 1997. There can be no assurance that price erosion will not
increase substantially.

BACKLOG

The Company's sales are primarily made for delivery of standard
products according to standard purchase orders. Delivery dates are
specified
by purchase orders. Such orders may be subject to change or cancellation by
the customer without significant penalties. The quantity actually
purchased, as well as the shipment schedules, therefore, are frequently
revised to reflect changes in the customer's needs. At times when price
competition is intense and price moves are frequent, the Company believes
that most customers may place purchase orders below their projected
needs, or delay placing or even cancel purchase orders with the
expectation that future price reductions may occur. Conversely, at times
when industry-wide production is believed to be insufficient to meet
demand, the Company believes that certain customers may place purchase
orders beyond their projected needs in order to maintain a greater
portion of product allocation. In light of these factors, backlog as of
any particular date may not be indicative of the Company's actual revenues
for any succeeding period, and, therefore, are not material to an
evaluation of the Company's future revenue.

PATENTS AND LICENSES

The Company has been granted approximately 145 U.S. and foreign
patents related to disk drive products and technology. The Company has
additional patents pending in the United States and foreign countries. The
Company has entered into cross-license agreements with certain of its
competitors and has discussed entering into cross-licenses with others.

As in other sectors of the electronics industry, the disk drive industry
has been characterized by significant litigation relating to patent and
other intellectual property rights. Many patents have been issued in the
United States and foreign countries covering disk drive products and
their manufacture. These patents have been issued both to competitors
of
the Company and to parties who are not disk drive vendors. The
Company has received notices from competitors and other patent
holders claiming infringement by the Company and litigation has been
commenced related to one such claim, made by Rodime plc (Rodime) and
described below. There can be no assurance that other litigation will not
be commenced based upon such claims or that additional claims of patent
infringement will not be made against the Company in the future, nor can
there be any assurance that the Company would be able to obtain a
license under the patents asserted or that any such license, if
available, would be offered on terms acceptable to the Company. Adverse
resolution of litigation based upon claims of patent infringement could
subject the Company to substantial liabilities and require the Company to
refrain from manufacturing or selling certain of its products in the
country where the patents were issued.

As part of the acquisition of the MiniScribe business in June 1990,
the Company was assigned a patent license agreement between MiniScribe and
Rodime plc, a United Kingdom company, covering patents related to 3.5-
inch disk drives. The Company believes that the assignment was valid.
However, Rodime has taken the position that the assignment was invalid and
that the assignment would not in any event cover 3.5-inch drives
manufactured and sold by the Company before the acquisition of
MiniScribe's assets. See Legal Proceedings.

WARRANTY AND SERVICE

The Company currently warrants its products against defects in parts and
labor for varying periods from the date of shipment with an additional
three months allowed for distributors to account for "shelf life". All
products currently in production are warranted for a period of 36 months
after shipment.

Products are generally repaired or refurbished by the Company's
Singapore facility. The Company operates a European drive exchange center in
Ireland, a domestic drive exchange center in San Jose, California, and an
Asian drive exchange center in Singapore.

EMPLOYEES

As of June 1, 1996, the Company had approximately 8,940 employees, of
whom approximately 1,180 were located in the United States, 70 in Europe and
7,690 in Asia Pacific.

The Company believes that its future success will depend on its ability
to continue to attract and retain a team of highly motivated and
skilled individuals. None of the Company's employees are represented by
a labor organization. The Company believes that its employee relations are
positive.

INDUSTRY SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES,
AND FINANCIAL INFORMATION

The Company operates in a single industry segment: the
development, manufacture and marketing of data storage products for desktop
and notebook computer systems. It has a worldwide sales, service and
distribution network. The Company markets and sells its products through a
direct sales force to OEMs, distributors and other emerging sales
channels. For financial information relating to foreign and domestic
operations and export sales refer to Part II, Item 8, Footnote 4, on page
29.

Item 2. PROPERTIES

During fiscal year 1996, Company's administrative offices were located in
San Jose, California, and its research and development facilities were
located in Longmont, Colorado. These facilities are leased. As of March
30, 1996, the Company's manufacturing facilities include a disk drive
manufacturing facility in Singapore and the IMS PCB assembly facilities in
Hong Kong and Thailand. The Company owns and occupies a 384,000 square-
foot building in Singapore which is situated on land leased through the
year 2016 (subject to an option to renew for an additional 30 years).
All other facilities located in Singapore, Hong Kong and Thailand, as
well as sales offices located in the United States, Europe and Asia
Pacific, are leased.

All of the Company's facilities are well maintained and are suitable for
the advanced technological products and services of the Company.

In May 1996, the Company announced that new research and
development operations have commenced at the San Jose site, requiring
additional space in San Jose. The Company is currently reviewing its
space requirements and intends to move into a larger facility near its
current location during the fiscal year 1997. Other than that previously
discussed, the Company believes that its current facilities are sufficient
to meet its expected requirements.

Item 3. LEGAL PROCEEDINGS

As part of the acquisition of the MiniScribe business in June 1990,
the Company was assigned a patent license agreement between MiniScribe and
Rodime plc (Rodime) covering patents related to 3.5-inch disk drives. The
Company believes that the assignment was valid; however, Rodime has taken
the position that the assignment was invalid and would not in any event
cover 3.5-inch drives manufactured and sold by the Company before
the acquisition of MiniScribe's assets. In February 1993, Maxtor
commenced an action for declaratory relief in the U.S. Bankruptcy Court
in Denver, Colorado seeking a judgment that the assignment was valid.
Rodime filed a denial and counterclaim for patent infringement. In April
1994, the relevant claims
of the Rodime patent at issue in Rodime's counterclaims were declared
invalid in litigation between Rodime and another disk drive manufacturer.
The litigation between the Company and Rodime was then stayed pending an
appeal by Rodime. In November 1995, the Federal Circuit affirmed the
earlier court decision, and in February 1996, Rodime filed a petition
with the U.S. Supreme Court requesting review of the Federal Circuit's
opinion. The litigation remains stayed pending action by the Supreme Court.

In November 1995, three separate actions (Wacholder v. Gallo, et al.,
Silver v. Maxtor, et al., and Barrington v. Gallo, et al.) were filed in the
Court of Chancery of the State of Delaware, in and for New Castle County.
Each of the foregoing actions generally alleged a breach of fiduciary
duty by the Company's directors in connection with the offer to purchase
the Company by HEA and sought class certification, preliminary and
permanent injunctive relief to prevent the acquisition, and damages and
attorneys' fees. These actions were subsequently consolidated with a
similar California action (Campanella v. Maxtor, et al.). Thereafter,
following negotiations among counsel to parties to the consolidated
action, an agreement in principle for settlement was reached. A
memorandum of understanding was executed by the parties which provided
that in exchange for certain additional disclosures to the Company's
shareholders regarding the circumstances of the tender offer, the
foregoing actions would be settled, subject to completion of confirmatory
discovery, approval by the Court of Chancery, and payment by the Company
of plaintiffs' counsel fees and costs in an amount not to exceed $315,000.
The Company anticipates that settlement documents will be submitted to the
Court of Chancery by the end of June, 1996, and a date for hearing should
be set by late summer 1996.

In March 1996, a pro se complaint was filed in the Southern District of
New York by Morton Berman (Berman v. Maxtor Corporation, et al.). The
complaint alleged certain claims arising out of violation of U.S.
Securities law, Racketeer Influenced Corrupt Organization Act of
1970, and common law doctrines of fraud, negligence and negligent
misrepresentation, against the Company and several former and current
executive officers of the Company. In April 1996, a motion for dismissal was
filed on behalf of the Company andthe other defendants. In June 1996, Berman
filed papers opposing the
motion and the Company replied. Also in June 1996, Berman filed a motion
to amend his complaint and the Company opposed the motion, requesting that
the court defer adjudication of Berman's motion to amend until it ruled
upon the Company's motion to dismiss.

Certain other claims, including other patent infringement claims, against
the Company have arisen in the course of its business. There is
presently no litigation involving such claims, and the Company believes
the outcome of these claims, and the claims described above, will not have
a material adverse effect, if any, on the Company's financial position,
results of operations or cash flows.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At a special meeting of the sole stockholder held May 14, 1996, an Amended
and Restated Certificate of Incorporation, Amended and Restated Bylaws, and
the Company's 1996 Stock Option Plan were approved.

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
In January 1996, Hyundai Acquisition, Inc. (HAI) acquired by a cash
tender offer for $6.70 per share 32,044,065 shares of the Company's common
stock (the Acquisition). With the 19,480,000 Class A shares already
owned, HAI owned over 90% of the Company's outstanding voting capital.
On January 11, 1996, HAI was merged into the Company in a short form
merger (the Merger), and the Company became a wholly owned subsidiary of
Hyundai Electronics America (HEA). Shares of common stock outstanding
immediately prior to the Acquisition and Merger which were not owned by
HEA or its affiliates were converted into the right to receive $6.70 in
cash per share pursuant to the Merger. As of the Merger, trading of
Maxtor common stock on the NASDAQ National Market
was suspended. Currently, there is no public market for the Company's
equity securities. The Company's 5.75% convertible subordinated
Debentures, due 2012, remain publicly traded.

The Agreement and Plan of Merger was filed as an exhibit to the
Company's Schedule 14D-9, as amended. See the Company's Schedule 14D-9
for
further information concerning the tender offer and merger.

In June 1996, the Company entered into an exchange agreement with HEA
whereby HEA exchanged 600 shares of Common Stock for 58,208,955 shares of
Series
A Preferred Stock, $.01 par value. As of June 28, 1996, 58,208,955 shares
of Series A Preferred Stock and no shares of Common Stock, $.01 par value,
were issued and outstanding.

The price range per common share of the Company's Common Stock through the
date of the Merger is set forth in Item 6 below.

Item 6. SELECTED FINANCIAL INFORMATION (In thousands, except per share
amounts)

ANNUAL

March 30, March 25, March 26, March 27, March 28,
Fiscal year ended 1996 1995 1994 1993 1992

Revenue $1,268,998 $ 906,799 $1,152,615 $1,442,546 $ 1,037,481
Income (loss)
from operations (109,259) (76,026) (247,921) 53,968 12,304
Net income (loss) (122,765) (82,222) (257,589) 46,112 7,149
Net income (loss)
per share
-primary (2.97) (1.63) (8.00) 1.46 0.27
-fully diluted (2.97) (1.63) (8.00) 1.46 0.24

Total assets 442,487 381,847 492,375 579,113 445,182
Long-term debt and capital lease
obligations due
after one year 100,181 101,967 107,393 119,868 110,744
Minority interest - - - - 1,023
- ---------------------------------------------------------------------------

QUARTERLY (Unaudited)
- -----------------------------------------------------------------------------

March 30, Dec. 30, Sept. 30, July 1,
Fiscal quarter ended 1996 1995 1995 1995
- -----------------------------------------------------------------------------

Revenue $ 314,958 $ 356,740 $ 281,406 $ 315,894
Gross margin 12,045 30,740 47 29,861
Net loss (39,817) (24,633) (44,488) (13,827)
Net loss per share (1) (5.41) (0.46) (0.84) (0.27)
Price range per common share (2)
High 6.70(4) 6.5938 6.000 6.9375
Low 6.5938(4) 4.0625 4.125 4.1250
- -----------------------------------------------------------------------------

- ---------------------------------------------------------------------------
March 25, Dec. 24, Sept. 24, June 25,
Fiscal quarter ended 1995 1994 1994 1994
- ---------------------------------------------------------------------------

Revenue $ 275,947 $ 238,174 $ 174,368 $ 218,310
Gross margin 27,474 21,328 (16,696) 24,024
Net income (loss) 1,119(3) (16,435) (54,717) (12,189)
Net income (loss) per
share (1) 0.02 (0.32) (1.09) (0.24)

Price range per common
share (2)
High 6.3125 5.75 5.5000 7.8750
Low 4.0625 3.25 4.3125 4.6875
- -----------------------------------------------------------------------------
(1) Primary net income (loss) per share is the same as fully diluted net
income (loss) per share.
(2) Price range is based on the quarterly high and low closing prices as
quoted from NASDAQ.
(3) Net income included non-recurring income of approximately $10.2 million
primarily related to the gain on the sale of the Company's interest in
Maxoptix Corporation.
(4) Since the January 11, 1996 Merger with HEA described above, there is no
public market for the Company's common stock.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.

General
Since its inception in 1982, the Company has been subject to the
highly cyclical nature of the disk drive industry. The industry is subject
to rapid technological change and short product life cycles. The industry
is intensely competitive and significant price erosion is typical during a
product life cycle. At times, the industry is subject to excess
production capacity and component cost pressures as a result of
key component shortages. Specifically, with the overall growth
experienced by the disk drive industry in fiscal 1996 and 1995, shortages
of certain key components for the industry have increased. In addition to
being impacted by these industry factors, the Company has been less
successful in the past several years than its competitors in
managing product transitions and has been unable to bring certain
products to market in a timely and cost effective manner. Further,
many of the Company's competitors have had broader product lines than
the Company with which to compete in this environment.

As a result of the factors discussed above and others, the Company
has incurred operating losses during each of the last thirteen consecutive
fiscal quarters, including the fourth quarter of fiscal year 1995 for
which the Company reported net income of approximately $1.1 million as a
result of a nonrecurring gain of approximately $10 million from the sale of
the Company's interest in Maxoptix Corporation. Primarily as a result of
continuing pricing pressures, serious shortages of certain key components,
product cost and timeto-market issues with regard to certain products,
the Company was not profitable during fiscal year 1996.

Industry Characteristics
Data storage manufacturers continually strive for larger storage
capacities, higher performance and lower cost. Short product life cycles
also increase the importance of the Company's ability to successfully
manage product transitions. During fiscal year 1996, the Company has
successfully managed certain product transitions. However, certain new
products introduced by competitors, as well as those introduced by the
Company, tend to displace older products. The failure to adequately
manage product transitions could result in the loss of market
opportunities, decreased sales of existing products, cancellation of
products or product lines, the accumulation of obsolete and excess
inventory, and unanticipated charges related to
obsolete capital equipment. The Company's ability to anticipate market
trends and to successfully develop, manufacture in volume and sell new
products in a timely manner and at favorable gross margins will be
important factors affecting the Company's future results. There can be no
assurance that the Company will be successful in such efforts.

When competitors introduce products which offer greater capacity,
better performance, lower prices or any combination of these factors, and
when the Company's new products are not brought to market on a timely
basis, the selling price of its older products generally must be reduced
in order to compete effectively with competitors' new products.
Also due to the narrowness of the Company's product offerings relative to
its competition,
any delay in bringing a product to market will have a more significant
adverse effect on the Company's results of operations than a similar delay
would have on its competitors' results of operations. The Company
continues to
experience price erosion for certain products in fiscal year 1997. There
can be no assurance that price erosion will not increase substantially.

Manufacturing Characteristics
The Company's manufacturing processes require large volumes of high-
quality components supplied by outside suppliers. The Company periodically
receives communication from vendors that they may be unable to supply
required volumes of certain key components. While the Company has
qualified and continues to qualify multiple sources for many components,
it is reliant on, and will continue to be reliant on, single sources
for many semi-custom and custom integrated circuits and other key
components. Generally, the Company does not have long-term supply
contracts with most of its single source vendors, some of which are
companies with limited financial and operational resources.
In light of current industry conditions, including consolidation of
competitors and decreased demand for hard disk storage products, the
Company is reassessing its requirements for volume components.

The Company intends to continue to pursue qualification of alternative
sources for single source components where practical. However, the Company
believes that it will have to continue to utilize leading edge components
which may only be available from a single source. The Company will
continue to aggressively work with its vendor base to minimize its
component supply exposure. There can be no assurance, however, that
the Company will be successful in such efforts or that in the future the
Company's vendors will meet the Company's needs for required volumes of
high-quality components in a timely and cost effective manner.

The quality and yield of the Company's products is highly dependent on
the Company's ability to obtain high-quality components and sub-
assemblies, and its internal manufacturing processes. In the past, the
Company's operating results have been affected by production delays and
quality problems resulting from its inability to obtain certain key
components and by the failure of certain components to meet requisite
quality standards. The Company has implemented a number of programs to
improve the quality of its key components and subassemblies, and its
internal manufacturing processes. As a result of these efforts, the
Company continues to strive to improve the quality of its products. The
Company believes that it must continue to focus on product quality to
improve its competitive position in the disk drive industry. However,
there can be no assurance that the Company will be successful in
improving or maintaining its current quality standards.

FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995

Revenue and Gross Margin
- -----------------------------------------------------------------------

(In millions) March 30, March 25,
Fiscal year ended 1996 1995 Change
- -----------------------------------------------------------------------
Revenue $ 1,269.0 $ 906.8 $ 362.2

Gross margin $ 72.7 $ 56.1 $ 16.6
As a percentage of revenue 5.7% 6.2%
Net loss $ (122.8) $ (82.2) $ (40.6)
Net loss per share $ (2.97) $ (1.63) $ (1.34)
- -------------------------------------------------------------------------

Revenue for fiscal year 1996 increased by 39.9% from the prior fiscal
year primarily due to an increase in unit shipments of approximately 30%
and a shift in product mix to higher-capacity product offerings which
had higher average unit selling prices.

During fiscal year 1996 and 1995, the Company did not have any customer
which accounted for 10% or greater of the Company's revenue.

Gross margin as a percentage of revenue decreased to 5.7% for fiscal year
1996 from 6.2% for fiscal year 1995. Although the shift of the Company's
products sold was toward the higher capacity products which generally
have higher average selling prices per unit, the increase in margins which
resulted from this shift was more than offset by intense pricing pressures
on certain lower capacity products without corresponding decreases in
manufacturing costs. In addition, the Company had lower than expected
volumes during fiscal 1996 due to shortages of certain key components,
contributing to higher than expected manufacturing costs.

The Company will continue its efforts to reduce its average unit
manufacturing costs. However, there can be no assurance that average unit
selling prices will not decline at a more rapid rate or that the Company
will be successful in its efforts to improve gross margin. In addition,
given the cyclical nature of the disk drive industry and the Company's
dependence on the success of certain products, as discussed earlier, there
can be no assurance that the Company will be able to improve or maintain its
current gross margin.

Operating expenses

- -----------------------------------------------------------------------
(In millions) March 30, March 25,
Fiscal year ended 1996 1995 Change
- -----------------------------------------------------------------------

Research and development $ 94.7 $ 60.8 $ 33.9
As a percentage of revenue 7.5% 6.7%

Selling, general and
administrative $ 82.8 $ 81.6 $ 1.2
As a percentage of revenue 6.5% 9.0%

Restructuring and other $ 4.5 $ (10.2) $ 14.7
As a percentage of revenue 0.4% (1.1%)
- -----------------------------------------------------------------------

Research and development (R&D) expenses increased in fiscal 1996 from
the prior fiscal year primarily due to the Company's continued commitment to
make substantial investments in R&D since the timely introduction and
transition to volume production of new products is essential to its
future success. Spending increased primarily in areas related to
staffing and engineering tooling needed for the development of new
products.

Selling, general and administrative (SG&A) expenses decreased as a
percentage of revenue in fiscal year 1996 as compared to 1995 primarily
due to the increase in the revenue base and the Company's ongoing effort
to control costs and expenditures. SG&A spending in absolute dollars
increased slightly primarily as a result of increased marketing costs.
The Company's
ongoing efforts to control costs and expenditures will continue into future
quarters, however, there can be no assurance that the Company will be
successful in such efforts.

Restructuring and other expenses increased during fiscal year 1996 compared
to the previous fiscal year due to two events. First, during the fourth
quarter of fiscal 1996, restructuring and other expenses of $4,500,000 were
primarily due to professional fees incurred related to the acquisition of
the Company by HEA. Effective January 1996, HEA acquired by a cash tender
offer of $6.70 per share all of the outstanding shares of the Company's
common stock which were not owned by HEA or its affiliates and the
Company became a wholly owned subsidiary of HEA. Second, the Company
recorded a gain of approximately $10.0 million, offsetting restructuring and
other expenses during the third quarter of fiscal year 1995, when the
Company entered into an agreement for the sale of the Company's
interest in Maxoptix to Kubota Electronics America
Corporation, a Delaware company, whose ultimate parent is Kubota
Corporation (Kubota). Prior to the sale, Maxtor and Kubota owned 67% and
33% interests in Maxoptix, respectively. The transaction was completed
during the fourth quarter of fiscal year 1995.

At March 30, 1996, the Company had no significant accrued
restructuring charges remaining relating to the restructuring activities
which commenced in the third quarter of fiscal year 1994. On March 25,
1995, the Company had $502,000 of accrued restructuring charges
remaining related to recurring payments under certain non-
cancelable operating leases which were
substantially paid during fiscal year 1996.

Interest expense and interest income
- -----------------------------------------------------------------------
(In millions) March 30, March 25,
Fiscal year ended 1996 1995 Change
- ------------------------------------------------------------------------

Interest expense $ 11.8 $ 8.4 $ 3.4

Interest income $ 1.2 $ 4.2 $ (3.0)
- ------------------------------------------------------------------------

Interest expense increased by 40.5% in fiscal year 1996 as compared to
fiscal year 1995, even though the average interest rate incurred on total
borrowings decreased, due to a substantial increase in short-term borrowings
required in order to fund the Company's operations. The Company had
$96 million of borrowings on the $100 million unsecured, revolving line of
credit arranged by Citicorp Securities Inc. outstanding as of March 30,
1996, and expects to maintain approximately the same or higher levels of
borrowings during the next fiscal year.

In December 1995, the Company also entered into a $100 secured
bridge financing facility with HEA. As of March 30, 1996, $65 million of
borrowings were outstanding under this facility. Interest income
decreased in fiscal year 1996 due to the lack of available cash for
investing purposes.

Provision for income taxes

- -----------------------------------------------------------------------
(In millions) March 30, March 25,
Fiscal year ended 1996 1995 Change
- -----------------------------------------------------------------------

Provision for income taxes $ 2.8 $ 2.0 $ 0.8
- -----------------------------------------------------------------------

The provision for income taxes consists primarily of foreign taxes.
The Company's effective tax rate for fiscal years 1996 and 1995 differs
from the combined federal and state rates due to the repatriation of
foreign earnings absorbed by current year losses, and the Company's U.S.
operating losses
not providing current tax benefits, offset in part by the tax savings
associated with the Company's Singapore operations and valuation
of temporary differences. Income from the Singapore and Thailand
operations is not taxable in Singapore or Thailand, as a result of the
Company's pioneer tax status in both locations.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994

Revenue and Gross Margin

- ------------------------------------------------------------------------
(In millions) March 25, March 26,
Fiscal year ended 1995 1994 Change
- -----------------------------------------------------------------------
Revenue $ 906.8 $ 1,152.6 $ (245.8)

Gross margin $ 56.1 $ (52.4) $ 108.5
As a percentage of revenue 6.2% (4.5%)
Net income (loss) $ (82.2) $ (257.6) $ 175.4
Net income (loss) per share $ (1.63) $ (8.00) $ 6.37
- ------------------------------------------------------------------------

Revenue for fiscal year 1995 decreased by 21.3% from the prior fiscal
year generally as a result of competitive pricing pressures, offset in part
by an increase in unit volumes and a shift in product mix to higher-
capacity product offerings. Average unit selling prices, in terms of
megabyte per dollar, dropped substantially during fiscal year 1995. The
rate of sequential quarter-to-quarter decline in average unit selling
prices ranged
from approximately 15% - 20% for the first two quarters of fiscal year
1995, to less than 10% for the third quarter of fiscal year 1995, and
intensified again during the fourth quarter of fiscal year 1995 to
approximately 15%. Unit volumes increased modestly during fiscal year
1995 with the most significant growth occurring during the second half of
the fiscal year.

During fiscal year 1995, the Company did not have any customer which
accounted for 10% or greater of the Company's revenue. During fiscal year
1994, the Company had one customer which accounted for approximately
24% of the Company's revenue.

Gross margin as a percentage of revenue increased to 6.2% for fiscal year
1995 from (4.5%) for fiscal year 1994. During fiscal year 1994, the
Company recorded special charges amounting to $68.9 million in Cost
of Revenue consisting of estimated costs associated with the
termination of certain products, a reduction in manufacturing capacity,
write downs of inventory and equipment that were no longer productive,
and related future commitments to third parties. Excluding the special
charges of $68.9 million, gross margin for fiscal year 1994 was 1.4%.

The increase in gross margin for fiscal year 1995 as compared to the
prior fiscal year, excluding special charges of $68.9 million, was
primarily attributable to a shift in product mix to higher-capacity,
higher-margin products and a modest increase in unit volume, offset in part
by competitive pricing pressures. The increase in gross margin also is
the result of the Company's decision in the third quarter of the
prior fiscal year to discontinue certain unprofitable products.

During the first half of fiscal year 1995, product mix was primarily
comprised of the Company's older, lower-capacity products which were nearing
end-of-life and generally contributing at a zero gross margin. The
Company's product mix for the second half of fiscal year 1995 primarily was
comprised of its valueline 7000 Series one-inch drives which were developed
on a lower-cost platform and, to a lesser extent, the new, higher-capacity,
higher-margin, 850
megabyte - 1.2 gigabyte drives shipped in volume during the fourth quarter.
In part
offsetting the improvement in gross margin, the Company recorded a charge
of $6.4 million to Cost of Revenue during the fourth quarter of fiscal year
1995 for the write down of inventory and fixed assets, and expensing
certain commitments to third parties associated with the Company's 1.8-
inch product line. The charge resulted from the Company's decision
during the fourth quarter of fiscal year 1995 to discontinue
manufacturing and curtail development efforts related to this particular
product line in favor of mainstream disk drive products with stronger
market and revenue potential.

Operating expenses

- -----------------------------------------------------------------------
(In millions) March 25, March 26,
Fiscal year ended 1995 1994 Change
- -----------------------------------------------------------------------

Research and development $ 60.8 $ 97.2 $ (36.4)
As a percentage of revenue 6.7% 8.4%

Selling, general and
administrative $ 81.6 $ 78.9 $ 2.7
As a percentage of revenue 9.0% 6.8%

Restructuring and other $ (10.2) 19.5 $ (29.7)
As a percentage of revenue (1.1%) 1.7%
- -----------------------------------------------------------------------

Research and development (R&D) expenses decreased from the prior fiscal
year primarily due to the consolidation of the Company's R&D
activities in Longmont, Colorado during the fourth quarter of fiscal year
1994 in connection with the Company's restructuring plan. This
consolidation eliminated the need for certain facilities in San Jose,
California, and also resulted in a substantial reduction in headcount
associated with R&D and related activities previously conducted in San
Jose.

Selling, general and administrative (SG&A) expenses increased as a
percentage of revenue in fiscal year 1995 compared to the prior fiscal year
primarily due to the decline in the revenue base. SG&A spending in
absolute dollars increased modestly as a result of higher advertising costs
and an increase in bad debt expense, offset in part by lower general and
administrative costs, particularly headcount related, as a result of the
Company's restructuring plan initiated during fiscal year 1994.

Restructuring and other: During the third quarter of fiscal year 1995
the Company entered into an agreement for the sale of the Company's
interest in Maxoptix to Kubota Electronics America Corporation, a Delaware
company, whose ultimate parent is Kubota Corporation (Kubota). Prior to
the sale, Maxtor and Kubota owned 67% and 33% interests in Maxoptix,
respectively. The transaction was completed during the fourth quarter of
fiscal year 1995. As consideration for the sale, the Company received
$1.5 million in cash and was relieved of certain liabilities. The
Company recorded a gain of approximately $10.0 million on the sale.

During fiscal year 1994, the Company experienced significant production
delays with certain product lines as a result of both design and vendor
problems and determined that it was unable to bring to market profitable
successor products to certain existing products. The Company therefore
decided to discontinue certain products and manufacturing activities, and
recorded special charges amounting to $68.9 million in Cost of Revenue in
the third quarter of fiscal year 1994. The charges consisted of
estimated costs associated with the termination of certain products, a
reduction in manufacturing capacity, write downs of inventory and
equipment that were no longer productive, and related future commitments
to third parties. The charges were comprised of approximately $45.4
million of inventory-related expenses, approximately
$19.8 million of equipment-related expenses, and approximately $3.7 million of
other associated expenses. As of March 25, 1995, all actions were
substantially completed related to the $68.9 million special charges. As of
March 30, 1996, no amounts remained accrued for payments related to these
special charges.

The Company recorded a restructuring charge of $19.5 million in the
third quarter of fiscal year 1994. The restructuring plan provided
for the consolidation and streamlining of certain operations and
administration. The plan provided for a worldwide headcount reduction
of
approximately
500 employees, which was substantially completed during February 1994.
The Company's research and development activities were consolidated at
its Longmont, Colorado facilities, which eliminated the need for
certain facilities in San Jose, California. In addition, the Company's
actions
eliminated the need for certain manufacturing facilities in Singapore.
The charge consisted of approximately $11.8 million in estimated costs related
to the worldwide reduction in headcount and approximately $7.7 million
associated with facility consolidations, including lease and other
obligations on certain facility leases.

As of March 25, 1995, the Company completed all of its restructuring
actions related to the $19.5 million restructuring charges taken in fiscal
1994. As a result of these actions, worldwide headcount was reduced by
approximately 500 employees from manufacturing, research and development,
sales, marketing and administrative functions, and facilities space was
reduced by approximately 350,000 square feet. The Company's savings from
operations as a result of these actions amounted to approximately $9.0
million per quarter, beginning with the quarter ended March 26, 1994.
Certain actions were completed at a cost which was slightly higher or
lower than originally estimated. On a net basis, total actual costs
were lower than originally estimated by approximately $0.2 million.
The net adjustment of approximately $0.2 million was recorded to
Restructuring and Other during the fourth quarter of fiscal year 1995 upon
completion of the Company's restructuring actions.

The following table presents a roll-forward reconciliation of the activity
in the restructuring accrual balance from December 25, 1993 to March 30,
1996:

Severances, Rent and other
benefits and facilitiesother headcount-
related
(In thousands) related charges charges Total
- ----------------------------------------------------------------------
December 1993 restructuring
charges $ 11,769 $ 7,731 $ 19,500
Cash expenditures (8,891) (1,744) (10,635)
- ----------------------------------------------------------------------
Balance at March 26, 1994 2,878 5,987 8,865
- -----------------------------------------------------------------------

Cash expenditures (2,474) (5,682) (8,156)
Adjustments (404) 197 (207)
- ----------------------------------------------------------------------
Balance at March 25, 1995 $ - $ 502 $ 502
- -----------------------------------------------------------------------

Cash expenditures (502) (502)
Adjustments - - -
- ----------------------------------------------------------------------
Balance at March 30, 1996 $ - $ - $ -
- -----------------------------------------------------------------------

Interest expense, interest income, and minority interest in loss of
joint venture

- ----------------------------------------------------------------------
(In millions) March 25, March 26,
Fiscal year ended 1995 1994 Change
- -----------------------------------------------------------------------
Interest expense $ 8.4 $ 10.1 $ (1.7)
Interest income $ 4.2 $ 2.3 $ 1.9
- -----------------------------------------------------------------------

Interest expense decreased as a result of lower average borrowings
outstanding during fiscal year 1995 as compared to the prior fiscal year.
Interest income increased as a result of higher cash and short-term
investments balances during fiscal year 1995 as compared to the prior
fiscal year.

Provision for income taxes

- -----------------------------------------------------------------------
(In millions) March 25, March 26,
Fiscal year ended 1995 1994 Change
- -----------------------------------------------------------------------

Provision for income taxes $ 2.0 $ 1.9 $ 0.1
- -----------------------------------------------------------------------

The provision for income taxes consists primarily of foreign taxes.
The Company's effective tax rate for fiscal year 1995 differs from the
combined federal and state rate due to the repatriation of foreign earnings
absorbed by current year losses and the Company's U.S. operating losses
not providing current tax benefits, offset in part by the tax savings
associated with the Company's Singapore operations and valuation of
temporary differences. Income from the Singapore operations is not taxable
in Singapore as a result of the Company's pioneer tax status. The
Company's effective tax rate for fiscal year 1994 is below the combined
federal and state rate due to the repatriation of foreign earnings
absorbed by current year losses, the Company's U.S. operating losses not
providing current tax benefits and valuation of temporary differences,
offset in part by the tax savings associated with the Company's Singapore
operations.

LIQUIDITY AND CAPITAL RESOURCES

- ----------------------------------------------------
March 30,
(In millions) 1996
- ----------------------------------------------------

Cash and cash equivalents $ 52.8

Short-term borrowings 110.6

Net cash used in operating activities 132.8

Net cash used in investing activities 61.2

Net cash provided by financing activities 150.3

- -----------------------------------------------------

As of March 30, 1996, the Company had cash and cash equivalents of
$52.8 million as compared to $96.5 million as of March 25, 1995, a decrease
of $43.7 million. The Company had no short-term investments as of March
30, 1996 as compared to $12.0 million as of March 25, 1995, a decrease of
$12.0 million. The combined decrease in the Company's cash and cash
equivalents, and shortterm investments of $55.7 million was primarily
the result of operating losses.

Net cash used in operating activities during fiscal year 1996 was
primarily attributable to the net loss less non-cash depreciation and
amortization totaling approximately $77.6 million and an increase in
inventory of
$66.3 million. Inventories increased by $66.3 million in fiscal 1996 as
compared to fiscal 1995 as a result of year end raw materials purchases in
anticipation of shortages of certain key components in order to meet the
first fiscal quarter 1997 build demands and the product mix of finished
goods moving from lower capacity, lower cost products to higher capacity,
higher cost products.

Net cash used in investing activities during the fiscal year 1996
was primarily attributable to $72.7 million of capital expenditures offset
in part by $12.0 million in proceeds from short-term investments. A
majority of the capital expenditures activity related to the acquisition of
manufacturing and engineering equipment to develop new products and enhance
the productivity of the Singapore manufacturing facility.

Net cash provided by financing activities during the fiscal 1996
primarily reflects $145.6 million in net proceeds from short-term
borrowings, drawn under available credit lines and $7.7 million common
stock issued under the Company's stock purchase and stock option plans.

On August 31, 1995, the Company established a $100 million
unsecured, revolving line of credit through Citicorp Securities Inc. and
syndicated among ten banks, which is guaranteed by Hyundai Electronics
Industries Co., Ltd. (HEI). This $100 million line of credit is a 364-
day committed facility, renewable annually up to three years, that is
used primarily for general operating purposes. As of March 30, 1996, $96
million of borrowings and $1 million in letters of credit were
outstanding.

On December 29, 1995, the Company established a $100 million secured
bridge financing facility with HEA to provide additional working capital
financing through the Merger transition period. This credit facility
provided for draw downs up to $100 million and had a first priority
secured interest in all of the Company's accounts receivable. As of
March 30, 1996, $65 million of borrowings were outstanding under this
facility. All outstanding principal and accrued interest was due and paid
on April 10, 1996.

On January 31, 1996, the Company signed a one year credit facility in
the amount of $13.8 million to be used for capital equipment requirements
at the Singapore facility. This credit facility is guaranteed by HEI
and all outstanding amounts of principal and accrued interest are due and
payable on February 2, 1997.

On March 30, 1996, the Company entered into an accounts
receivable securitization program with Citicorp Securities, Inc. Under this
program, the Company may make a repeating cumulative sale of its qualified
trade accounts receivable up to $100 million on a non-recourse basis. The
proceeds from the sale of these receivables received on April 10, 1996 were
used to pay down the entire secured bridge financing facility on that date,
as described above.

On April 10, 1996, the Company obtained a new $100 million intercompany
line of credit from HEA. This line of credit allows for draw downs up
to $100 million and interest is payable quarterly. All outstanding
amounts of principal and accrued interest are due and payable on April 10,
1997. As of June 28, 1996, $65 million was outstanding.

In June 1996, the Company entered into a volume purchase agreement with
a supplier to build certain key components. Under the terms of this
agreement, the Company has agreed to advance up to $20 million to the
supplier, by December 31, 1996, to finance purchases of certain
equipment required to manufacture product volumes as committed under this
agreement. Such advances will be repaid to the Company in the form of
price discounts and are secured by the equipment purchased.

The liquidity of the Company was adversely affected during fiscal year 1996
by significant losses from operations and liquidity has been
significantly reduced compared to the same period last year. The Company
is implementing ongoing measures with the goal of improving liquidity.
In addition to attempting to improve operating margins on product
sales throughthe introduction of new products and reduction of manufacturing
costs, the
Company remains focused on controlling other operating expenses. However,
the Company believes that it must continue to make substantial investments
in R&D since the timely introduction and transition to volume production
of new products is essential to its future success.

The Company expects that it will require alternative sources of
liquidity, including additional sources of financing in fiscal 1997.
The Company recognizes that given the uncertainties of the disk drive
industry and the risks inherent in accomplishing the above measures, or if
the results of those measures do not meet expectations, it may be
prudent to seek additional sources of financing. The Company is
engaged in ongoing discussions with various parties, including HEI,
HEA and certain financial institutions regarding additional sources of
financing. While the Company believes that additional sources of
financing will be available, there can be no assurance that financing will
be available on terms which are favorable to the Company.

Subject to unforeseen changes in general business conditions, the
Company believes that the combination of the measures described above
and other available actions, together with its balances of cash and cash
equivalents, expected cash flow from operations, equipment financing and
line of credit borrowing capabilities (supported by HEA) will be
sufficient to fund the Company's working capital and capital expenditure
requirements through fiscal year 1997.

DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock. The
Company does not anticipate paying cash dividends in the near future. Under
the terms of the Company's lines of credit facilities, the Company may not
declare or pay any dividends without the prior consent of its lenders.

Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements Page

Financial Statements:
Consolidated Balance Sheets - March 30, 1996 and March 25, 1995 22
Consolidated Statements of Operations - Fiscal years ended
March 30, 1996, March 25, 1995 and March 26, 1994 23
Consolidated Statements of Stockholders' Equity (Deficit)
- Fiscal years ended March 30, 1996, March 25, 1995 and
March 26, 1994 24
Consolidated Statements of Cash Flows - Fiscal years ended
March 30, 1996, March 25, 1995 and March 26, 1994 25 - 26
Notes to Consolidated Financial Statements 27 - 37
Report of Ernst & Young LLP, Independent Auditors 38

Financial Statement Schedules:
The following consolidated financial statement schedule of
Maxtor Corporation is filed as part of this Report and should be read
in conjunction with the Consolidated Financial Statements of Maxtor
Corporation.

Schedule II Valuation and qualifying accounts S-1

Schedules not listed above have been omitted since they are not applicable
or are not required or the information required to be set
therein is included in the Consolidated Financial Statements or notes
thereto.

MAXTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
- -----------------------------------------------------------------------------
March 30, March 25,
ASSETS 1996 1995
- ---------------------------------------------------------------------------
- -Current assets:
Cash and cash equivalents $ 52,794 $ 96,518
Short-term investments - 11,998
Accounts receivable, net of allowance
for doubtful accounts of $5,196 at
March 30, 1996 and $3,850 at
March 25, 1995 121,818 109,333
Accounts receivable from affiliates 4,426 2,197
Inventories:
Raw materials 76,505 40,528
Work-in-process 37,614 28,398
Finished goods 41,816 20,754
- ---------------------------------------------------------------------------
155,935 89,680
Prepaid expenses and other 11,642 8,695
- ---------------------------------------------------------------------------
Total current assets 346,615 318,421
Property, plant and equipment, at cost:
Buildings 24,984 22,575
Machinery and equipment 192,115 146,020
Furniture and fixtures 14,118 12,177
Leasehold improvements 13,870 9,262
- ---------------------------------------------------------------------------
245,087 190,034
Less accumulated depreciation and
amortization (156,925) (133,890)
- ---------------------------------------------------------------------------
Net property, plant and equipment 88,162 56,144
Other assets 7,710 7,282
- ---------------------------------------------------------------------------
$ 442,487 $ 381,847
- ---------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------------------------------------
Current liabilities:
Short-term borrowings $ 110,595 $ 30,000
Short-term borrowings due to affiliates 65,000 -
Accounts payable 160,102 136,746
Accounts payable to affiliates 8,656 -
Income taxes payable 7,499 6,807
Accrued payroll and payroll-related expenses 16,727 14,802
Accrued warranty 23,751 25,058
Accrued expenses 18,934 19,607
Long-term debt and capital lease
obligations due within one year 1,879 2,957
- ------------------------------------------------------------------------
Total current liabilities 413,143 235,977
Long-term debt and capital lease obligations
due after one year 100,181 101,967
Deferred tax liabilities 300 -
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized; no
shares issued or
outstanding - -
Class A common stock, $0.01 par value, no
authorized, issued, or outstanding shares in 1996; (19,480,000
authorized, issued
and outstanding in 1995) - 195
Common stock, $0.01 par value, 200,000,000
shares authorized; 600 shares issued and outstanding in 1996;
(180,520,000 shares
authorized; 32,217,287 issued and
outstanding in 1995) - 322
Additional paid-in capital 335,599 327,357
Accumulated deficit (406,736) (283,971)
- -------------------------------------------------------------------------
Total stockholders' equity (deficit) (71,137) 43,903
- ------------------------------------------------------------------------
$ 442,487 $ 381,847
- ------------------------------------------------------------------------
See accompanying notes.

MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Fiscal year ended
- ----------------------------------------------------------------------------
March 30, March 25, March 26,
1996 1995 1994
- ----------------------------------------------------------------------------
Revenue $ 1,264,627 $ 889,288 $ 1,145,639
Revenue from affiliates 4,371 17,511 6,976
- -----------------------------------------------------------------------------
Total revenue 1,268,998 906,799 1,152,615
- -----------------------------------------------------------------------------

Cost of revenue 1,192,403 835,037 1,198,787
Cost of revenue from affiliates 3,902 15,632 6,227
- ---------------------------------------------------------------------------
Total cost of revenue 1,196,305 850,669 1,205,014
- -----------------------------------------------------------------------------

Gross margin 72,693 56,130 (52,399)
- ---------------------------------------------------------------------------
Operating expenses:
Research and development 94,717 60,769 97,168
Selling, general and
administrative 82,775 81,600 78,854
Restructuring and other 4,460 (10,213) 19,500
- ---------------------------------------------------------------------------

Total operating expenses 181,952 132,156 195,522
- ---------------------------------------------------------------------------
- -Loss from operations (109,259) (76,026) (247,921)
Interest expense (11,849) (8,379) (10,087)
Interest income 1,169 4,216 2,283
- ---------------------------------------------------------------------------
- -Loss before income taxes (119,939) (80,189) (255,725)
Provision for income taxes 2,826 2,033 1,864
- ---------------------------------------------------------------------------
Net loss $ (122,765) $ (82,222) $ (257,589)
- ---------------------------------------------------------------------------

Net loss per share $ (2.97) $ (1.63) $ (8.00)
- ---------------------------------------------------------------------------

Shares used in computing net
loss per share 41,354 50,583 32,203
- ---------------------------------------------------------------------------

See accompanying notes.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
- -----------------------------------------------------------------------------

Retained Notes Total
Common stock Additional earnings receivable
stockholders'
--------------- paid-in (accumulated from
equity
Shares Amount capital deficit) stockholders
(deficit)
- ----------------------------------------------------------------------------
Balance,
March 27, 1993 28,809,277 $ 288 $163,747 $ 55,840 $ (217) $ 219,658
Issuance of common
stock under stock
option plans 792,920 8 3,362 - - 3,370
Payments on and
forgiveness of notes
receivable from
stockholders - - - - 90 90
Issuance of common
stock under stock
purchase plan 823,045 8 4,307 - - 4,315
Issuance of Class A
common stock, net
of issuance
costs 19,480,000 195 149,148 - - 149,343
Net loss - - - (257,589) - (257,589)
- ---------------------------------------------------------------------------
Balance,
March 26, 1994 49,905,242 499 320,564 (201,749) (127) 119,187
Issuance of common
stock under stock
option plans 1,112,825 11 4,133 - - 4,144
Payments on and
forgiveness of notes
receivable from
stockholders - - - - 127 127
Issuance of common
stock under stock
purchase plan 679,220 7 2,660 - - 2,667
Net loss - - - (82,222) - (82,222)
- ---------------------------------------------------------------------------
Balance,
March 25, 1995 51,697,287 517 327,357 (283,971) - 43,903
Issuance of common
stock under stock
option plans 1,134,805 11 4,734 - - 4,745
Issuance of common
stock under stock
purchase plan 800,426 8 2,972 - - 2,980
Shares canceled
resulting from
acquisition
by HEA (53,631,918) (536) 536 - - -
Net loss - - - (122,765) - (122,765)
- ---------------------------------------------------------------------------
Balance,
March 30, 1996 600 $ - $335,599 $(406,736) $ - $ (71,137)
- ---------------------------------------------------------------------------

See accompanying notes.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal year ended
----------------------------------------------------------------------------
March 30, March 25, March
26, 1996 1995
1994
- ---------------------------------------------------------------------------

Increase (decrease) in cash
and cash equivalents
Cash flows from operating activities:
Net loss $ (122,765) $ (82,222) $ (257,589)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 45,200 34,865 85,865
Forgiveness of notes receivable
from stockholders - 41 61
Change in non-current deferred
tax liabilities 300 (66) (934)
Gain on sale of interest in joint
venture - (10,005) -
Loss on disposal of property, plant
and equipment 669 2,233 2,135
Changes in assets and liabilities:
Accounts receivable (12,485) (16,366) 49,591
Accounts receivable from
affiliates (2,229) (2,197) -
Inventories (66,255) (150) 59,320
Prepaid expenses and other (2,947) (925) 2,739
Accounts payable 18,407 14,813 7,374
Accounts payable to affiliates 8,656 - -
Income taxes payable 692 (723) 2,866
Accrued payroll and
payroll-related expenses 1,925 3,573 (4,796)
Accrued warranty (1,307) (1,637) 11,192
Accrued expenses (673) (21,425) 25,724
- ---------------------------------------------------------------------------
Total adjustments (10,047) 2,031 241,137
- ---------------------------------------------------------------------------
Net cash used in operating
activities (132,812) (80,191) (16,452)
- ---------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of interest in
joint venture, net - (1,463) -
Purchase of available-for-sale
investments - (30,091) (74,911)
Proceeds from maturities of
available-for-sale investments 11,998 93,004 -
Purchase of property, plant and
equipment, net (72,655) (32,612) (29,746)
Proceeds from disposal of property,
plant and equipment 353 1,077 1,013
Other assets (928) (417) (72)
- ---------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (61,232) 29,498 (103,716)
- ---------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of debt,
including short-term borrowings 145,595 238 2,870
Principal payments on debt,
including capital lease obligations (3,000) (4,444) (30,563)
Proceeds from issuance of Class
A common stock - - 149,343
Proceeds from issuance of common
stock, net of issuance of notes
receivable and stock repurchase 7,725 6,810 7,685
Payments on notes receivable
from stockholders - 87 29
- ---------------------------------------------------------------------------
Net cash provided by financing
activities 150,320 2,691 129,364
- ---------------------------------------------------------------------------
Net change in cash and cash
equivalents (43,724) (48,002) 9,196
Cash and cash equivalents at
beginning of period 96,518 144,520 135,324
- ---------------------------------------------------------------------------
Cash and cash equivalents at
end of period $ 52,794 $ 96,518 $ 144,520
- ---------------------------------------------------------------------------

See accompanying notes.

CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(In thousands)
Fiscal year ended
- -----------------------------------------------------------------------------
March 30, March 25, March 26,
1996 1995 1994
- ---------------------------------------------------------------------------

Supplemental disclosures of cash flow
information:

Cash paid (received) during the year for:
Interest $ 9,362 $ 6,657 $ 9,985
Income taxes 1,801 2,822 1,337
Income tax refunds (3,173) (65) (1,824)

Supplemental information on noncash
investing and financing activities:
Capital lease obligations $ 136 $ 245 $ 122
Purchase of property, plant and
equipment financed by accounts payable 4,949 - -
- ----------------------------------------------------------------------------

See accompanying notes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation
The consolidated financial statements include the accounts of
Maxtor Corporation (Maxtor or the Company) and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions
have been eliminated. Maxtor Corporation operates as a wholly-owned
subsidiary of Hyundai Electronics America (HEA).

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.

Cash, cash equivalents and short-term investments
The Company considers all highly liquid investments, which are purchased
with a maturity of three months or less,to be cash equivalents. Other short-
term investments consists of floating rate notes, certificates of deposit
and commercial paper. The Company generally purchases investments with a
maturity from three to twelve months.

Inventories
Inventories are stated at the lower of cost (computed on a first-in, first-
out basis) or market.

Depreciation and amortization
Depreciation and amortization are provided on the straight-line basis over
the estimated useful lives of the assets, which are generally from three to
five years, except for buildings which are depreciated over thirty years.
Assets under capital leases and leasehold improvements are amortized over
the shorter of the asset life or the remaining lease term. Capital lease
amortization is included with depreciation expense.

Revenue recognition and product warranty
Revenue is recognized upon product shipment. Revenue from sales to
certain distributors is subject to agreements providing limited rights of
return, as well as price protection on unsold merchandise. Accordingly,
the Company records reserves upon shipment for estimated returns,
exchanges and credits for price protection. The Company also provides
for the estimated cost to repair or replace products under warranty at the
time of sale.

Accounting for income taxes
The Company accounts for income taxes in accordance with the Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS No. 109).

Net loss per share
Net loss per share is based upon the weighted average number of shares
of common and Class A common stock outstanding during each of fiscal years
1996, 1995 and 1994.

Foreign currency translation and foreign currency financial instruments
The functional currency for all foreign operations is the U.S. dollar.
As such, all material foreign exchange gains or losses are included in
the determination of net loss. Approximately $1,086,000, $1,014,000, and
$865,000 of net foreign exchange losses were included in net loss in fiscal
years 1996, 1995, and 1994, respectively. To reduce the impact of
foreign currency fluctuations on the Company's monetary asset and
liability positions, the Company enters into foreign currency forward
exchange contracts. Gains and losses on the foreign currency forward
contracts are deferred and offset by gains and losses on the underlying
hedged exposures. See Note 2 for further disclosure regarding the
Company's derivative financial instruments.

Concentration of credit risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of accounts receivable,
cash equivalents and short-term investments. The Company's products are
sold worldwide to original equipment manufacturers (OEMs), distributors,
and other emerging sales channels such as computer specialty
retailers and computer superstores. Concentration of credit risk with
respect to the Company's trade receivables is limited by the Company's
ongoing credit evaluation process and the geographical dispersion of
sales transactions, therefore the Company generally requires no collateral
from its customers. The allowance for uncollectible accounts receivable
is based upon the expected collectibility of all accounts receivable. The
Company has cash equivalent and short-term investment policies that
limit the amount of credit exposure to any one financial institution
and restrict placement of these investments to financial
institutions evaluated as highly credit-worthy.

Fiscal year
The Company maintains a 52/53-week fiscal year cycle. Fiscal year 1996
was comprised of 53 weeks. Fiscal years 1995 and 1994 were each comprised
of 52 weeks. The Company's fiscal year ends on the last Saturday of March.

2. FINANCIAL INSTRUMENTS

Investments
The following is a summary of the Company's investments by major
security type:
- -----------------------------------------------------------------------------
March 30, March 25,
(In thousands) 1996 1995
- ------------------------------------------------------------------------------

Money market instruments $ 32,070 $ 78,194
Floating rate notes - 11,998
- ----------------------------------------------------------------------------
$ 32,070 $ 90,192
- ----------------------------------------------------------------------------

Included in cash and cash equivalents $ 32,070 78,194
Included in short-term investments - 11,998
- ----------------------------------------------------------------------------
$ 32,070 $ 90,192
- ----------------------------------------------------------------------------

At March 30, 1996 and March 25, 1995, all investments in debt and
equity securities are classified as available-for-sale and as such are
carried at fair market value. Realized gains and losses and declines in
value judged to be other than temporary are included in interest
income. The cost of securities sold is based on the specific
identification method. As of and for the years ended March 30, 1996 and
March 25, 1995, realized and unrealized gains and losses on available-for-
sale investments were not material.

Fair value disclosures
The fair values of cash and cash equivalents, and short-term
investments approximate cost due to the short period of time to
maturity or due to floating rate resets on investments. The
carrying values of the note receivable and the investment in affiliate,
both of which are classified in other assets, approximate their fair
values. The fair value of the Company's fixed rate debt is estimated based
on the current rates offered to the Company for similar debt instruments of
the same remaining maturities. The fair value of the Company's variable
rate debt approximates its carrying value as these instruments are adjusted
periodically during the course of the year at market rates. The fair value
of the Company's convertible subordinated debentures is based on quoted
market prices. The fair value of foreign currency forward exchange
contracts used for hedging purposes is estimated based on quoted market
prices.

The carrying values and fair values of the Company's financial instruments
are as follows:

(In thousands) March 30, 1996 March 25, 1995
- ----------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
- ----------------------------------------------------------------------------
- -Cash and cash equivalents $ 52,794 $ 52,794 $ 96,518 $ 96,518
Short-term investments - - 11,998 11,998
Note receivable 4,000 4,000 4,000 4,000
Investment in affiliate 825 825 1,010 1,010
Short and long-term debt
fixed rates 15,576 15,539 4,445 4,359
variable rates 96,000 96,000 30,000 30,000
debt from parent -
fixed rates 65,000 65,000 - -
Convertible subordinated
debentures 100,000 77,000 100,000 55,000
Foreign currency forward
exchange contracts - 18 - 37
- ----------------------------------------------------------------------------

Derivative financial instruments
The Company enters into currency forward contracts to manage foreign
currency exchange risk associated with the Company's manufacturing
operations in Singapore. The Company's policy is to hedge all material
transaction and translation exposures on a quarterly basis. Contracts are
generally entered into at the end of each fiscal quarter to reduce foreign
currency exposures for the following fiscal quarter. Contracts generally
have maturities of three months or less. Any gains or losses on these
instruments are accounted for in accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation", and are
generally included in Cost of Revenue. Unrealized gains or losses on
foreign currency forward contracts that are designated and effective as
hedges of firm commitments, are deferred and recorded in the same period
as the underlying transaction. Notional amounts of outstanding currency
forward contracts were $2,659,000 and $33,769,000, for fiscal years ended
1996 and 1995, respectively.

3. JOINT VENTURE

In March 1989, the Company and Kubota Corporation (Kubota) organized a
jointlyowned corporation, Maxoptix Corporation (Maxoptix). On December 26,
1994, the Company entered into an agreement for the sale of the Company's
interest in Maxoptix to Kubota Electronics America Corporation, a Delaware
company, whose ultimate parent is Kubota. Prior to the sale, Maxtor and
Kubota owned 67% and 33% interests in Maxoptix, respectively. The
transaction was completed on February 18, 1995. As consideration for the
sale, the Company received $1.5 million in cash and was relieved of certain
liabilities. The Company recorded a gain of approximately $10.0 million on
the sale. The results of operations of Maxoptix for fiscal years 1995 and
1994 were immaterial to the Company's statements of operations, balance
sheets and statements of cash flows.

4. MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION

The Company operates in a single industry segment: the design, manufacture
and sale of data storage products for desktop and notebook computer systems.
It has a world-wide sales, service and distribution network. The Company
markets and sells its products through a direct sales force to OEMs,
distributors and other emerging sales channels such as computer
specialty retailers and computer superstores.

During fiscal year 1996 and 1995 no customer accounted for more than 10%
of the Company's revenue. One customer accounted for approximately 24% of
the Company's revenue in fiscal year 1994.

The Company's export sales represented 41%, 48% and 43% of total revenue
in fiscal years 1996, 1995 and 1994, respectively. Approximately 60%, 53%,
and 53% of export sales were to Europe, while 35%, 38% and 35% of export
sales were to Asia Pacific in fiscal years 1996, 1995 and 1994, respectively.

Operations outside the United States primarily consist of manufacturing
plants in Singapore, Hong Kong, and Thailand that produce subassemblies
and final assemblies for the Company's disk drive products. The geographic
breakdown of the Company's activities for each of the three fiscal years
in the period ended March 30, 1996 is presented in the following table:

(In thousands) U.S. Asia Pacific Eliminations Consolidated
- ----------------------------------------------------------------------------
Fiscal year ended March 30, 1996
- ----------------------------------------------------------------------------
Revenue from unaffiliated
customers $1,196,105 $ 68,522 $ - $1,264,627
Revenue from affiliated
customers 3,417 954 - 4,371
Transfers between
geographic locations 14,600 1,585,545 (1,600,145) -
- ----------------------------------------------------------------------------
Revenue 1,214,122 1,655,021 (1,600,145) 1,268,998
- ----------------------------------------------------------------------------
Income (loss) from
operations (204,376) 95,035 82 (109,259)
- ----------------------------------------------------------------------------
Identifiable assets 326,106 397,837 (281,456) 442,487
- ------------------------------------------------------------------------------

Fiscal year ended March 25, 1995
- -----------------------------------------------------------------------------
Revenue from unaffiliated
customers $ 884,301 $ 4,987 $ - $ 889,288

Revenue from affiliated
customers 17,511 - - 17,511
Transfers between
geographic locations 35,268 874,746 (910,014) -
- ----------------------------------------------------------------------------
Revenue 937,080 879,733 (910,014) 906,799
- ----------------------------------------------------------------------------
Income (loss) from
operations (135,848) 59,558 264 (76,026)
- ----------------------------------------------------------------------------
Identifiable assets 338,139 293,096 (249,388) 381,847
- -----------------------------------------------------------------------------

Fiscal year ended March 26, 1994
- ----------------------------------------------------------------------------
Revenue from unaffiliated
customers $ 1,143,170 $ 2,469 $ - $1,145,639
Revenue from affiliated
customers 6,976 - - 6,976
Transfers between
geographic locations 75,233 1,169,240 (1,244,473) -
- ----------------------------------------------------------------------------
Revenue 1,225,379 1,171,709 (1,244,473) 1,152,615
- ----------------------------------------------------------------------------
Income (loss) from
operations (305,824) 57,903 - (247,921)
- ----------------------------------------------------------------------------
Identifiable assets 470,787 306,574 (284,986) 492,375
- -----------------------------------------------------------------------------

Revenue from unaffiliated and affiliated customers is based on the origin
of the sale. Transfers between geographic locations are accounted for at
amounts that are above cost. Such transfers are eliminated in the
consolidated financial statements. Identifiable assets are those assets
that can be directly associated with a particular geographic location
through acquisition and/or utilization. In determining each of the
geographic locations' income (loss) from operations and identifiable
assets, the expenses and assets relating to general corporate or
headquarter activities are included in the amounts for the geographic
locations where they were incurred, acquired or utilized.

5. LINES OF CREDIT, DEBT AND CAPITAL LEASE OBLIGATIONS

Lines of credit, debt and capital lease obligations consist of the
following:
- -----------------------------------------------------------------------------
March 30, March 25,
(In thousands) 1996 1995
- ----------------------------------------------------------------------------

5.75% Convertible Subordinated Debentures
due March 1, 2012 $ 100,000 $ 100,000
Short-term borrowings; interest payable at
a rate of 1.75% above bank's prime rate
per annum - 30,000
Short-term borrowings; interest payable at
variable rates ranging from 5.74% to 6.3%
per annum 96,000 -
Short-term borrowings from parent; interest
payable at rates ranging from 5.9% to 6.24% 65,000 -
Short-term borrowing; interest payable at a
rate of 6.120%; secured by equipment 13,800 -
Term loans, principal payable in varying
monthly, quarterly and semi annual installments through October 1996;
interest payable at a rate of 8.46% per annum;
secured by equipment 708 1,844
Term loans, principal payable in varying
monthly, bi-monthly and quarterly installments
through December 1996; interest payable
at rates ranging from 7.53% to 8.03% per
annum; secured by equipment 1,068 2,601
Capital lease and other obligations 1,079 479
- ----------------------------------------------------------------------------
277,655 134,924
Less amounts due within one year 177,474 32,957
- ----------------------------------------------------------------------------
Due after one year $ 100,181 $ 101,967
- -----------------------------------------------------------------------------

Future aggregate maturities exclusive of capital lease and other
obligations are as follows:

Fiscal year ending
(In thousands)
- ----------------------------------------------------------------------------
1997 $ 176,576
1998 5,000
1999 5,000
2000 5,000
2001 5,000
Later years 80,000
- ----------------------------------------------------------------------------
Total $ 276,576
- -----------------------------------------------------------------------------

The 5.75% Convertible Subordinated Debentures (Debentures) originally
were convertible at any time prior to maturity, unless previously
redeemed, into shares of common stock of the Company at a conversion rate
of 25 shares per each $1,000 principal amount of Debentures (equivalent to
a conversion price of $40 per share), subject to adjustment in certain
events. Pursuant to the terms of the Indenture governing the Debentures,
dated March 1, 1987, upon the closing of the Merger under the Agreement and
Plan of Merger, dated November 2, 1995, between HEA and the Company,
Debenture holders were entitled to receive a conversion in lieu of shares
of common stock of the Company the same consideration per share received by
holders of common stock at the closing of the Merger. A First
Supplemental Indenture, dated January 11, 1996, accordingly provides
that each $1,000 principal amount of Debentures may be convertible to
25 shares of common stock of the Company (equivalent to a conversion
price of $40 per share), which is immediately converted into a cash payment
equal to $6.70 times 25 shares of common stock of the Company.
Interest on the Debentures is payable on March 1 and September 1 of each
year. The Debentures, at the option of the Company, are redeemable at
100.575% of the principal amount as of March 30, 1996 and thereafter at
prices adjusting to the principal amount on or after March 1, 1997, plus
accrued interest. The Debentures are entitled to a sinking fund of
$5,000,000 principal amount of Debentures, payable annually beginning
March 1, 1998, which is calculated to retire at least 70% of the Debentures
prior to maturity. The Debentures are subordinated in right to payment to
all senior indebtedness.

On August 31, 1995, the Company established a $100 million
unsecured, revolving line of credit through Citicorp Securities Inc. and
syndicated among ten banks, which is guaranteed by Hyundai Electronics
Industries Co., Ltd. (HEI). This $100 million line of credit is a 364-
d