Maxtor Reports Third Quarter Financial Results

MILPITAS, Calif., Oct. 26 /PRNewswire-FirstCall/ -- Maxtor Corporation today announced its financial results for the third quarter ended October 1, 2005. Revenue for the recent third quarter was $926 million. The Company reported a net loss of $17 million, or $(0.07) per share, for the third quarter of 2005. Included in the net loss was an additional $4.2 million in severance expense primarily related to the previously-announced reduction in force in Singapore, $1.9 million related to the write-off of unamortized bond issuance costs due to the repurchase of approximately $94 million in debt in August 2005 and $1.4 million in prepaid interest charges for mortgages that were repaid in September 2005. In the third quarter of 2004, revenue totaled $927 million. The Company reported a net loss of $95.1 million, or $(0.38) per share, for the third quarter of 2004.

"Our third quarter results reflected a strong enterprise performance offset by the results of our desktop operation," said Dr. C.S. Park, chairman and chief executive officer. "During the third quarter, we shipped 975,000 SCSI drives compared with 926,000 in the second quarter. Desktop drive shipments totaled 12.2 million compared with 11.1 million in the second quarter. The gross profit margins on our desktop products were constrained due to a previously-announced production problem at our internal media operation. The production issue limited our supply of media, increased costs associated with scrap and yield and led to a less than favorable customer mix. The issue has been resolved and we do not anticipate that media will be a gating factor in our fourth quarter performance."

The gross profit margin was 11.1% in the third quarter compared with 13.2% in the second quarter. The average selling price in the quarter decreased to $70 from $77 in the second quarter. The Company shipped 1,139,000 drives to consumer electronics OEMs compared with 1,065,000 in the second quarter.

During the third quarter, the Company completed a $326 million 2.375% convertible debt offering, raising approximately $318 million in net proceeds. It used approximately $94 million of the proceeds to repurchase a portion of a 6.80% convertible debt offering issued in 2003. Maxtor ended the quarter with $560 million in cash and marketable securities compared with $440 million at the end of the second quarter.

About Maxtor

Maxtor Corporation (http://www.maxtor.com/) is one of the world's leading suppliers of information storage solutions. The Company has an expansive line of storage products for desktop computers, near-line storage, high-performance Intel-based servers, and consumer electronics. Maxtor has a reputation as a proven market leader built by consistently providing high-quality products and service and support for its customers. Maxtor and its products can be found at http://www.maxtor.com/ or by calling toll-free (800) 2-MAXTOR. Maxtor is traded on the NYSE under the MXO symbol.

This release contains forward-looking statements concerning internal media production and fourth quarter performance. These statements are based on current expectations and are subject to risks and uncertainties which could materially affect the Company's results, including, but not limited to, market demand for hard disk drives, qualification of the Company's products, market acceptance of its products, the Company's ability to execute future development and production ramps and utilize manufacturing assets efficiently, changes in product and customer mix, the availability of components, pricing trends, actions by competitors, and general economic and industry conditions. These and other risk factors are contained in periodic reports filed with the SEC, including, but not limited to, the Form 10-K/A for fiscal 2004. Forward- looking statements are based on information available to the Company as of the date of this release and current expectations, forecasts and assumptions involve a number of risks that could cause actual results to differ materially from those anticipated by the forward-looking statements. Maxtor is under no obligation (and expressly disclaims any obligation) to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

Conference Call

Maxtor has scheduled a conference call for analysts and investors today, October 26, 2005, at 2:00 p.m. PT to discuss the third quarter 2005 results. Financial information to be discussed on the call will be available on the Company's website immediately prior to the commencement of the call. The dial- in number for the live call is (800) 374-1806 or (706) 634-2296. The call will be webcast on the Company's site at http://www.maxtor.com/. There will be a replay available shortly following the call through November 2, 2005. The dial-in number for the replay is (800) 642-1687 or (706) 645-9291, access code: 1259428.

MAXTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) (Unaudited) Three months ended Nine months ended October 1, September 25, October 1, September 25, 2005 2004 2005 2004 Net revenues $926,485 $927,204 $2,920,815 $2,765,146 Cost of revenues 823,608 868,983 2,579,741 2,480,682 Gross profit 102,877 58,221 341,074 284,464 Operating expenses: Research and development 71,415 76,776 218,284 239,319 Selling, general and administrative 35,864 35,159 110,382 101,201 Amortization of intangible assets 216 5,052 652 30,941 Restructuring charges 4,238 31,393 18,802 31,393 Total operating expenses 111,733 148,380 348,120 402,854 Loss from operations (8,856) (90,159) (7,046) (118,390) Interest expense (11,105) (7,576) (27,179) (23,649) Interest income 3,123 1,276 7,772 3,646 Income from litigation -- -- -- 24,750 Other gain 345 13 95 67 Loss before income taxes (16,493) (96,446) (26,358) (113,576) Provision for (benefit from) income taxes 457 (1,300) 1,309 (709) Net loss $(16,950) $(95,146) $(27,667) $(112,867) Net loss per share - basic $(0.07) $(0.38) $(0.11) $(0.46) - diluted $(0.07) $(0.38) $(0.11) $(0.46) Shares used in per share calculation -basic 253,668,613 248,728,113 252,863,210 247,611,347 -diluted 253,668,613 248,728,113 252,863,210 247,611,347 MAXTOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) October 1, December 25, 2005 2004 ASSETS Current assets: Cash and cash equivalents $455,821 $378,065 Restricted cash 16,574 24,561 Marketable securities 88,001 103,969 Accounts receivable, net 451,420 466,366 Inventories 256,969 229,410 Prepaid expenses and other 44,648 36,336 Total current assets 1,313,433 1,238,707 Property, plant and equipment, net 355,573 347,934 Goodwill and other intangible assets, net 490,280 490,932 Other assets 48,259 30,168 Total assets $2,207,545 $2,107,741 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings, including current portion of long-term debt $6,084 $82,561 Accounts payable 676,763 674,947 Accrued and other liabilities 320,815 324,369 Total current liabilities 1,003,662 1,081,877 Long-term debt, net of current portion 575,774 382,570 Other liabilities 66,796 66,695 Total liabilities 1,646,232 1,531,142 Total stockholders' equity 561,313 576,599 Total liabilities and stockholders' equity $2,207,545 $2,107,741 Maxtor Corporation Historical Trend Information Q304 Q404 Q105 Q205 Q305 Disk Drive Units shipped (K) 13,807 14,667 14,179 12,071 13,161 Revenue (M) $927 $1,031 $1,070 $925 $926 Disk Drive Average ASP (blended) $67 $70 $75 $77 $70 Revenue by Market Channel OEMs 47% 49% 51% 53% 52% Distributors 43% 41% 38% 37% 38% Retail 10% 10% 11% 10% 10% Revenue by Geographic Location The Americas 36% 31% 32% 37% 36% Europe/Middle East/Africa 36% 40% 38% 32% 35% Asia Pacific & Japan 28% 29% 30% 31% 29% Inventory 251 229 231 264 257 Raw Materials 71.9 79.9 75.7 86.7 93.1 WIP 53.5 57.8 48.9 50.2 51.1 Finished Goods 125.7 91.7 106.4 127.6 112.8 Turns 14 16 17 12 13 DSO 44 41 39 41 44