Amendment No. 4 to the Komag Form S-3

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. o

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall hereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the Securities and Exchange Commission declares our registration statement effective. This prospectus is not an offer to sell these securities and neither we nor the selling stockholders are soliciting offers to buy these securities in any state where the offer or sale is not permitted.

This is a public offering of 5,000,000 shares of common stock of Komag, Incorporated. Komag is selling 3,000,000 of the shares being offered and certain stockholders of Komag, referred to in this prospectus as the selling stockholders, are selling the remaining 2,000,000 shares.

Concurrent with the offering of shares of our common stock, we are also offering under a separate prospectus $70,000,000 aggregate principal amount ($80,500,000 if the underwriters’ option to purchase additional notes is exercised in full) of our % Convertible Subordinated Notes due 2024. The offering of shares of our common stock hereby is not contingent on the consummation of the concurrent note offering.

Our common stock currently trades under the symbol “KOMG” on the Nasdaq National Market. On January 14, 2004, the last reported sale price of our common stock on the Nasdaq National Market was $23.71 per share.

See “Risk Factors” beginning on page 6 to read about risks that you should consider before buying shares of our common stock.

We have granted the underwriters a 30-day option to purchase from us from time to time up to an additional 750,000 shares to cover any over-allotments. The underwriters are offering our common stock as described herein under “Underwriting.”

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all the information you should consider before buying our common stock offered hereby. You should read the entire prospectus, including the “Risk Factors” section beginning on page 6, and the financial data and related notes included in this prospectus and incorporated by reference herein, before deciding to invest in the shares. Unless indicated otherwise, all information contained in this prospectus assumes the underwriters will not exercise their option to purchase additional shares.

We design, manufacture and market thin-film media, or disks, that are incorporated into disk drives. We are the world’s largest independent manufacturer of thin-film media with a 40% market share of the total merchant disk supplier market and 18% of the overall disk market as of the second quarter of 2003 according to TrendFOCUS, a storage research firm. Due to our market leadership and significant research and development efforts, we have developed a deep understanding of market needs in the disk drive market and offer a broad portfolio of advanced solutions to address those needs. Our customers include many of the world’s largest disk drive manufacturers, including Hitachi Global Storage Technologies, or HGST, Maxtor and Western Digital. Additionally, in October 2003 we began volume production for a new major disk drive customer’s desktop products.

Disks such as the ones we manufacture are incorporated into disk drives, which are the primary storage medium for digital data. Technology advances have greatly increased the storage capacity of individual disks, lowering the per gigabyte, or GB, cost of storage. The lower cost of storage has facilitated the adoption of disk drives into a broad range of new applications, providing new areas of market growth for disks and disk drives. High-volume, high-growth applications for disk drives include personal computers, enterprise storage systems, communications infrastructure and consumer electronics appliances. According to IDC, the annual total storage capacity and number of units of disk drives to be shipped between 2002 and 2007 are expected to grow at compound annual rates of approximately 45.1% and 10.7%, respectively. The increase in storage capacity used in existing and new applications is expected to generate increased demand for disk drives, which may in turn generate higher demand for disks such as those we sell.

On December 19, 2003, we announced that we signed an agreement with Trace Storage Technology Corporation (Trace), which will provide us, upon satisfaction of certain conditions, with additional substrate capacity as well as a substrate supply relationship with Trace. Under the agreement, we expect to purchase Trace’s Malaysian substrate manufacturing facility including land, building and equipment for approximately $10 million. We intend to use cash proceeds currently held to pay for the acquisition and are not relying on consummation of the proposed common stock offering in this prospectus or the concurrent notes offering to fund this acquisition. We intend to manufacture both aluminum ground substrates and plated and polished substrates in this factory for our own use and to sell Trace a portion of the output under a supply agreement entered into in connection with the purchase.

Completion of these transactions is subject to a number of conditions, and there is no guarantee that we will be able to satisfy all the conditions needed to complete these transactions. If we satisfy all of the conditions to closing, we anticipate closing these transactions in the first quarter of 2004.

We were organized in 1983 and are incorporated in the state of Delaware. Our principal executive offices are located at 1710 Automation Parkway, San Jose, California 95131, and our telephone number is (408) 576-2000. Our web site is located at “www.komag.com.” Information contained on our web site does not constitute a part of this prospectus.

The number of shares outstanding after this offering is based upon the number of shares outstanding as of December 28, 2003, but does not include the following:


	•	1,220,085 shares of common stock issuable upon exercise of outstanding stock options with a weighted average exercise price of approximately $8.68 per share;

	•	637,500 shares of common stock issuable upon exercise of stock purchase rights which have been deferred pursuant to our deferred compensation plan;

	•	562,253 shares of common stock reserved for future issuance under our stock option plan;

	•	528,216 shares of common stock reserved for future issuance under our employee stock purchase plan; and

	•	999,847 shares of common stock issuable upon exercise of outstanding warrants at an exercise price of $9.00 per share.

The following table sets forth our summary consolidated financial data for the three months ended September 29, 2002, December 29, 2002, March 30, 2003, June 29, 2003 and September 28, 2003. The following data is derived from our unaudited condensed consolidated financial statements and should be read in conjunction with these financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere or incorporated by reference in this prospectus. The unaudited condensed consolidated financial statements include, in the opinion of management, all adjustments, consisting only of normal, recurring adjustments, that management considers necessary for a fair statement of the results for those periods. The historical results are not necessarily indicative of results to be expected in any future period and should not be considered indicative of results expected for the full fiscal years. The summary consolidated balance sheet data is presented on an actual basis; on an as adjusted basis to reflect $24.0 million net proceeds received from the sale of idle buildings and land, giving effect to the application of these proceeds and approximately $1.2 million of cash on October 21, 2003 to repay a portion of our senior secured notes, or Senior Notes, and our junior secured notes, or Junior Notes in full; and on an as adjusted further basis to reflect the sale of 3,000,000 shares of common stock offered by us in this offering at an assumed public offering price of $20.60 per share after deducting the estimated underwriting discounts and commissions and estimated offering costs and to reflect the issuance of our Convertible Subordinated Notes, giving effect to the application of the net proceeds.


(1)	Restructuring/impairment charges of $0.7 million for the three months ended September 29, 2002 related to chapter 11 bankruptcy and Exit Facility professional fees.

(2)	Other income, net includes a property tax refund of $2.2 million.

(3)	Restructuring/impairment charges for the three months ended December 29, 2002 include chapter 11 bankruptcy professional fees of $0.1 million and a goodwill impairment charge of $33.9 million.

(4)	Provision for (benefit from) income taxes includes an income tax benefit of $2.5 million related to withholding taxes previously accrued which are no longer payable as a result of a tax exemption.


(1)	On September 30, 2003, we completed the sale of our idle Fremont, California land and buildings. The land and buildings were acquired through our merger with HMT Technology Corporation in October 2000 and had been idle and held for sale since 2001. The net proceeds from the sale of the land and buildings were approximately $24.0 million resulting in a gain of approximately $1.0 million. The sale will be recorded in the fourth quarter of 2003. On October 21, 2003, we used approximately 50% of the net proceeds, $12.1 million, to pay down our debt as required under the terms of our Senior Notes Indenture, which Senior Notes are due in 2007. Additionally, we made a required principal payment of $5.0 million on the Senior Notes on October 15, 2003. Further, we received consent from a majority of the holders of the Senior Notes and the lender under the Exit Facility to redeem in full the Junior Notes for approximately $8.2 million and called for their redemption on October 30, 2003. The Junior Notes were redeemed on December 2, 2003.

(2)	Reflects the adjustment described in (1) above; the sale of 3,000,000 shares of common stock offered by us in this offering at an assumed public offering price of $20.60 per share after deducting the estimated underwriting discounts and commissions and estimated offering costs; and, the issuance of $70.0 million aggregate principal amount of our % Convertible Subordinated Notes due 2024, giving effect to the application of the net proceeds. Consummation of this offering of shares of common stock is not contingent upon consummation of the concurrent Convertible Subordinated Note offering.

The following table sets forth our selected consolidated financial data and other operating information for the four full fiscal years and the first six months prior to our emergence from bankruptcy (the Predecessor Company), and the six months after emergence from bankruptcy on June 30, 2002 (the Successor Company). The financial data and operating information is derived from our consolidated financial statements, and should be read in conjunction with the consolidated financial statements, related notes, and other financial information incorporated by reference in this prospectus. We declared no cash dividends during the five-year period. The values in the table below are in thousands, except per share amounts.


(1)	Results of operations for the six months ended December 29, 2002 included a $33.9 million impairment charge related to the write-off of all remaining goodwill, in accordance with FAS 142.

(2)	Results of operations for the six months ended June 30, 2002, included other income of $379.0 million associated with the extinguishment of liabilities subject to compromise as of June 30, 2002, and other income of $17.3 million to revalue our assets and liabilities at June 30, 2002, to fair value as prescribed by fresh-start reporting under SOP 90-7.

(3)	Results of operations for the six months ended June 30, 2002, included a $4.3 million restructuring/impairment charge in connection with the shutdown of our research and development facility in Santa Rosa, California.

(4)	Results of operations for the six months ended June 30, 2002, included a $47.5 million transitional impairment loss under SFAS 142. The loss was recognized as the cumulative effect of a change in accounting principle in our consolidated statement of operations.

(5)	Results of operations for 2001 included a $45.8 million impairment charge related to the write-down of land and buildings held for sale, a $4.4 million impairment charge related to manufacturing equipment no longer in service, and restructuring charges of $7.2 million primarily related to lease obligations on equipment no longer in service and additional facility closure costs.

(6)	Results of operations for 2001 included a $99.1 million interest expense charge related to accretion to bring the subordinated convertible notes up to their full face value of $230.0 million.

(7)	Results of operations for 2000 included a net $5.3 million restructuring charge, including an $8.0 million charge in connection with ceasing our Santa Rosa manufacturing operations, plus a net $2.7 million reversal of charges previously accrued for restructurings we undertook in 1997, 1998, and 1999.

(8)	Results of operations for 1999 included $143.7 million in restructuring charges and a $44.3 million impairment charge. The restructuring charges related primarily to the closing of our U.S. manufacturing operations. The impairment charge related to the write-down of goodwill which originated from the acquisition of Western Digital Corporation’s media operation.

(9)	Results of operations for 1998 included a $187.8 million restructuring charge that primarily related to an asset impairment charge of $175.0 million. Based on analysis of our production capacity and our expectations of the media market over the remaining life of our fixed assets, we concluded that we would not be able to recover the book value of those assets.


(10)	In accordance with SOP 90-7, we did not record interest expense on our outstanding debt during the chapter 11 proceedings from August 24, 2001, through June 30, 2002.

(11)	Earnings per share of the Predecessor Company are not presented as the amounts are not meaningful.

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below when considering whether or not to invest in our common stock. These risks and uncertainties are not the only ones facing our company. Additional risks and uncertainties that we are unaware of or currently deem immaterial may also become important factors that may harm our business. If any of the following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected, the value of our stock could decline, and you may lose part or all of your investment. Further, this prospectus contains forward-looking statements and actual results may differ significantly from the results contemplated by such forward-looking statements.

We have a history of operating losses and recently emerged from chapter 11 bankruptcy. Despite our recent profitability during each of our three most recent fiscal quarters, we cannot assure you that we will be able to maintain or grow profits in the future.

We have experienced substantial operating losses during the past five fiscal years. Prior to reporting positive net income in each of our three most recent quarters ending September 28, 2003, our last profitable quarter, excluding one-time credits, was the fourth quarter of 1997. We recorded a net loss $68.1 million during the fiscal year ended December 31, 2000, a net loss of $296.4 million during the fiscal year ended December 30, 2001 and a net profit of $270.5 million for the fiscal year ended December 29, 2002, largely because of a gain of $396.4 million for extinguishment of indebtedness and revaluation of assets and liabilities for fresh-start reporting. In August 2001, after defaulting on our debt obligations, we filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code. We emerged from chapter 11 bankruptcy on June 30, 2002. Due to the factors discussed below in this Risk Factors section, including the very competitive, capital intensive and historically cyclical nature of the disk and disk drive markets upon which our business is dependent, we cannot assure you that we will be able to sustain or grow our recent profitability.

Downturns in the disk drive manufacturing market and related markets may decrease our revenues and margins.

The market for our products depends on economic conditions affecting the disk drive manufacturing and related markets, particularly the desktop personal computer market. We believe that a substantial majority of our finished unit sales were incorporated into disk drives manufactured by our customers for the desktop personal computer market. Because of this concentration in a single market, which we expect to continue, our business is tightly linked to the success of the personal computer market. The personal computer market has historically been seasonal and cyclical and has experienced periods of oversupply and reduced production levels, resulting in significantly reduced demand for disks and pricing pressures. The effect of these cycles on suppliers, including disk manufacturers, has been magnified by disk drive manufacturers’ practice of ordering components, including disks, in excess of their needs during periods of rapid growth, which increases the severity of the drop in the demand for components during periods of reduced growth or contraction. Accordingly, downturns in the desktop personal computer market may cause disk drive manufacturers to delay or cancel projects, reduce their production or reduce or cancel orders for our products. This, in turn, may lead to longer sales cycles, delays in payment and collection, and pricing pressures, causing us to realize lower revenues and margins.

If our production capacity is underutilized, our gross margin will be adversely affected and we could sustain significant losses.

Our business is characterized by high fixed overhead costs including expensive plant facilities and production equipment. Our per unit costs and our gross margin are significantly affected by the number of units we produce and the amount of our production capacity that we utilize. Our production capacity is

currently approximately 18 million to 20 million disks per quarter. We expect that we will increase our production capacity by approximately 10% to 20% over the next three fiscal quarters by utilizing our existing facilities, which minimizes capital outlays. If we underutilize our production capacity for any reason including lack of customer demand or cancellation or delay of customer orders, we could experience significantly higher unit production costs, lower margins and potentially significant losses. Underutilization of our production capacity could also result in equipment write-offs, restructuring charges and employee layoffs. For example, from our 1997 fiscal year to the third quarter of our 2002 fiscal year, our gross margin was severely adversely affected by our underutilization of our capacity. If our production capacity is underutilized for any reason, our financial results and our business would be severely harmed.

If future demand for our products exceeds the production capability of our existing facilities, we may be required to invest significant capital expenditures to increase capacity or else risk losing market share.

We believe we have a limited capability to further expand our production capacity using our existing facilities to meet incremental increases in future demand for our disk products. If demand for our products were to significantly exceed these capacity levels, we may not be able to satisfy this increased demand. To increase our production capacity to meet significant increases in demand for our disks, we would be required to expand our existing facilities, construct new facilities or acquire entities with additional production capacities. These alternatives would require significant capital investments by us and would require us to seek additional equity or debt financing. There can be no assurance that such financing would be available to us when needed on acceptable terms, or at all. If we were unable to expand capacity on a timely basis to meet increases in demand, we could lose market opportunities for sales and our market share could decline. Further, we cannot assure you that the increased demand for our disk products would continue for a sufficient period of time to recoup our capital investments associated with increasing our production capacity.

We receive a large percentage of our net sales from only a few disk drive manufacturer customers, the loss of any of which would adversely affect our sales.

Our customers are disk drive manufacturers. A relatively small number of disk drive manufacturers dominate the disk drive market. According to IDC, four of these manufacturers accounted for over 84% of disk drive sales during the third quarter of 2003. Accordingly, we expect that the success of our business will continue to depend on a limited number of customers who have comparatively strong bargaining power in negotiating contracts with us.

In the first three fiscal quarters of 2003, 41% of our net sales were to Western Digital, 36% were to Maxtor and 15% were to HGST. During fiscal 2002, 61% of our net sales were to Western Digital and 30% were to Maxtor. During fiscal 2001, 59% of our net sales were to Western Digital and 27% were to Maxtor. If any one of our significant customers were to reduce their disk requirements or develop or expand capacity to produce disks for internal use and we are unable to replace these orders with sales to new customers, our sales would be reduced and, our business would suffer.

Internal disk operations of disk drive manufacturers may adversely affect our ability to sell our disk products.

Disk drive manufacturers such as HGST, Maxtor and Seagate have large internal thin-film media manufacturing operations and are able to produce a substantial percentage of their disk requirements. We compete directly with these internal operations when we market our products to these disk drive companies, and indirectly when we sell our disks to customers who must compete with vertically-integrated disk drive manufacturers. Vertically-integrated companies have the opportunity to keep their disk-making operations fully utilized, thus lowering their costs of production. This cost advantage contributes to the pressure on us and other independent disk manufacturers to sell disks at lower prices and can severely affect our profitability. Vertically-integrated companies are also able to achieve a large manufacturing scale that supports the development resources necessary to advance technology rapidly. We may not have sufficient resources or

If we are unable to perform successfully in the highly competitive and increasingly concentrated disk industry, we may not be able to maintain or gain additional market share, and our operating results would be harmed.

The market for our products is highly competitive, and we expect competition to continue in the future. Competitors in the thin-film media industry fall mainly into two groups: Asian-based independent disk manufacturers and captive disk manufacturers. Our major Asian-based independent competitors include Fuji Electric, Hoya, Showa Denko and Trace Storage. The captive disk manufacturers who produce thin-film media internally for their own use include HGST, Maxtor and Seagate. In late 2002, IBM entered into a joint venture with Hitachi. The joint venture, named Hitachi Global Storage Technologies, or HGST, includes Hitachi’s and IBM’s disk drive operations and a portion of IBM’s thin-film media operations, and evidences the increasing concentration and economies of scale in our industry. Many of these competitors have greater financial resources and less debt than we have, which could allow them to adjust to fluctuating market conditions better than us. Further, they may have greater technical and manufacturing resources, more extensive name recognition, more marketing power, a broader array of product lines and preferred vendor status. To the extent our competitors continue to consolidate and achieve greater economies of scale, we will face additional competitive challenges. If we are not able to compete successfully in the future, we would not be able to gain additional market share for our products, or we may lose our existing market share, and our operating results could be harmed.

Price competition may force us to lower our prices, causing our net sales and gross margin to suffer.

We face significant price competition in the disk industry. High levels of competition have historically put downward pressure on prices per unit. Additionally, the average selling price of disks and disk drives rapidly declines over their commercial life as a result of technological enhancements, productivity improvements and industry supply increases. We may be forced to lower our prices or add new products and features at lower prices to remain competitive, and we may otherwise be unable to introduce new products at higher prices. We cannot assure you that we will be able to compete successfully in this kind of price competitive environment. Lower prices would reduce our ability to generate sales, and our gross margin would suffer. If we fail to mitigate the effect of these pressures through reducing the cost of our products or changing our product mix, our net sales and gross margin could be adversely affected.

Price declines are also affected by any imbalances between demand and supply. For most of 2002, as in the several years prior, disk supply exceeded demand. As independent suppliers like us struggled to utilize their capacity, the excess disk supply caused average selling prices for disks to decline. Pricing pressure on component suppliers was also compounded by high consumer demand for inexpensive personal computers and consumer devices. In the fourth quarter of 2002 and the first three quarters of 2003, disk prices began to stabilize, but there is no certainty that this trend will continue. These supply and demand factors and industry-wide competition could adjust again and force disk prices down, which would put pressure on our gross margin.

Because our products require a lengthy sales cycle with no assurance of high volume sales, we may expend significant financial and other resources without a return.

With short product life cycles and the rapid technological change experienced in the disk drive industry, we must frequently qualify new products with our disk drive manufacturing customers, based on criteria such as quality, storage capacity, performance, and price. Qualifying disks for incorporation into new disk drive products requires us to work extensively with the customer and the customer’s other suppliers to meet product specifications. Therefore, customers often require a significant number of product presentations and demonstrations, as well as substantial interaction with our senior management, before making a purchasing decision. Accordingly, our products typically have a lengthy sales cycle, which can range from six to twelve months or longer. During this time, we may expend substantial financial resources and management time and

effort, while having no assurances that a sale will result, or that disk drive programs ultimately will result in high-volume production. To the extent we expend significant resources to qualify products without realizing sales, our operations will suffer.

If our customers cancel orders, our sales could suffer and we are generally not entitled to receive cancellation penalties to offset the loss of sales revenue.

Our sales are generally made pursuant to purchase orders that are subject to cancellation, modification, or rescheduling without significant penalties. As a result, if a customer cancels, modifies, or reschedules an order, we may have already made expenditures that are not recoverable, and our profitability will suffer. Furthermore, if our current customers do not continue to place orders with us or if we are unable to obtain orders from new customers, our sales and operating results will suffer.

Because we depend on a limited number of suppliers, if our suppliers experience capacity constraints or production failures, our production, operating results and growth potential could be harmed.

We rely on a limited number of suppliers for some of the materials and equipment used in our manufacturing processes, including aluminum blanks, aluminum substrates, nickel plating solutions, polishing and texturing supplies, and sputtering target materials. For example, Kobe Steel, Ltd. is our sole supplier of aluminum blanks, a fundamental component in producing our disks. We also rely on OMG Fidelity, Inc. and Heraeus Incorporated for supplies of nickel plating solutions and sputtering target materials, respectively. The supplier base has been weakened by the poor financial condition of the industry in recent years, and some suppliers have exited the business. Our production capacity would be limited if one or more of these materials were to become unavailable or available in reduced quantities, or if we were unable to find alternative suppliers. For example, due to the significant growth in demand for our disk products in the fourth quarter of 2002, our sales were smaller during the quarter than the available market opportunity due to our inability to acquire additional aluminum substrates. If our sources of materials and supplies were limited or unavailable for a significant period of time, our production, operating results and ability to grow our business could be adversely affected.

Disk drive program life cycles are short, and disk drive programs are highly customized. If we fail to respond to our customers’ demanding requirements, we will not be able to compete effectively.

The disk industry has experienced rapid technological change, and if we are unable to anticipate and develop products and production technologies on a timely basis, our competitive position could be harmed. In general, the life cycles of disk drive programs are short. For example, between approximately 1999 and 2002, areal density rose dramatically on an annual basis. Additionally, disks must be more customized to each disk drive program. Short program life cycles and customization have increased the risk of product obsolescence, and as a result, supply chain management, including just-in-time delivery, has become a standard industry practice. In order to sustain customer relationships and sustain profitability, we must be able to develop new products and technologies in a timely fashion that can help customers reduce their time-to-market performance, and continue to maintain operational excellence that supports high-volume manufacturing ramps and tight inventory management throughout the supply chain. Accordingly, we have invested and intend to continue to invest heavily in our research and development program. If we cannot respond to this rapidly changing environment or fail to meet our customers’ demanding product and qualification requirements, we will not be able to compete effectively. As a result, we would not be able to maximize the use of our production facilities and our profitability would be negatively impacted.

If we do not keep pace with the rapid technological change in the disk drive industry, we will not be able to compete effectively, and our operating results could suffer.

Our products primarily serve the 3 1/2-inch disk drive market where product performance, consistent quality, price and availability are of great competitive importance. To succeed in an industry characterized by rapid technological developments, we must continuously advance our disk technology at a pace consistent with, or faster than, the pace at which our competitors are advancing their disk technology.

Advances in disk drive technology require continually lower flying heights and higher areal density. Until recently, areal density was roughly doubling from year-to-year and even today continues to increase rapidly, requiring significant improvement in every aspect of disk design. These advances require substantial on-going process and technology development. New process technologies, including synthetic anti-ferromagnetic, or SAF and perpendicular recording media, or PMR, must support cost-effective, high-volume production of disks that meet these ever-advancing customer requirements for enhanced magnetic recording performance. We may not be able to develop and implement these technologies in a timely manner in order to compete effectively against our competitors’ products or entirely new data storage technologies. In addition, we must transfer our technology from our U.S.-based research and development center to our Malaysian manufacturing operations. If we cannot advance our process technologies or do not successfully implement those advanced technologies in our Malaysian operations, or if technologies that we have chosen not to develop prove to be viable competitive alternatives, we would not be able to compete effectively. As a result, we would lose market share and face increased price competition from other manufacturers, and our operating results would suffer.

If we fail to improve the quality of, and control contamination in our manufacturing processes, we will lose our ability to remain competitive.

The manufacture of our products requires a tightly-controlled, multi-stage process, and the use of high-quality materials. Efficient production of our products requires utilization of advanced manufacturing techniques and clean room facilities. Disk fabrication occurs in a highly controlled, clean environment to minimize particles and other yield- and quality-limiting contaminants. In spite of stringent manufacturing controls, weaknesses in process control or minute impurities in materials may cause a substantial percentage of the disks in a lot to be defective. The success of our manufacturing operations depends, in part, on our ability to maintain process control and minimize such impurities in order to maximize yield of acceptable high-quality disks. Minor variations from specifications could have a disproportionately adverse impact on our manufacturing yields. If we are not able to continue to improve on our manufacturing processes or maintain stringent quality controls, or if contamination problems arise, we will not remain competitive, and our operating results would be harmed.

An industry trend towards glass-based applications could negatively impact our ability to remain competitive.

Our finished disks are primarily manufactured from aluminum substrates, which are the primary substrate used in desktop PC and enterprise applications. Some disk manufacturers emphasize the use of glass as a basis for the manufacture of their disks to primarily serve the mobile personal computer market and certain other consumer applications. These applications are expected to achieve significant growth in the near future. To the extent glass-based applications were to achieve significant growth in the market place, we may lose market share if we were unable to move rapidly to produce glass-based disks to address the demand.

All of our manufacturing operations have been consolidated in Malaysia and our foreign operations and international sales subject us to additional risks inherent in doing business on an international level that make it more costly or difficult to conduct our business.

As a result of our consolidation of manufacturing operations in Malaysia, technology developed at our U.S.-based research and development center must now be first implemented for high-volume production at our Malaysian facilities without the benefit of being implemented at a U.S. factory. Therefore, we rely heavily on electronic communications between our U.S. headquarters and our Malaysian facilities to transfer specifications and procedures, diagnose operational issues and meet customer requirements. If our operations in Malaysia or overseas communications are disrupted for a prolonged period for any reason, including a failure in electronic communications with our U.S. operations, the manufacture and shipment of our products would be delayed, and our results of operations would suffer.

Furthermore, our ability to transfer funds from our Malaysian operations to the United States is subject to Malaysian rules and regulations. In 1999, the Malaysian government repealed a regulation that restricted

the amount of dividends that a Malaysian company may pay to its stockholders. If not repealed, this regulation would have potentially limited our ability to transfer funds to the United States from our Malaysian operations. If similar regulations are enacted in the future, we may not be able to finance our U.S.-based research and development and/or repay our U.S. debt obligations.

We are subject to a number of risks of conducting business outside of the United States. Our sales to customers in Asia, including the foreign subsidiaries of domestic disk drive companies, account for substantially all of our net sales. Further, while customers assemble a substantial portion of their disk drives in Asia, they subsequently sell these products throughout the world. Therefore, our high concentration of Asian sales does not accurately reflect the eventual point of consumption of the assembled disk drives. We anticipate that international sales will continue to represent the majority of our net sales, and as a result the success of our business is subject to factors affecting global markets generally.

We are subject to these risks to a greater extent than most companies because, in addition to selling our products outside the United States, our Malaysian operations account for substantially all of our net sales. Accordingly, our operating results are subject to the risks inherent with international operations, including, but not limited to:


	•	compliance with changing legal and regulatory requirements of foreign jurisdictions;

	•	fluctuations in tariffs or other trade barriers;

	•	foreign currency exchange rate fluctuations, since certain costs of our foreign manufacturing and marketing operations are incurred in foreign currency, including purchase of certain operating supplies and production equipment from Japanese suppliers in Yen-denominated transactions;

	•	difficulties in staffing and managing foreign operations;

	•	political, social and economic instability;

	•	increased exposure to threats and acts of terrorism;

	•	exposure to taxes in multiple jurisdictions;

	•	local infrastructure problems or failures including but not limited to loss of power and water supply; and

	•	transportation delays and interruptions.

If we are not able to attract and retain key personnel, our operations could be harmed.

Our future success depends on the continued service of our executive officers, our highly-skilled research, development and engineering team, our manufacturing team and our key administrative, sales and marketing and support personnel. Acquiring talented personnel who possess the advanced skills we require has been difficult. Our bankruptcy filing and our financial performance in prior years increased the difficulty of attracting and retaining skilled engineers and other knowledgeable workers. Even though we have emerged from bankruptcy, we may have difficulty attracting and retaining key personnel. We may not be able to attract, assimilate or retain highly-qualified personnel to maintain the capabilities that are necessary to compete effectively. Further, we do not have key person life insurance on any of our key personnel. If we are unable to retain existing or hire key personnel, our business, financial condition and operating results could be harmed.

If we do not protect our patents and other intellectual property rights, our revenues could suffer.

It is commonplace to protect technology through patents and other forms of intellectual property rights in technically sophisticated fields. In the disk and disk drive industries, companies and individuals have initiated actions against others in the industry to enforce intellectual property rights. Although we attempt to protect our intellectual property rights through patents, copyrights, trade secrets and other measures, we may not be able to adequately protect our technology. In addition, we may not be able to discover significant

infringements of our technology or successfully enforce our rights to our technology if we discover infringing uses by others, and such infringements could have a negative impact on our ability to compete effectively. Competitors may be able to develop similar technology and also may have or may develop intellectual property rights and enforce those rights to prevent us from using such technologies, or demand royalty payments from us in return for using such technologies. Either of these events may affect our production, which could materially reduce our revenues and harm our operating results.

We may face intellectual property infringement claims that are costly to resolve, may divert our management’s attention, and may negatively impact our operations.

We have occasionally received, and may receive in the future, communications from third parties that assert violation of intellectual property rights alleged to cover certain of our products or manufacturing processes or equipment. We evaluate on a case-by-case basis whether it would be necessary to defend against such claims or to seek licenses to the rights referred to in such communications. In certain cases, we may not be able to negotiate necessary licenses on commercially reasonable terms, or at all. Also, if we have to defend such claims, we could incur significant expenses and our management’s attention could be diverted from our core business. Further, we may not be able to anticipate claims by others that we infringe on their technology or successfully defend ourselves against such claims. Any litigation resulting from such claims could have a material adverse effect on our business and financial results.

Historical quarterly results may not accurately predict our performance due to a number of uncertainties and market factors, and as a result it is difficult to predict our future results.

Our operating results historically have fluctuated significantly on both a quarterly and annual basis. Additionally, as a result of our emergence from bankruptcy on June 30, 2002, we are operating our business with a new capital structure and have been subject to the fresh-start reporting prescribed by generally accepted accounting principles. Our balance sheet beginning as of June 30, 2002 reflects the application of these rules. As a result, our operating results in any quarter may not reflect our future performance, particularly because our financial condition and results of operations are not comparable to those in our historical financial statements ended prior to June 30, 2002. We believe that our future operating results will continue to be subject to quarterly variations based on a wide variety of factors, including:


	•	timing of significant orders, or order cancellations;

	•	changes in our product mix and average selling prices;

	•	modified, adjusted or rescheduled shipments;

	•	availability of disks versus demand for disks;

	•	the cyclical nature of the disk drive industry;

	•	our ability to develop and implement new manufacturing process technologies;

	•	increases in our production and engineering costs associated with initial design and production of new product programs;

	•	the ability of our process equipment to meet more stringent future product requirements;

	•	our ability to introduce new products that achieve cost-effective high-volume production in a timely manner, timing of product announcements, and market acceptance of new products;

	•	the availability of our production capacity, and the extent to which we can use that capacity;

	•	changes in our manufacturing efficiencies, in particular product yields and input costs for direct materials, operating supplies and other running costs;

	•	prolonged disruptions of operations at any of our facilities for any reason;

	•	changes in the cost of or limitations on availability of labor; and


	•	structural changes within the disk industry, including combinations, failures, and joint venture arrangements.

We cannot forecast with certainty the impact of these and other factors on our revenues and operating results in any future period. Our expense levels are based, in part, on expectations as to future revenues. If our revenue levels are below expectations, our operating results are likely to suffer.

Given our reliance on manufacturing facilities and suppliers in Asia, another outbreak of SARS may negatively impact our operating results.

If there is another outbreak of severe acute respiratory syndrome (SARS) as occurred at the end of 2002 in China, Hong Kong, Singapore, and Vietnam, such an outbreak, or the fear of such an outbreak, could have a negative impact on our operations. The outbreak that occurred in 2002 had an impact on the ability of our management, sales and customer service employees to travel between the executive and research facilities in California, manufacturing operations in Malaysia, and customer sites throughout Asia. Our normal operating processes could be hindered by a number of SARS-related factors upon a future extended occurrence, including, but not limited to:


	•	disruptions in our manufacturing facilities in Malaysia;

	•	disruptions at our third-party suppliers located in China or other affected countries;

	•	disruptions in our customers’ operations in Singapore, Malaysia or other affected countries;

	•	reduced travel between our U.S.-based research and development facility and our Malaysian manufacturing locations; and

	•	reduced travel between ourselves, customers, and suppliers.

Because of our reliance on our Malaysian manufacturing facilities and significant distribution to customers in Asia, if another outbreak occurs or spreads to other areas, our sales and operating results could be harmed.

If we make unprofitable acquisitions or are unable to successfully integrate future acquisitions, our business could suffer.

We have in the past and from time to time in the future may acquire businesses, products or technologies that we believe complement or expand our existing business. Acquisitions involve numerous risks, including the following:


	•	difficulties in integrating the operations, technologies, products and personnel of the acquired companies, especially given the specialized nature of our technology;

	•	diversion of management’s attention from normal daily operations of the business;

	•	potential difficulties in completing projects associated with in-process research and development;

	•	initial dependence on unfamiliar supply chains or relatively small supply partners; and

	•	the potential loss of key employees of the acquired companies.


	•	issue stock that would dilute our current stockholders’ percentage ownership;

	•	assume liabilities;

	•	record goodwill and non-amortizable intangible assets that will be subject to impairment testing and potential periodic impairment charges;

	•	incur amortization expenses related to certain intangible assets;

For example, in 2000, we acquired HMT Technology Corporation, another disk manufacturer. As a result of the acquisition of HMT Technology Corporation, we acquired debt liabilities, real property and manufacturing facilities and incurred significant transaction costs related to the acquisition that raised our ongoing operational expenses and fixed costs. We were unable to utilize our increased capacity and generate sufficient revenues to cover the increased costs and have since sold a majority of all unused facilities.

Mergers and acquisitions of high-technology companies are inherently risky, and no assurance can be given that any future acquisitions by us will be successful and will not materially adversely affect our business, operating results or financial condition. The failure to manage and successfully integrate acquisitions we make could harm our business and operating results in a material way. Even if an acquired company has already developed and marketed products, there can be no assurance that product enhancements will be made in a timely fashion or that pre-acquisition due diligence will have identified all possible issues that might arise with respect to products or the integration of the company into our company.

The nature of our operations makes us susceptible to material environmental liabilities, which could result in significant compliance and clean-up expenses and adversely affect our financial condition.

We are subject to a variety of federal, state, local, and foreign regulations relating to:


	•	the use, storage, discharge, and disposal of hazardous materials used during our manufacturing process;

	•	the treatment of water used in our manufacturing process; and

	•	air quality management.

We are required to obtain necessary permits for expanding our facilities. We must also comply with new regulations on our existing operations, which may result in significant costs. Public attention has increasingly been focused on the environmental impact of manufacturing operations that use hazardous materials. If we fail to comply with environmental regulations or fail to obtain the necessary permits:


	•	we could be subject to significant penalties;

	•	our ability to expand or operate in California or Malaysia could be restricted;

	•	our ability to establish additional operations in other locations could be restricted; or

	•	we could be required to obtain costly equipment or incur significant expenses to comply with environmental regulations.

Furthermore, our manufacturing processes rely on the use of hazardous materials and any accidental hazardous discharge could result in significant liability and clean-up expenses, which could harm our business, financial condition, and results of operations.

Earthquakes or other natural or man-made disasters could disrupt our operations.

Our U.S. facilities are located in San Jose, California. In addition, Kobe and other Japanese suppliers of our key manufacturing supplies and sputtering machines are located in areas with seismic activity. Our Malaysian operations have been subject to temporary production interruptions due to localized flooding, disruptions in the delivery of electrical power, and, on one occasion in 1997, by smoke generated by large, widespread fires in Indonesia. If any natural or man-made disasters do occur, operations could be disrupted for prolonged periods, and our business would suffer.

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

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

We continue to be leveraged and our debt service requirements will continue to make us vulnerable to economic downturn and impose restrictions on our operations.

Our total long-term debt and short-term debt was $116.0 million as of December 28, 2003 of which approximately $115.2 million consists of the outstanding amount due under the Senior Notes. We expect to redeem all of the outstanding Senior Notes with the proceeds of this offering and the concurrent offering of $70.0 million aggregate principal amount ($80.5 million if the underwriters’ option to purchase additional notes is exercised in full) of our new Convertible Subordinated Notes. However, in the event the aggregate net proceeds of this offering and the concurrent Convertible Subordinated Notes offering were to be below $115.2 million, we would be unable to redeem all of the outstanding Senior Notes with the proceeds of these offerings. Even if we are able to redeem all of the outstanding Senior Notes using the proceeds of this offering and the concurrent debt offering, we will still have debt service obligations under the convertible subordinated notes to be issued in the concurrent offering. As a result, we may be required to use a substantial portion of our cash flow from operations to meet our obligations on our new Convertible Subordinated Notes, thereby reducing the availability of cash flow to fund our business. Debt service obligations resulting from any outstanding debt remaining after this offering, to the extent our outstanding debt is not fully refinanced, and any debt service obligations arising from the concurrent offering of our new Convertible Subordinated Notes could limit our flexibility in planning for or reacting to changes in our industry, and could limit our ability to borrow more money for operations and implement our business strategy in the future. In addition, our leverage may restrict our ability to obtain additional financing in the future. We will continue to be more leveraged than some of our competitors, which may place us at a competitive disadvantage because our interest and debt repayment requirements makes us more susceptible to downturns in our business. To the extent we do not refinance in full our outstanding debt obligations under the Senior Notes from the proceeds of this offering and the concurrent Convertible Subordinated Notes offering, the debt covenants under the Senior Notes will continue to impose operating and financial restrictions on us. These covenants under the Senior Notes could adversely affect our ability to finance future operations, potential acquisitions or capital needs or to engage in other business activities that may be in our interest. In addition, if we cannot achieve the financial results necessary to maintain compliance with these covenants, we could be declared in default and be required to sell or liquidate our assets to repay outstanding debt.

Because of our debt obligations, in the event of a dissolution, equity holders would be unlikely to receive distributions.

We currently intend to repay all of our current indebtedness and retire our revolving credit facility, or Exit Facility, that we entered into on June 30, 2002, with the proceeds of this offering and the concurrent debt offering of our new Convertible Subordinated Notes. We have no balance outstanding under the Exit Facility and only limited ability to make a draw under the Exit Facility at this time. To the extent we do not refinance in full our outstanding debt from the proceeds of this offering and the concurrent Convertible Subordinated Notes offering, or retire the Exit Facility, our cash pay and paid-in-kind Senior Notes, are

subordinated in right of payment to the Exit Facility. As a result of such subordination, in the event of an acceleration of our debt for any reason, including our liquidation or insolvency, or a payment or covenant default, our assets will be available to pay obligations on the Senior Notes and any new Convertible Subordinated Notes only after the Exit Facility is paid in full. There may not be sufficient assets remaining to pay amounts due on any or all of the Senior Notes and any new Convertible Subordinated Notes. In the event of liquidation or insolvency, holders of equity securities would receive a distribution only after payment in full to each of the Exit Facility or the Senior Notes and any new Convertible Subordinated Notes, and other creditors, and there may be no proceeds to distribute to equity holders at such time.

Our holding company structure makes us dependent on cash flow from our subsidiaries to meet our obligations.

Most of our operations are conducted through, and most of our assets are held by, our subsidiaries. Therefore, we are dependent on the cash flow of our subsidiaries to meet our debt obligations. Our subsidiaries are separate legal entities that have no obligation to pay any amounts due under the Senior Notes (to the extent the Senior Notes are not fully redeemed) or the new Convertible Subordinated Notes, or to make any funds available therefor, whether by dividends, loans or other payments. Our subsidiaries have not guaranteed the payment of the Senior Notes or the new Convertible Subordinated Notes. The covenants in the Senior Notes require that we hold no more than $12.0 million in cash outside of the United States. Except to the extent we may ourself be a creditor with recognized claims against our subsidiaries, subject to any limitations contained in our other debt agreements, all claims of creditors and holders of preferred stock, if any, of our subsidiaries will have priority with respect to the assets of such subsidiaries over the claims of our creditors, including holders of the Senior Notes or the lenders under the Exit Facility.

The assets of our subsidiaries may not be available to make payments on our debt obligations.

Neither the Senior Notes nor the new Convertible Subordinated Notes have been guaranteed by our subsidiaries, and payments on the Senior Notes and the new Convertible Subordinated Notes are required to be made only by us. We may not have direct access to the assets of our subsidiaries unless these assets are transferred by dividend or otherwise to us. The ability of our subsidiaries to pay dividends or otherwise transfer assets to us is subject to various restrictions, including restrictions under other agreements to which we are a party under applicable law.

Shares eligible for sale in the near future may cause the market price for our common stock to decline.

Sales of a substantial number of shares of our common stock in the public market following this offering, or the perception that those sales could occur, may depress the market price for our common stock. These sales could also impair our ability to raise additional capital through the sale of our equity securities in the future.

The number and timing of shares of common stock available for sale in the public market is limited by restrictions under federal securities laws and under agreements that we and each of our executive officers and directors and each of the selling stockholders have entered into with the underwriters of this offering. Those agreements restrict these persons from selling, pledging or otherwise disposing of their shares, subject to specified exceptions, for a period of 90 days after the date of this prospectus without the prior written consent of Bear, Stearns & Co. Inc. Bear, Stearns & Co. Inc. may, however, in its sole discretion, release all or any portion of the common stock from the restrictions in the lockup agreements. Upon completion of this offering we will have outstanding 26,753,384 shares of common stock. All of these shares, including the 5,000,000 shares sold in this offering, are freely tradable. In addition, following the offering 3,947,901 shares

We have a few significant stockholders who own a large percentage of our common stock and could substantially influence all matters requiring stockholder approval.

We have a few significant stockholders who as of December 28, 2003, in the aggregate, own approximately 46% of our common stock, and together are able to significantly influence all matters requiring approval by our stockholders, including new financings, the election of directors and the approval of mergers or other business combinations. Although certain of the significant stockholders will be selling in this offering, and will not otherwise be able to sell shares of our stock outside the offering until 90 days after the date of this prospectus, those that do not participate in this offering may continue to sell shares and reduce the aggregate percentage of our stock held by significant stockholders. To the extent that the interests of these stockholders are different than those of other stockholders, important company decisions may not reflect the interests of all stockholders.

Sales of stock by a few significant stockholders may negatively affect the market price of our common stock.

Our significant stockholders who as of December 28, 2003, in the aggregate, own approximately 46% of our common stock, are not restricted as to the prices at which they may sell the stock. Although certain of the significant stockholders will be selling in this offering, and will not otherwise be able to sell shares of our stock outside the offering until 90 days after the date of this prospectus, those that do not participate in this offering may continue to sell shares and reduce the aggregate percentage of our stock held by significant stockholders. Shares sold below the current level at which the shares of our common stock are trading may adversely affect the market price of our common stock. This large amount of stock, if sold all at once or in blocks, could have a negative effect on the market price of our common stock.

Our common stock, which is listed on the Nasdaq National Market, has experienced significant price and volume fluctuations. Since emerging from bankruptcy in June 2002 through January 14, 2004, the closing price of our common stock has ranged from $2.30 to $23.71. These fluctuations are likely to continue in the future. The market price of our common stock may decline below the price of the shares sold in this offering. Investors may not be able to resell their shares of our common stock following periods of price or trading volume volatility because of the market’s adverse reaction to such volatility. Factors that could cause volatility in our stock price and trading volume, in some cases regardless of our operating performance, include, among other things:


	•	general economic conditions, including suppressed demands for our products;

	•	actual or anticipated variations in quarterly operating results;

	•	announcements of technological innovations;

	•	changes in the market valuations of our competitors;

	•	failure to meet analysts’ or investors’ expectations;

	•	announcements by us or our competitors of significant acquisitions, strategic partnerships or joint ventures;

	•	our cash position and cash commitments; and

	•	additions or departures of key personnel.

Additionally, some companies that have had volatile market prices for their securities have been subject to securities class action suits filed against them. If a suit were to be filed against us, regardless of the merits or the outcome, it could result in substantial costs and a diversion of our management’s attention and

We currently anticipate that all of our earnings, if any, will be retained for repayment of our outstanding debt and for development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. In addition, our debt agreements contain covenants that restrict the payment of cash dividends.

This prospectus, including the sections entitled “Prospectus Summary” and “Risk Factors” contain forward-looking statements. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by the forward-looking statements. These risks and other factors include those listed under “Risk Factors” and elsewhere in this prospectus. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. In evaluating these statements, you should specifically consider various factors, including the risks outlined under “Risk Factors.”

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this prospectus to conform our prior statements to actual results.

We estimate that the net proceeds from the sale by us of 3,000,000 shares of common stock that we are offering at the public offering price of $20.60 per share will be approximately $58.2 million (and approximately $72.9 million assuming the underwriters’ over-allotment option is exercised in full), after deducting the underwriting discounts and commissions and estimated cash offering costs payable by us. We will not receive any proceeds from the sales by selling stockholders in this offering.

We expect to use the net proceeds from this offering and any proceeds from our concurrent debt offering, up to approximately $115.2 million, for the repayment of our outstanding Senior Notes. As of December 28, 2003, the Senior Notes have a cash-pay portion of $63.2 million and a paid-in-kind portion of $52.0 million. The cash-pay portion of the Senior Notes: (1) is due on June 30, 2007; (2) is payable in quarterly installments over a four-year period on a straight-line basis beginning on July 15, 2003; and (3) pays interest monthly in arrears in cash, and bears interest at the greater of 8% per annum and a rate per annum equal to the prime rate of interest (which was 4.0% at December 28, 2003) plus three hundred basis points. The paid-in-kind portion of the Senior Notes: (1) is due on June 30, 2007; and (2) pays interest in-kind monthly in arrears, and bears interest at a rate of 12% per annum.

To the extent there are any remaining proceeds from these offerings, we intend to use those funds for general corporate purposes, including working capital and capital expenditures. We may also use a portion of any remaining net proceeds to acquire other technologies or businesses when the opportunity arises. However, we currently have no commitments or agreements other than a potential acquisition of a substrate manufacturing facility in Malaysia from Trace Storage Technology Corporation, which we expect will close in the first quarter of 2004 if all conditions to closing are satisfied, and which we intend to pay with our current cash on hand, regardless of whether or not this offering and the concurrent debt offering are completed. Pending such other uses, the net proceeds from this offering will be invested in investment grade, interest-bearing instruments.

On June 30, 2002, we emerged from chapter 11 bankruptcy and all of the outstanding shares of our common stock were cancelled as required under the approved plan of reorganization. On that date, we issued new shares of our common stock. During the period from July 1, 2002 to July 9, 2002, our new common stock was not traded. Beginning on July 10, 2002, the new shares of our common stock began trading on the OTC Bulletin Board under the symbol KOMGQ and on February 25, 2003 began trading on the Nasdaq National Market under the symbol KOMG.

The following table sets forth for the periods indicated the high and low closing sale prices for our new common stock, as reported by OTC Bulletin Board from July 10, 2002 through February 24, 2003 and the Nasdaq National Market from February 25, 2003.

As of December 28, 2003, there were 23,753,384 shares of our common stock outstanding held by 71 holders.

Since our inception, we have neither declared nor paid any dividends on our shares of common stock. We anticipate that we will retain future earnings, if any, in order to repay debt and for general corporate purposes. In addition, our debt agreements contain covenants that restrict the payment of cash dividends.

The following table presents our cash and cash equivalents, current portion of long-term debt and capitalization as of September 28, 2003 on an actual basis; on an as adjusted basis to reflect $24.0 million net proceeds received from the sale of idle buildings and land, giving effect to the application of these proceeds and approximately $1.2 million of cash on October 21, 2003 to repay a portion of our Senior Notes and our Junior Notes in full; and on an as adjusted further basis to reflect the sale of 3,000,000 shares of common stock offered by us in this offering at an assumed public offering price of $20.60 per share after deducting the estimated underwriting discounts and commissions and estimated offering costs and to reflect the issuance of our Convertible Subordinated Notes, giving effect to the application of the net proceeds. You should read this information in conjunction with our consolidated financial statements, including the related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere or incorporated by reference in this prospectus.


(1)	On September 30, 2003, we completed the sale of our idle Fremont, California land and buildings. The land and buildings were acquired through our merger with HMT Technology Corporation in October 2000 and had been idle and held for sale since 2001. The net proceeds from the sale of the land and buildings were approximately $24.0 million resulting in a gain of approximately $1.0 million. The sale will be recorded in the fourth quarter of 2003. On October 21, 2003, we used approximately 50% of the net proceeds, $12.1 million, to pay down our debt as required under the terms of our Senior Notes Indenture, which Senior Notes are due in 2007. Additionally, we made a required principal payment of $5.0 million on the Senior Notes on October 15, 2003. Further, we received consent from a majority of the holders of the Senior Notes and the lender under the Exit Facility to redeem in full the Junior Notes for approximately $8.2 million and called for their redemption on October 30, 2003. The Junior Notes were redeemed on December 2, 2003.

(2)	Reflects the adjustments described in (1) above; the sale of 3,000,000 shares of common stock offered by us in this offering at an assumed public offering price of $20.60 per share after deducting the estimated underwriting discounts and commissions and estimated offering costs; and the issuance of $70 million aggregate principal amount of our % Convertible Subordinated Notes due 2024, giving effect to the application of the net proceeds. Consummation of this offering of shares of common stock is not contingent upon consummation of the concurrent Convertible Subordinated Notes offering.

The following table sets forth our selected consolidated financial data for the three months ended September 29, 2002, December 29, 2002, March 30, 2003, June 29, 2003 and September 28, 2003. The following data is derived from our unaudited condensed consolidated financial statements and should be read in conjunction with these financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere or incorporated by reference in this prospectus. The unaudited condensed consolidated financial statements include, in the opinion of management, all adjustments, consisting only of normal, recurring adjustments, that management considers necessary for a fair statement of the results for those periods. The historical results are not necessarily indicative of results to be expected in any future period and should not be considered indicative of results expected for the full fiscal years. The summary consolidated balance sheet data is presented on an actual basis; on an as adjusted basis to reflect $24.0 million net proceeds received from the sale of idle buildings and land, giving effect to the application of these proceeds and approximately $1.2 million of cash on October 21, 2003 to repay a portion of our Senior Notes and our Junior Notes in full; and on an as adjusted further basis to reflect the sale of 3,000,000 shares of common stock offered by us in this offering at an assumed public offering price of $20.60 per share after deducting the estimated underwriting discounts and commissions and estimated offering costs and to reflect the issuance of our Convertible Subordinated Notes, giving effect to the application of the net proceeds.


(1)	Restructuring/impairment charges of $0.7 million for the three months ended September 29, 2002 related to chapter 11 bankruptcy and Exit Facility professional fees.

(2)	Other income, net includes a property tax refund of $2.2 million.

(3)	Restructuring/impairment charges for the three months ended December 29, 2002 include chapter 11 bankruptcy professional fees of $0.1 million and a goodwill impairment charge of $33.9 million.

(4)	Provision for (benefit from) income taxes includes an income tax benefit of $2.5 million related to withholding taxes previously accrued which are no longer payable as a result of a tax exemption.


(1)	On September 30, 2003, we completed the sale of our idle Fremont, California land and buildings. The land and buildings were acquired through our merger with HMT Technology Corporation in October 2000 and had been idle and held for sale since 2001. The net proceeds from the sale of the land and buildings were approximately $24.0 million resulting in a gain of approximately $1.0 million. The sale will be recorded in the fourth quarter of 2003. On October 21, 2003, we used approximately 50% of the net proceeds, $12.1 million, to pay down our debt as required under the terms of our Senior Notes Indenture, which Senior Notes are due in 2007. Additionally, we made a required principal payment of $5.0 million on the Senior Notes on October 15, 2003. Further, we received consent from a majority of the holders of the Senior Notes and the lender under the Exit Facility to redeem in full the Junior Notes for approximately $8.2 million and called for their redemption on October 30, 2003. The Junior Notes were redeemed on December 2, 2003.

(2)	Reflects the adjustments described in (1) above; the sale of 3,000,000 shares of common stock offered by us in this offering at an assumed public offering price of $20.60 per share after deducting the estimated underwriting discounts and commissions and estimated offering costs, and the issuance of $70.0 million aggregate principal amount of our % Convertible Subordinated Notes due 2024, giving effect to the application of the net proceeds. Consummation of this offering of shares of common stock is not contingent upon consummation of the concurrent Convertible Subordinated Note offering.


(1)	Results of operations for the six months ended December 29, 2002 included a $33.9 million impairment charge related to the write-off of all remaining goodwill, in accordance with FAS 142.

(2)	Results of operations for the six months ended June 30, 2002, included other income of $379.0 million associated with the extinguishment of liabilities subject to compromise as of June 30, 2002, and other income of $17.3 million to revalue our assets and liabilities at June 30, 2002, to fair value as prescribed by fresh-start reporting under SOP 90-7.

(3)	Results of operations for the six months ended June 30, 2002, included a $4.3 million restructuring/impairment charge in connection with the shutdown of our research and development facility in Santa Rosa, California.

(4)	Results of operations for the six months ended June 30, 2002, included a $47.5 million transitional impairment loss under SFAS 142. The loss was recognized as the cumulative effect of a change in accounting principle in our consolidated statement of operations.

(5)	Results of operations for 2001 included a $45.8 million impairment charge related to the write-down of land and buildings held for sale, a $4.4 million impairment charge related to manufacturing equipment no longer in service, and restructuring charges of $7.2 million primarily related to lease obligations on equipment no longer in service and additional facility closure costs.

(6)	Results of operations for 2001 included a $99.1 million interest expense charge related to accretion to bring the subordinated convertible notes up to their full face value of $230.0 million.

(7)	Results of operations for 2000 included a net $5.3 million restructuring charge, including an $8 million charge in connection with ceasing our Santa Rosa manufacturing operations, plus a net $2.7 million reversal of charges previously accrued for restructurings we undertook in 1997, 1998, and 1999.

(8)	Results of operations for 1999 included $143.7 million in restructuring charges and a $44.3 million impairment charge. The restructuring charges related primarily to the closing of our U.S. manufacturing operations. The impairment charge related to the write-down of goodwill which originated from the acquisition of Western Digital Corporation’s media operation.

(9)	Results of operations for 1998 included a $187.8 million restructuring charge that primarily related to an asset impairment charge of $175.0 million. Based on analysis of our production capacity and our expectations of the media market over the remaining life of our fixed assets, we concluded that we would not be able to recover the book value of those assets.


(10)	In accordance with SOP 90-7, we did not record interest expense on our outstanding debt during the chapter 11 proceedings from August 24, 2001, through June 30, 2002.

(11)	Earnings per share of the Predecessor Company are not presented as the amounts are not meaningful.

The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements included elsewhere in this prospectus and incorporated by reference. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including but not limited to those discussed in the section entitled “Risk Factors” and elsewhere in this prospectus.

Our net sales are driven by the level of demand for disks by disk drive manufacturers and the average selling prices of our disks. Demand for our disks is dependent on unit growth in the disk drive market, the growth of storage capacity in disk drives, which affects the number of disks needed per drive, and the number of disks our customers purchase from external suppliers. Average selling prices are dependent on overall supply and demand for disks and our product mix.

Our business is capital-intensive and is characterized by high fixed costs, making it imperative that we sell disks in high volume. Our contribution margin per disk sold varies with changes in selling price, input material costs and production yield. As demand for our disks increases, our total contribution margin increases, improving our financial results because we do not have to increase our fixed cost structure in proportion to increases in demand and resultant capacity utilization. Conversely, our financial results would deteriorate rapidly if the disk market were to worsen and our production volume were to decrease.

Adverse conditions in the disk market, which began in mid-1997, impacted our business through the first half of 2002. Disk drive demand grew rapidly during the mid-1990s, and industry forecasts were for continued strong growth. In 1996, along with many of our competitors including both independent disk manufacturers and captive disk manufacturers owned by vertically integrated disk drive companies, we committed to expansion programs that substantially increased disk-manufacturing capacity by the end of 1997. Our expansion was principally financed with debt. In 1997, the rate of growth in demand for disk drives fell. Further, technology advances provided by magneto-resistive recording heads allowed the disk drive manufacturers to use fewer heads and disks to achieve desired drive capacity, reducing demand for disks.

Due to excess capacity in the industry, weakening demand for disks and pricing pressures, we began to focus on consolidating our U.S.-based manufacturing operations into Malaysia from 1999 through 2001. After all operations were consolidated into Malaysia, we continued to focus on fully utilizing the capacity in our Malaysian operations.

Even though we were able to lower costs as a result of consolidating manufacturing in Malaysia, we continued to service a large debt balance incurred during our expansion, which became due in June 2001. As a result, in August 2001, after defaulting on our debt obligations, we filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code, or chapter 11. Our plan of reorganization was confirmed by the bankruptcy court on May 9, 2002. In accordance with SOP 90-7, we adopted fresh-start reporting and reflected the effects of the adoption in the consolidated financial statements for the period ended June 30, 2002. The plan became effective and we emerged from chapter 11 on June 30, 2002.

While operating under chapter 11, we expanded our customer base and continued to invest heavily in research and development to maintain our technological leadership. We believe that we emerged from bankruptcy with a more competitive capital structure. Additionally, the shift of high-volume production to our cost-advantaged Malaysian manufacturing plants has improved our overall cost structure, resulting in lower unit production costs. Our headquarters located in San Jose, California is focused solely on activities related to research, process development, and product prototyping. Our selling, general, and administrative functions also remain in California.

The following discussion is presented on our most recent five quarters from the third quarter of 2002 through the third quarter of 2003, all of which are results of operations for the successor company after emergence from chapter 11.

Consolidated net sales increased to $109.2 million in the third quarter of 2003, from $105.3 million, $105.5 million, $104.5 million and $70.2 million in the previous four quarters. We emerged from bankruptcy on June 30, 2002. In the third quarter of 2002, we began to regain our market share and net sales totaled $70.2 million. The substantial increases in net sales in the subsequent quarters were attributable primarily to increasing sales of finished disks, combined with a generally improving finished unit average selling price and increasing other disk sales. Other disk sales are comprised of plated polished aluminum substrates, textured substrates and single-sided disks.

Finished disk shipments were 17.5 million units in the third quarter of 2003 compared to 16.3 million, 16.7 million, 17.7 million and 12.3 million units in the previous four quarters. The overall increase in finished unit shipments from the third quarter of 2002 to the third quarter of 2003 primarily reflected market share gains resulting from our emergence from bankruptcy, our early qualification on new advanced programs with our customers, and an overall improvement in market conditions. Further, the finished disk shipment trend from the fourth quarter of 2002 through the third quarter of 2003 reflects a seasonal pattern consistent with the disk drive industry. Traditionally, sales in the disk industry exhibit a seasonal pattern with the strongest sales occurring in the fourth quarter of the calendar year. The finished unit average selling price was $5.64 in the third quarter of 2003 compared to $5.67, $5.57, $5.49 and $5.43 in the previous four quarters. With the overall improvements in market conditions, supply and demand for disks have become better balanced during the five-quarter period, leading to a more stable pricing environment.

Other disk sales in the third quarter of 2003 were $10.1 million, compared to $13.7 million, $12.4 million, $7.5 million and $3.5 million in the previous four quarters. The decrease in other disks sales in the third quarter of 2003 reflected lower sales of textured aluminum substrates to one of our customers who purchased more finished disks from us.

Our sales are concentrated among a few customers. For the quarter ended September 28, 2003, our largest customers included HGST, Maxtor and Western Digital, which according to IDC together represent approximately 56% of global disk drive sales in the second quarter of 2003. In order to expand our market penetration and further diversify our customer base, we recently began production for a new major disk drive customer. We continue to actively target additional high-volume disk drive manufacturers and believe that our technology leadership, broad range of products and competitive pricing will enable us to further diversify our customer mix.

The following table reflects the percentage of our net sales by major customer for our last five quarters:

In late 2002, IBM entered into a joint venture with Hitachi. The joint venture, named Hitachi Global Storage Technologies, or HGST, includes Hitachi’s and IBM’s disk drive operations and a portion of IBM’s thin-film media operations. Accordingly, the absence of sales data in the chart above with respect to IBM in the three months ended September 28, 2003 reflects the fact that the sales that would have been made to IBM are now being made to HGST.

Sales of 60 GB and 80 GB disks for the desktop market increased to 52% of finished disks net sales in the third quarter of 2003, compared to 50%, 45%, 40% and 27% in the previous four quarters. The increase was the result of the continued customer transition to higher storage density disks. During the five-quarter period, we also began shipments to the high-end server (enterprise) market. Sales of these high-end server class disks totaled 7% of net sales in the third quarter of 2003. The remaining finished disk net sales were primarily 40 GB disks for the desktop market.

Our gross margin percentage for the third quarter of 2003 was 23.2%, compared to 21.7%, 21.6%, 23.3% and 10.5% in the previous four quarters. Our gross margin percentage fluctuates primarily because of variations in disk production volumes from quarter to quarter. The gross margin percentage increase in the third quarter of 2003 was attributable to economies of scale associated with higher finished disk production volumes, as well as reduced variable costs in the third quarter of 2003, as compared to the prior four quarters, which lowered our cost per disk. The overall improving average selling price trend also helped improve gross margins over the five-quarter period.

Research, development, and engineering expenses were $10.8 million in the third quarter of 2003 compared to $10.4 million, $9.9 million, $9.7 million and $8.7 million in the previous four quarters. We are committed to significant continuing investments in research and development, as reflected by our spending of approximately 9% to 10% of our net sales on research, development and engineering in each of the last four quarters.

Selling, general, and administrative expenses were $4.7 million in the third quarter of 2003 compared to $4.0 million, $4.6 million, $5.2 million and $4.2 million in the previous four quarters. We monitor our selling, general, and administrative expenses closely and these expenses have remained relatively flat over the last five fiscal quarters at approximately 4% to 5% of net sales.

Gain on disposal of assets includes miscellaneous gains on selling idle equipment and varies from period to period.

Restructuring/impairment charges in the fourth quarter of 2002 primarily includes a goodwill impairment charge of $33.9 million. The impairment charge of $33.9 million represented the write off of all goodwill in accordance with FAS 142 upon the first annual impairment test. Restructuring/impairment charges in the third quarter of 2002 of $0.7 million includes primarily professional fees related to the chapter 11 bankruptcy case.

In accordance with fresh-start reporting as of June 30, 2002 on our emergence from chapter 11, we recorded in-process research and development costs of $6.8 million. The entire amount was written off in the third quarter of 2002.

Interest income was $0.1 million in each of the five quarters from the third quarter of 2002 through the third quarter of 2003.

In the five quarters from the third quarter of 2002 through the third quarter of 2003, we recorded between $3.2 and $3.4 million of interest expense per quarter on the debt issued on emergence from chapter 11.

Other income, net in each quarter from the fourth quarter of 2002 through the third quarter of 2003 was less than $0.2 million. In the third quarter of 2002, other income, net was $2.1 million which primarily reflected a $2.2 million property tax refund. Other income, net varies from quarter to quarter.

In the third quarter of 2003, we received approval from the Malaysian Ministry of Finance, for the exemption of withholding tax on royalty payments made by our Malaysian operations to our subsidiary in the Netherlands. The exemption is for a period of five years effective retroactively from January 2002 through December 2006. As a result, we recorded an income tax benefit of $2.5 million in the third quarter of 2003 related to withholding taxes we previously accrued which are no longer payable. The income tax provision in the third and fourth quarter of 2002 and the first and second quarter of 2003 represented foreign income taxes and foreign withholding taxes on royalty and interest payments. The income tax provision in the third quarter of 2003 represented foreign income taxes and foreign withholding taxes on interest payments and the $2.5 million tax benefit.

In the third quarter of 2003, our wholly-owned thin-film media operation, KMS, received an eight-year extension of the tax holiday on the first plant site through June 2011. KMS has also been granted additional tax holidays for its second and third plant sites in Malaysia. These tax holidays are effective through December 2006 and 2008, respectively.

We emerged from chapter 11 bankruptcy on June 30, 2002. In accordance with SOP 90-7, Financial Reporting by entities in Reorganization Under the Bankruptcy Code, we adopted fresh-start reporting and reflected the effects of the adoption in our consolidated financial statements for the six months ended June 30, 2002. As a result of the adoption of fresh-start reporting, the statements of operations for periods ended after June 30, 2002 are prepared on a different basis of accounting. Therefore, these financial statements are not comparable to the financial statements for prior periods.

The following discussion compares the results of operations for the fiscal year ended December 29, 2002, to the fiscal year ended December 30, 2001. To facilitate an understanding of this discussion, we have provided the table below. The table shows our results of operations for the 2002 and 2001 fiscal years. Results of operations for 2002 include the combined income statement activity of the successor company and the predecessor company.

The information in this table is not intended to replace our statements of operations prepared in accordance with accounting principles generally accepted in the United States of America. The table (in thousands) is as follows:

Net sales for 2002 were $286.7 million, an increase of $4.1 million from net sales of $282.6 million in 2001. Units shipped in 2002 increased to 47.7 million units, a 4.5 million unit increase compared to 43.2 million units in 2001. The overall shipment and revenue increases were primarily the result of market share gains which began in the third quarter of 2002, in addition to seasonally strong overall market conditions in the fourth quarter of 2002. Disk media unit shipment volume and total revenue increased over 100% in the fourth quarter of 2002 compared to the second quarter of 2002. Fourth quarter unit sales were somewhat constrained due to shortages of substrates from external suppliers.

Our average selling price declined to $5.61 in 2002 compared to $6.16 in 2001. The decrease was primarily related to our efforts to increase market share, as well as continued general pricing pressure from customers due to excess capacity for the majority of 2002. With the strength of the fourth quarter 2002 shipments and customer demand, and migration of sales to new advanced products, our average selling price in the fourth quarter of 2002 increased slightly from the third quarter of 2002.

Sales of partially completed disks (disk substrates) for fiscal 2002 were $19.3 million compared to $16.7 million in 2001. The increase reflects higher demand from customers in fiscal 2002. Disk substrate sales vary from period to period based on customer requirements.

In 2002, Western Digital accounted for approximately 61% of net sales, Maxtor accounted for 30% of net sales, and sales to other customers were less than 10% of net sales. In 2001, Western Digital accounted for approximately 59% of net sales and Maxtor accounted for 27% of net sales, and sales to other customers were less than 10% of net sales.

Our overall gross margin percentage of 12.9% in 2002 was 13.8 points higher than our overall 2001 gross loss percentage of 0.9% in 2001. The economies of scale associated with higher sales and production in the second half of 2002 significantly lowered our cost per disk, and accounted for 23.7% of the increase. However, the higher sales volume was offset by the lower average selling price, and accounted for a 9.9% decline in gross margin.

Research, development, and engineering (R&D) expenses were $37.2 million in 2002, a $2.3 million decrease compared to $39.5 million in 2001. The decrease in costs reflected lower costs associated with the shutdown of our research and development facility in Santa Rosa in the second quarter of 2002 and higher costs in the first half of 2001, reflecting additional costs incurred in Malaysia to qualify customer programs on the initial equipment relocated from the U.S.

Selling, general, and administrative expenses were $17.7 million in 2002, a $2.2 million decrease over $19.9 million in 2001. The decrease is primarily related to lower headcount and payroll-related costs which were partially offset by stock compensation expense which was not applicable in 2001.

Amortization of intangible assets was $3.6 million in 2002, compared to $27.1 million in 2001. The decrease of $23.5 million was primarily due to the cessation of amortization of goodwill beginning in January 2002, in accordance with SFAS 142. Amortization of intangible assets of $1.8 million was included in cost of sales for the second half of 2002, as it represents amortization of developed technology and amortization of the Western Digital volume purchase agreement.

We recorded restructuring charges of $5.2 million in 2002 and $7.2 million in 2001. The $5.2 million charge for 2002 included $4.3 million related to the closure of our research and development facility in Santa Rosa in the second quarter of 2002, $0.9 million related to professional fees associated with the chapter 11 bankruptcy case and Exit Facility fees. The $7.2 million charge for 2001 reflected additional costs associated with lease obligations on equipment no longer in service, and costs for closing the former HMT facilities.

Impairment charges in 2002 were $33.9 million. Upon the adoption of fresh-start reporting as of June 30, 2002, we had a goodwill balance of $33.9 million, which equaled the reorganization value in excess of amounts allocable to identifiable net assets recorded in accordance with SOP 90-7. In the fourth quarter of 2002, in accordance with FAS 142 requirements, we performed our first annual goodwill impairment test. As a result of that test, we wrote off the entire $33.9 million goodwill balance.

Impairment charges of $50.2 million in 2001 included a $35.4 million write-down of land and buildings held for sale in Eugene, Oregon, and Fremont, California in the second quarter, and an additional $10.4 million write-down on the same properties in the fourth quarter. The impairment write-downs resulted from currently-depressed market conditions for commercial real estate, and were based on an independent valuation (net of estimated selling costs). We also recorded $4.4 million of impairment charges for manufacturing equipment no longer in service in 2001.

Upon adoption of fresh-start reporting, in June 2002, we recorded certain intangible assets including in-process research and development of $6.8 million, which was expensed in the third quarter of 2002.

Interest income was $0.3 million in 2002, compared to $1.5 million in 2001. The decrease primarily reflected lower investment interest rates during 2002 and lower average cash balances in 2002.

Interest expense decreased by $148.6 million in 2002, from $155.2 million in 2001 to $6.6 million in 2002. Interest expense in 2002 included interest on our new debt in the second half of 2002 subsequent to emergence from chapter 11 bankruptcy. Interest expense in 2001 primarily reflected interest, including accretion, on all old debt through our chapter 11 bankruptcy filing on August 24, 2001, and an additional $99.1 million of accretion to record the full face value of the HMT debt (which was assumed upon the acquisition of HMT) upon our default on our debt agreements.

Other income in 2002 was $402.6 million, an increase of $398.3 million over $4.3 million in 2001. The increase included a net gain of $396.4 million associated with the chapter 11 cancellation of liabilities subject to compromise and fresh-start reporting and a net $2.2 million property tax refund.

Other income of $4.3 million in 2001 primarily included $2.0 million in refunds for manufacturing work not completed by vendors, $0.7 million in cash received on a note receivable that had been written off, and $0.6 million in realized gain on cumulative translation adjustments. The remaining $1.0 million primarily represented other miscellaneous income.

Reorganization costs of $6.5 million in 2002 primarily included a $5.0 million charge associated with the Magnetic Media Development LLC (MMD) bankruptcy claim and professional fees related to the bankruptcy filing.

Reorganization costs of $6.1 million in 2001 primarily included $2.3 million in accretion to bring the note payable to Western Digital to its face value, $1.9 million in professional fees, and a $1.9 million adjustment to increase liabilities subject to compromise to the amount of the Western Digital equipment lease claim.

Reorganization costs, net relate solely to the bankruptcy filing. Accordingly, no further costs may be recorded on this line on the consolidated statement of operations subsequent to emergence on June 30, 2002.

Income tax expense of $2.0 million in 2002 represents foreign withholding taxes on royalty and interest payments. In 2001, we recorded an income tax benefit of $9.4 million, which was primarily related to the reversal of income tax payable due to the expiration of the statutory periods to audit our federal and state tax returns, net of $1.3 million of foreign withholding taxes on royalty and interest payments and foreign taxes of subsidiaries.

In 2002 the tax holidays granted to us for our plant sites in Malaysia increased our net income by $8.2 million. The tax holidays had no impact on our net losses in 2001.

In April 2002, we purchased Kobe Steel USA Holding’s, Inc.’s (Kobe USA) 20% share of KMT in exchange for certain idle assets. The purchase increased our ownership percentage of KMT to 100%. In the third quarter of 2002, we closed the KMT operation. The minority interest for Kobe USA’s 20% share of KMT’s net income in 2001 was less than $0.1 million.

In the second quarter of 2002, in accordance with fresh-start reporting requirements, our remaining investment in Chahaya of $1.7 million was written down to its estimated fair value of zero. Accordingly, no further equity in the net losses of Chahaya was recorded in the last half of 2002. Further, Chahaya ceased

As discussed in Note 3, we adopted SFAS No. 142 and recorded the effects of adoption in June 2002 on a cumulative effect basis as of the first day of the 2002 fiscal year.

Under SFAS No. 142, we were required to perform a transitional impairment analysis on our goodwill. The transitional impairment loss of $47.5 million was recognized as the cumulative effect of a change in accounting principle in our consolidated statement of operations.

Net sales for 2001 were $282.6 million, a decrease of $75.9 million from net sales of $358.5 million in 2000. The overall weak economy and related personal computer market in 2001 negatively impacted our sales volume as well as our average selling price. Unit shipments in 2001 declined by 14%, to 43.2 million disks, versus 50.2 million in 2000. Our finished disk average selling price per unit fell to $6.16 in 2001 from $6.58 in 2000. Another factor contributing to the sales decline was a $15 million reduction in sales of partially completed disks (disk substrates) for fiscal 2001 compared with fiscal 2000.

In 2001, Western Digital accounted for approximately 59% of net sales, Maxtor accounted for 27% of net sales, and Seagate Technology accounted for 7% of net sales. In 2000, Western Digital accounted for approximately 50% of net sales, Maxtor accounted for 28% of net sales, and Seagate Technology accounted for 17% of net sales.

Our overall 2001 gross loss percentage was negative 0.9% compared to a gross profit percentage of 9.8% in 2000, a decline of 10.7 points. The sales volume and average selling price declines, as discussed above, accounted for 6.1 points of the decline, and higher fixed manufacturing costs resulting from the HMT merger accounted for 4.6 points of the decline. By the third quarter of 2001, when the consolidation of our manufacturing operations was complete, fixed manufacturing costs returned to approximately pre-merger levels in fiscal 2000. Variable costs per unit were flat year over year in 2000 and 2001. However, variable costs per unit decreased in each successive quarter of 2001 due to lower input material costs and higher product yields. These quarter to quarter improvements resulted from the consolidation of manufacturing operations in Malaysia and continuous improvement of our manufacturing processes while qualifying and ramping new advanced disk products.

Research, development, and engineering expenses were $39.5 million in 2001, a $4.2 million increase compared to $35.3 million in 2000. Increased R&D personnel and operating expenses were required in 2001 to support the additional engineering processes and equipment from the HMT merger, and to support our expanded efforts in advanced technology.

Selling, general, and administrative expenses were $19.9 million in 2001, a $3.6 million increase over $16.3 million in 2000. The increase primarily reflected higher payroll and payroll related expenses, and professional service expenses associated with financial restructuring activities prior to the bankruptcy filing, which was somewhat offset by lower retention bonuses.

In both 2001 and 2000, we recorded $10.2 million of amortization of intangibles associated with our acquisition of Western Digital’s media operation.

In 2001 we recorded $16.9 million compared to $6.2 million in 2000 of amortization of intangibles associated with our merger with HMT. The increase reflects four quarters of amortization of intangibles from the HMT merger, compared to only one quarter of amortization in 2000. The value and amortization period of goodwill and other intangibles was reassessed in 2002 in accordance with SFAS 142, “Goodwill and Other Identifiable Intangible Assets.”

We recorded restructuring charges of $7.2 million in 2001 and $5.3 million in 2000. The $7.2 million charge for 2001 reflected additional costs associated with lease obligations on equipment no longer in service, and costs for closing the former HMT facilities. The $5.3 million total for 2000 included an $8.0 million charge related to the cessation of manufacturing operations at KMT, less a net $2.7 million reversal of charges previously accrued for the 1997, 1998, and 1999 restructuring plans.

We recorded impairment charges of $50.2 million in 2001 and zero in 2000. Impairment charges in 2001 included a $35.4 million write-down of the former HMT land and buildings held for sale in Eugene, Oregon, and Fremont, California in the second quarter, and an additional $10.4 million write-down on the same properties in the fourth quarter. The impairment write-downs resulted from currently-depressed market conditions for commercial real estate, and was based on an independent valuation (net of estimated selling costs). We also recorded $4.4 million of impairment charges for manufacturing equipment no longer in service in 2001.

Interest income declined by $2.6 million, from $4.1 million in 2000 to $1.5 million in 2001. The decrease was due to lower average cash and investment balances during 2001.

Interest expense increased by $109.8 million in 2001, from $45.4 million in 2000 to $155.2 million in 2001. The increase was primarily the result of the accretion of the HMT debt over approximately eight months in 2001 versus three months in 2000, and the accretion of $99.1 million in 2001 to record full face value of the HMT debt upon our default on the debt agreements. No interest expense was recorded after our chapter 11 Bankruptcy filing on August 24, 2001 until our emergence from chapter 11 Bankruptcy on June 30, 2002.

Reorganization costs of $6.1 million were recorded in 2001 in connection with our chapter 11 bankruptcy filing. These costs primarily included a $2.3 million accretion of the remaining discount on the note payable to Western Digital to its face value, $1.9 million in professional fees, and a $1.9 million adjustment to increase liabilities subject to compromise to the amount of the Western Digital equipment lease claim.

In 2001, we recorded an income tax benefit of $9.4 million, which was primarily related to the expiration of the statutory periods to audit our federal and state tax returns, net of foreign withholding taxes on royalty and interest payments and foreign taxes of subsidiaries. In 2000, we recorded an income tax benefit of $5.2 million, primarily related to the expiration of a statutory period to audit our state tax returns, net of foreign withholding taxes on royalty and interest payments and foreign taxes of subsidiaries.

The tax holidays granted to us for our plant sites in Malaysia had no impact on our net losses in 2001. In 2000, the tax holiday reduced our net loss by approximately $8.8 million.

The minority interest in the net income of consolidated subsidiary during 2001 represented Kobe Steel USA Holdings Inc.’s, share of KMT’s net income. KMT recorded net income of $0.1 million in 2001 and a $12.7 million net loss (including an $8.0 million restructuring charge) in 2000.

In November 2000, we formed Chahaya Optronics, Inc. with two venture capital firms. We contributed key personnel, design and tooling, manufacturing systems, equipment, facilities, and support services in exchange for a 45% interest in Chahaya. Chahaya occupied facilities located in Fremont, California, and was formed to provide manufacturing services, primarily in the field of optical components and subsystems.

We recorded an investment in Chahaya for $12.0 million in the fourth quarter of 2000. The investment included $4.0 million for expected future cash payments and $8.0 million for facilities, facility services, and equipment. In June 2001, our investment was reduced by $4.0 million due to cancellation of the shares related to the future $4 million cash contribution. This activity, as well as additional changes in Chahaya’s equity structure, reduced our ownership percentage to 34% at the end of our 2001 fiscal year. In 2001, we recorded a $3.9 million loss as our equity share of Chahaya’s net loss. Chahaya ceased operations in the fourth quarter of 2002.

Cash and cash equivalents of $47.7 million at the end of the third quarter of 2003 increased by $24.1 million from the end of the 2002 fiscal year. The increase primarily reflected a $42.0 million increase resulting from consolidated operating activities and $1.9 million in proceeds from the sale of assets, offset by $14.7 million of spending on property, plant, and equipment, and $5.3 million in debt repayments.

Consolidated operating activities generated $42.0 million in cash in the first nine months of 2003. The primary components of this change include the following:


	•	net income of $19.6 million, net of non-cash depreciation and amortization of property, plant and equipment of $30.0 million, $5.0 million of non-cash interest expense, $2.8 million of non-cash amortization of intangible assets, and $1.7 million of amortization of deferred stock-based compensation, less a $1.9 million gain on asset disposals;

	•	an accounts receivable increase of $15.4 million primarily due to increased sales in the last month of the third quarter of 2003 compared to the last month of the fourth quarter of 2002;

	•	a prepaid expense increase of $0.6 million primarily due to insurance premium renewals;

	•	an inventory increase of $6.5 million for certain key materials and finished unit inventory to support fourth quarter 2003 sales;

	•	an accounts payable increase of $1.8 million related to the inventory increase; and

	•	an accrued expenses and other liabilities increase of $5.5 million, which primarily reflect higher salary and incentive compensation accruals.

In the first nine months of 2003, we spent $14.7 million on equipment acquisitions to improve our manufacturing and research and development capabilities, and received $1.9 million in proceeds from the sale of idle manufacturing equipment. Sales of idle manufacturing equipment varies from quarter to quarter. We also repaid $5.3 million of debt.

Current non-cancelable capital commitments as of September 28, 2003 totaled $9.6 million. For the remainder of 2003, we plan to spend approximately $12.0 million on property, plant, and equipment for projects designed to improve yield and productivity, as well as to improve equipment capability for the manufacture of advanced products.

We lease our research and administrative facility in San Jose, California under an operating lease. We also lease and sublease another building in San Jose. Both of these leases expire in 2007, and have renewal

At September 28, 2003, the future minimum commitments for non-cancelable operating facility leases, equipment leases, and a facility sublease are as follows (in thousands):

We have a revolving credit facility, or Exit Facility, that we entered into on June 30, 2002 simultaneously with our emergence from bankruptcy that initially allowed for advances of up to $15.0 million, with a $3.0 million letter of credit sub-facility, but because of the sale of our Fremont, California property, available credit under the Exit Facility is limited to approximately $1.9 million. The Exit Facility expires June 30, 2005. As of September 28, 2003, there were no borrowings under the Exit Facility and we currently have no intention to make any future borrowings under the Exit Facility.

In addition to the Exit Facility, at September 28, 2003, we had outstanding $80.3 million of cash pay and $50.5 million of paid-in-kind Senior Notes, $8.1 million of subordinated paid-in-kind Junior Notes, and $0.9 million of secured and unsecured promissory notes.

As of September 28, 2003, the future minimum principal payments due under these debt agreements are as follows (in thousands):

Our debt agreements contain affirmative, negative and financial covenants binding on our subsidiaries and us. The negative covenants include restrictions on our ability to incur indebtedness and make guarantees, grant liens, sell assets, declare dividends, make investments, and make capital expenditures. Financial covenants include the maintenance of minimum adjusted tangible net worth, minimum adjusted working capital and a total cash debt service coverage ratio. Our capital expenditures are limited to $40.0 million in 2003 and $30.0 million in 2004 and each subsequent year. As of September 28, 2003, we were in compliance with all of the financial covenants.

On September 30, 2003, we completed the sale of our idle Fremont, California land and buildings. The land and buildings were acquired through the merger with HMT Technology Corporation in October 2000 and had been idle and held for sale since 2001. The net proceeds from the sale of the land and buildings were approximately $24.0 million, resulting in a gain of approximately $1.0 million. The sale will be recorded in the fourth quarter of 2003. On October 21, 2003, we used approximately 50% of the net proceeds, $12.1 million, to pay down our debt as required under the terms of our Senior Notes Indenture due in 2007. Additionally, we made a required principal payment of $5.0 million on the Senior Notes on October 15, 2003.

Further, we received consent from a majority of the holders of the Senior Notes and the lender under our Exit Facility to redeem in full the Junior Notes for approximately $8.2 million. As such, on October 30, 2003, we called for the full redemption of the Junior Notes at a total cost of approximately $8.2 million for outstanding principal and accrued interest. The Junior Notes were redeemed on December 2, 2003. Further, we received consent from the majority of our holders of Senior Notes and the lender under the Exit Facility to increase the covenant on capital expenditures for 2003 to approximately $40.0 million.

On October 7, 2003, we announced an expanded business relationship with Maxtor, which includes specific dedicated media production capacity including a capacity expansion effort, a five-year supply agreement and the naming of the Company as a strategic external media supplier of Maxtor.

Based on current operating forecasts, we estimate that the cash balance and cash from operations will be adequate to support our continuing operations, capital spending plan, and interest and debt payments for at least the next twelve months.

We design, manufacture and market thin-film media, or disks, that are incorporated into disk drives. We are the world’s largest independent manufacturer of thin-film media with a 40% market share of the total merchant disk supplier market and 18% of the overall disk market as of the second quarter of 2003 according to TrendFOCUS, a storage research firm. Due to our market leadership and significant research and development efforts, we have developed a deep understanding of market needs in the disk drive market and offer a broad portfolio of advanced solutions to address those needs. Our customers include many of the world’s largest disk drive manufacturers, including HGST, Maxtor and Western Digital. Additionally, in October 2003 we began volume production for a new major disk drive customer’s desktop products.

Disks such as the ones we manufacture are incorporated into disk drives, which are the primary storage medium for digital data. High-volume, high-growth applications for disk drives include personal computers, enterprise storage systems, communications infrastructure and consumer electronics appliances. Technology advances have greatly increased the storage capacity of individual disks, lowering the per GB cost of storage. The lower cost of storage has facilitated the adoption of disk drives into a broad range of new applications, providing new areas of market growth for disks and disk drives.

Increasing demand for digital data storage and low-cost, high-performance disk drives has resulted in growing demand for thin-film disks. According to IDC, the total storage capacity of all disk drives shipped grew by 91.3% on a compounded annual basis between 1997 and 2002, reaching 8.8 million terabytes shipped in 2002. There are 1,000 gigabytes in a terabyte. According to IDC, the annual total storage capacity and number of units of all hard disk drives to be shipped between 2002 and 2007 are expected to grow at compounded annual rates of approximately 45.1% and 10.7%, respectively. We believe there are a number of key factors driving this demand, including:


	•	increased demand for personal computers with high storage capacities driven by consumer multi-media, broadband and wireless applications, increased business usage and proliferation of computers in developing economies;

	•	increased demand for enterprise storage driven by a broader deployment of applications which require significant storage capacity, such as enterprise software, data warehousing, data recovery, and data security operations;

	•	increased demand for new consumer electronic applications which require significant digital data storage capability, including digital video and audio recorders, video game platforms, emerging HDTV applications and global positioning systems.

Disk drives are the primary devices used for storing, managing and protecting the digital data associated with most of these applications. According to IDC, in the third quarter of 2003, four disk drive manufacturers, HGST, Maxtor, Seagate and Western Digital accounted for 84% of disk drive units shipped.

Thin-film media, or disks, are enabling components in disk drives. The technical advances by disk suppliers, along with those of other component suppliers, have improved the performance and storage capacity of disk drives and dramatically lowered the cost per GB stored. Disk suppliers help drive technology innovation in disk drives by increasing storage capacities per square inch of disk surface, referred to as areal density, and improving reliability. For example, today’s areal densities allow for up to approximately 80 GB of storage per 3 1/2-inch disk. We expect that current technologies, including synthetic anti-ferromagnetically coupled layers, or SAF, will soon lead to increases in areal densities of up to approximately 160 GB of storage

There are significant barriers to entry to the disk market. To succeed, we believe disk suppliers must have strong relationships with the leading disk drive manufacturers, the engineering expertise to enable technology leadership and the economies of scale to achieve efficient low-cost operations and meet customer timing and volume requirements.

From 1990 through approximately 1996, the disk industry struggled to keep up with rapidly increasing demand. Beginning in 1995, many companies in the disk industry undertook aggressive expansion plans. In 1997, the widespread adoption of magneto-resistive (MR) head technology significantly increased areal densities, thereby allowing disk drive manufacturers to meet consumer demand for higher capacity by using fewer disks per drive. Despite increasing demand for disk drives during the period from 1997 through the third quarter of 2002, this lower disk-per-drive ratio resulted in relatively flat demand for disks during this period and substantial excess disk production capacity. The impact of excess capacity fell disproportionately on the independent disk manufacturers because disk drive manufacturers, such as IBM, Maxtor and Seagate, chose to fill their internal disk production capacity before buying from independent disk manufacturers. As a result of these developments, much of the overcapacity in the disk industry was consolidated or taken out of service and most of the independent disk manufacturing was moved abroad and away from the largest disk purchasing companies located in the United States.

Recently, we believe supply and demand in the disk market have come into balance. This is a result of improving end-market demand, rationalized disk manufacturing capacity and stabilization in the disk-per-drive ratio at approximately one. As the disk drive industry has continued to grow and demand for new products has accelerated, leading disk drive makers increasingly rely on independent disk suppliers for a broad range of products and to meet their growing disk requirements. We believe only a few independent disk suppliers remain that have the established customer relationships, technology and scale to meet the requirements of large disk drive manufacturers.

We are the world’s largest and only U.S.-headquartered independent supplier of disks. We believe that our leadership position is attributable to our ability to simultaneously drive technological advances and manufacture high-performance products at competitive prices. Our major competitive strengths include the following:


	•	World’s Leading Independent Disk Supplier. We are the world’s largest independent manufacturer of thin-film media with a 40% market share of the total merchant disk supplier market and 18% of the overall disk market as of the second quarter of 2003 according to TrendFOCUS. Due to our market leadership and significant research and development efforts, we have developed a deep understanding of market needs in the disk drive market and offer a broad portfolio of advanced solutions to address those needs. Additionally, as a market leader, we believe the scale of our manufacturing and our technology development programs provide us with competitive advantages in maintaining and growing our market share.

	•	Technology Leadership. We have been in the thin-film media business for over 20 years, during which time we have invested heavily in research and development. Our research and development team is comprised of over 350 people in the United States and Malaysia focused on developing next generation products and efficient manufacturing processes. Recent examples of our success in technology innovation include being, we believe, the first independent merchant disk supplier to ship 80 GB disks and to transition to SAF media for certain 80 GB applications. Additionally, we believe we are currently a leader in developing next generation technologies, such as PMR media, to allow us to stay at the forefront of technology development in the disk industry. We believe our research and development strategy allows us to rapidly design and manufacture high volumes of advanced disks for our customers.


	•	Strong Relationships With Top-Tier Disk Drive Manufacturers. We have developed strong relationships with many of the leading disk drive manufacturers, including HGST, Maxtor and Western Digital, which represented approximately 56% of global disk drive sales in the second quarter of 2003 according to IDC, and we have recently begun production for a new major disk drive customer. We have entered into production agreements with Western Digital and Maxtor that have further strengthened our relationships with them as significant customers. Our headquarters and research and development operations are located in San Jose, California in close proximity to the design centers of many of the world’s largest disk drive manufacturers. Our ability to have our design teams work in such close proximity to our customers has, in part, facilitated the strong and collaborative customer relationships that we have established with these large disk drive manufacturers. We devote significant time working with our customers to produce disks that are highly specialized and customized for our customers particular technological requirements, and these close relationships provide added insight into our customers’ product and technology roadmaps.

	•	Low-Cost Manufacturing Operations. We believe our manufacturing operations located in Malaysia are among the lowest-cost in our industry. Our operations are located in the same region as the manufacturing operations of many of the world’s largest disk drive manufacturers. We believe the location of our manufacturing operations, together with our experience in the industry and our economies of scale, provide us with timing and cost advantages in delivering consistently high-quality products to our customers in high volumes.

	•	Broad Range of Disk Products to Address Large and Emerging Markets. We provide a broad range of disk products that are incorporated into disk drives for desktop, enterprise and consumer electronics applications. Our primary market focus has been in the desktop market, which IDC estimates represented approximately 72% of the total disk drive market during the second quarter of 2003, and the majority of the highest volume business of our largest customers. As our customers pursue applications and products in other promising growth areas, such as the enterprise server and consumer electronics storage markets, we believe we are well positioned to meet their needs based on our ability to produce a wide range of products with varying areal densities and form factors.

	•	Experienced Management Team. Our management team has extensive experience in the disk and disk drive industry and has successfully positioned Komag as the leading thin-film media company.

Our primary goal is to maintain our position as the leading independent provider of disks. The key elements of our strategy are as follows:


	•	Maintain Technology Leadership. We intend to maintain and extend our technology leadership in the disk market by continuing to invest in leading-edge research and development. We intend to continue to focus our technology development efforts primarily on large and emerging market opportunities, such as high-density storage for personal computers, enterprise storage systems, communications infrastructure and consumer electronics appliances. We believe we have led the transition to SAF media for 80 GB per disk applications and are actively developing disks for our customers with up to 160 GB per disk. In August 2003, we announced a new benchmark in our proprietary PMR media, a next generation technology for improving areal density, and intend to continue to pursue new technologies such as PMR in an effort to achieve technological advantages over our competitors.

	•	Continue Improving Manufacturing Efficiency and Reducing Production Costs. We intend to continue improving the efficiency and quality of our manufacturing operations in Malaysia where we believe we can achieve lower costs than other disk manufacturers. We believe that our advanced manufacturing operations allow us to accelerate delivery of high volumes of reasonably priced disks, which enable our customers to rapidly introduce new products. As the leading independent disk supplier, we believe our highly experienced operations personnel can continue to drive yield improvements and reduce costs faster than our competitors. We believe our strategy of improving our manufacturing


		efficiency while reducing costs contributes to our customers’ success and will help grow our market share.

	•	Leverage Collaborative Relationships with Disk Drive Manufacturers. We have established strong relationships with our customers, enabling us to participate in establishing technological and design requirements for new products. We believe that close technical collaboration with our customers and their other component suppliers during the design of our customers’ new disk drives facilitates integration of our disks, improves our ability to achieve cost-effective, high-volume manufacturing rapidly, and enhances the likelihood that we will remain a significant supplier of disks for high-performance disk drive products.

	•	Maintain a Diverse Customer Base. According to IDC, as of the third quarter of 2003, four major disk drive manufacturers accounted for over 84% of worldwide disk drive sales. For the quarter ended September 28, 2003, our largest customers included HGST, Maxtor and Western Digital, which according to IDC, together represented approximately 56% of all global disk drive sales during the second quarter of 2003. In order to expand our market penetration and further diversify our customer base, we recently began production for a new major disk drive customer. We continue to target additional high-volume disk drive manufacturers and believe that our combination of high-performance products and competitive pricing will enable us to further diversify our customer mix. In combination with offering a broad product mix to address multiple storage markets, we believe this strategy will reduce our dependence on the success of any one customer or market.

	•	Balance Capacity Growth with Customer Demand. Our strategy is to cost-effectively balance our investments in new capacity with the expected growth in demand for our products. Our current production capacity is 18 million to 20 million disks per quarter. We recently announced that we will increase our production capacity by approximately 10% to 20% over the next three quarters by utilizing our existing facilities, which minimizes capital outlays. We believe that our existing facilities could also accommodate a further incremental increase in manufacturing capacity in the future.

We believe our technological strength has allowed us to achieve and maintain our position as the leading independent supplier to the thin-film media market. Our technological strength stems from the depth of our understanding of materials science and the interplay between disks, heads, and other disk drive components. Our disk manufacturing expertise is evidenced by our history of delivering reliable products in high volume.

We manufacture and sell thin-film magnetic media on rigid disk platters for use in disk drives. These drives are used to record, store, retrieve and protect digital information. Inside a disk drive, the disk rotates at speeds of up to 15,000 rpm. The head scans across the disk as it spins, magnetically recording or reading information. The location on the disk where each bit of magnetic code is stored is extremely small and precisely placed. The tolerances of the disks and recording heads are extremely demanding and the interaction between these components is one of the most critical design aspects in an advanced disk drive.

Primary factors governing the density of storage achievable on a disk’s surface are:


	•	the minimum distance at which read/write heads can reliably pass over the surface of the disk to detect a change in magnetic polarity when reading from the disk, which is called flying height (measured in microinches, or millionths of an inch);

	•	the strength of the magnetic field required to change the polarity of a bit of data on the magnetic layer of a disk when writing, which is called coercivity; and

	•	the ability of the head to discriminate a signal from background media noise, which is called the signal-to-noise ratio.

As flying height is reduced, the head can read and write smaller bits. The higher the coercivity of the media is, the smaller the width of the bit that can be stored. The signal-to-noise ratio is determined by the

Our plating, polishing and texturing processes produce a uniform disk surface that is smooth at an atomic level. This smoothness permits the read/write heads to fly over the disk surface at a distance of 0.3 to 0.4 microinches (millionths of an inch). Disks must be made in a clean environment to limit surface defects. Even a small number of defects, a fraction of a micron in diameter, could cause the disk to fail. The magnetic alloys deposited on the surfaces of our disks have high coercivity, low noise, and other desirable magnetic characteristics.

Finally, a protective layer of diamond-hard carbon and a layer of lubricant, each of which is controlled to a tolerance of a few angstroms, is applied to the disk surface to prevent wear. The continued improvement in these and other factors has resulted in rapid advancement in the amount of data a disk is capable of storing.

In order to manufacture the best possible disks and achieve the high yields we desire, we require excellent raw materials, including highly-polished substrates. Our polished substrates, in conjunction with our automatic optical inspection systems and the latest disk buff process, provide us with high yields. At the same time, we have developed our polishing, texturing, final test, and packaging technology to achieve low costs for the materials and operating supplies needed to make our disks. Finally our multi-layer sputter process, with nanometer-thin structures, provides magnetic stability, mechanical durability and corrosion resistance, which we believe are at the forefront of our industry. To improve durability and corrosion resistance we have developed and qualified advanced diamond-like carbon films specifically for each of our sputter tools. Each method enables production of carbon films as thin as one-tenth microinch thick with extraordinary hardness and durability.

Our research, development, and engineering efforts focus on emphasizing key technology advancements in disk functionality, reliability, quality and manufacturing efficiency. We believe that improving yields and reducing costs are critical to improving our overall operating results. We also focus on emerging media storage technologies aimed at disk designs needed several years from now.

We often partner with our customers and other disk drive component makers in areas of technology development such as magnetic recording heads. We believe our most advanced longitudinal disks, that feature SAF-coupled layers to enhance thermal stability, will support a recording density of up to 160 GB per disk, which is approximately 100% higher than the most advanced disk in production today. Further, we are continuing to develop our proprietary PMR media, which we believe will have storage capability of 240 to 300 GB per disk when fully developed. We expect these advancements will be achieved with extensions of our current production equipment, which suggests a limited need to replace equipment to keep pace with technology improvement during the next few years.

As of December 28, 2003, we employed more than 350 people in our research and development program worldwide. Our expenditures (and percentage of net sales) on research, development, and engineering activities (excluding in-process research and development), were $37.2 million (13%) in fiscal 2002, $39.5 million (14.0%) in fiscal 2001, and $35.3 million (9.9%) in fiscal 2000. For the first three quarters of 2003, we expended $31.1 million (9.7%).

We sell our disks primarily to disk drive manufacturers for incorporation into disk drives. Disk drives, in turn, are sold to computer or consumer appliance manufacturers that incorporate the disk drives into their systems, or are sold directly to consumers. We work closely with our customers as they design new high-performance disk drives, and generally customize our products according to their specifications.

Our products offer a range of coercivities, glide height capabilities and other parameters to meet specific customer requirements. Unit sales of 3 1/2-inch 60 GB and 80 GB disks together represented 52% of our third

quarter of 2003 unit shipment volume. Sales of 3 1/2-inch 40 GB disks represented the remaining 3 1/2-inch disk unit shipment volume in the third quarter of 2003. In addition, we shipped 36 GB per platter 84 mm disks and 17 GB per platter 65 mm disks for high-end server drives.

We manufacture substrates primarily for our own use in finished disks. By doing so, we reduce our dependence on third-party suppliers of substrates. If we have substrate capacity in excess of our requirements for finished disks, we have and may continue to sell our substrates to third-parties. By selling our substrates to third parties, we better utilize our factories, reduce our overall cost per disk and establish customer relationships with disk drive manufacturers. As demand for finished disks increases, we expect to utilize more of our internally manufactured substrates and reduce sales to third parties.

As of the third quarter ended September 28, 2003, our principal customers included HGST, Maxtor and Western Digital, who together accounted for approximately 97% of net sales in that period. In August 2003, HGST qualified us as a second-source provider of 80 GB SAF media for use with its new 3 1/2-inch desktop drive. In October 2003, we announced an expanded business relationship with Maxtor, which includes dedicated media production capacity, a five-year supply agreement and the naming of Komag as a strategic external media supplier of Maxtor. Additionally, in connection with our acquisition of Western Digital’s media operations in 1999, we entered into a volume purchase agreement which has been recently extended through 2005. Further, in October 2003, we began volume production of 80 GB disks for a new major disk drive customer.

We generally make sales pursuant to purchase orders rather than long-term contracts. These purchase orders may be changed or canceled by customers on short notice without significant penalty.

We currently have three manufacturing facilities located in Penang and Sarawak, Malaysia with a total of approximately 890,000 square feet, a large portion of which contains Class 100 or better clean room environments. If operated at full capacity, we estimate that these facilities would be capable of producing 18 to 20 million finished disks per fiscal quarter. We expect to increase the manufacturing capacity of these facilities by approximately 10% to 20% over the next three quarters. We believe our current facilities and equipment are extendible for our next generation products. We intend to continue to cost-effectively balance our investments in new capacity with the expected growth in demand for our products.

Maintaining low product cost is critical to our ability to sustain profitability. The cost of our products is sensitive to many factors, including production volume, yield, materials and operating supplies consumed, and manufacturing location. Our processes have required substantial investment in equipment and factory buildings. This investment leads to a high fixed cost structure, making our costs sensitive to changes in production volume. Over the last several years, we have improved our yields while advancing areal density. At the same time, we have successfully reduced the cost of materials and operating supplies. Further, we have consolidated our manufacturing activities in Malaysia in order to reduce the cost of labor and services. We believe that our production volumes, yield, and the low cost of our Malaysian manufacturing facilities give us one of the lowest cost structures in the industry.

We believe our manufacturing expertise in thin-film media is evidenced by our history of delivering reliable products in high volume. By using proprietary processes and techniques, we have produced advanced

disk products that generally exhibit uniform performance characteristics. These uniform performance characteristics enhance the reliability of the disk drive products manufactured by our customers. In addition, these characteristics can raise production yields on our customers’ manufacturing lines, which is an important cost consideration for them. Manufacturing costs are highly dependent on our ability to effectively use our installed physical capacity to produce large volumes of products at acceptable yields. To improve yields and capacity utilization, we have adopted formal continuous improvement programs at each of our Malaysian manufacturing facilities.

The manufacture of our disks is a complex, multi-step process that converts aluminum substrates into finished data storage media ready for use in a disk drive. The process requires the deposition of extremely thin, uniform layers of metallic film onto a disk substrate. To achieve this, we use a vacuum deposition, or sputtering, method similar to that used to coat semiconductor wafers. The basic process consists of many interrelated steps that can be grouped into five major categories:


	•	Sizing and Grinding of the Substrate. A raw aluminum blank substrate is sized by precisely cutting the inner and outer diameter of the blank. A mechanical grinding process is then utilized to provide a relatively flat surface on the substrate prior to nickel alloy plating.

	•	Nickel Alloy Plating and Polishing of the Substrate. Through a series of chemical baths, aluminum substrates are plated with a uniform nickel phosphorus layer in order to provide support for the magnetic layer. Next, this layer is polished to achieve flatness and smoothness at an atomic level.

	•	Texturing and Cleaning. During these process steps, a precisely controlled, fine texture is applied to the polished disk surface to allow the read/write heads of the disk drives to fly at low and constant levels and then the disks are cleaned in preparation for the sputtering process.

	•	Sputtering and Lube. By a technically demanding vacuum deposition process, magnetic layers are successively deposited on the disk and a hard protective overcoat is applied. After sputtering, a microscopic layer of lubrication is applied to the disk’s surface to improve durability and reduce surface friction.

	•	Glide Test and Certification. In robotically-controlled test cells, disks are tested for glide height and surface defects, and then certified for magnetic properties. Based on these test results, disks are graded against our customers’ specific performance requirements.

Most of the critical process steps are conducted in Class 100 or better clean room environments. Throughout the process, disks are handled by highly automated equipment to reduce contamination and enhance process precision. Minute impurities in materials, particulate contamination or other production problems can reduce production yields and, in extreme cases, cause production to be suspended for prolonged periods.

We are subject to a variety of environmental and other regulations in connection with our operations and believe that we have obtained all necessary permits for our operations. We use various industrial hazardous materials, including metal-plating solutions, in our manufacturing processes. Wastes from our manufacturing processes are either stored in areas with secondary containment before removal to a disposal site, or processed on-site and discharged to the industrial sewer system.

We have from time to time upgraded our wastewater treatment facilities to improve the performance and consistency of our wastewater processing. Our Malaysian manufacturing facilities located in Penang and Sarawak recently received ISO 14001 certification. ISO 14001 is a voluntary set of standards that provides companies with a structure for managing the potential environmental impact of their operations. In order to obtain ISO certification, we developed and implemented a formal program to ensure that our manufacturing operations are consistent with minimizing hazardous waste, preventing pollution of air and water, and protecting the environment.

Nonetheless, industrial wastewater discharges from our facilities may, in the future, be subject to more stringent regulations. If we fail to comply with present or future regulations, part or all of our operations would be suspended or terminated. These regulations could restrict our ability to expand at our present locations or could require us to acquire costly equipment or incur other significant expenses.

We hold, and have applied for, United States and foreign patents and have entered into cross-licenses with certain of our customers. While these patents could present obstacles to the introduction of new products by competitors and possibly result in royalty-bearing licenses from third parties, we believe that our success does not generally depend on the ownership of intellectual property rights but rather on our innovative skills, technical competence, manufacturing execution, and marketing abilities. Accordingly, the patents that we hold or apply for will not constitute any assurance of our future success.

We regard elements of our equipment designs and processes as proprietary and confidential and rely upon employee and vendor nondisclosure agreements and a system of internal safeguards for protection. In spite of these steps for protecting proprietary and confidential information, there is a risk that competitors may obtain and use such information. Further, the laws of certain foreign countries in which we do business may provide a lesser degree of protection to our proprietary and confidential information than that provided by the laws of the United States. Moreover, from time to time, we receive proprietary and confidential information from vendors, customers, and partners, the use and disclosure of which are governed by nondisclosure agreements. Through internal communication and the monitoring of use and disclosure of such information, we comply with our obligations regarding use and nondisclosure. However, despite these efforts, there is a risk that we may use or disclose this information in violation of our obligations of nondisclosure.

We have occasionally received, and may receive in the future, communications from third parties asserting violation of intellectual rights alleged to cover certain of our products or manufacturing processes or equipment. In these cases, we evaluate whether it would be necessary to defend against the claims or to seek licenses to the rights referred to in such communications. If we must defend those claims, or if we are not able to negotiate necessary licenses on reasonable terms, our business and financial results would suffer.

As of December 28, 2003, on a worldwide basis, we had 4,743 employees. Of the total, 3,941 were full-time employees, 802 were employed on a temporary basis, 4,291 were employed in manufacturing, 358 in research, development, and engineering, 94 in sales, administrative, and management positions, 377 were employed in the United States and 4,366 were employed at offshore facilities. We believe that our future success will depend in large part upon our ability to continue to attract, retain, and motivate highly-skilled and dedicated employees. We have no employees who are represented by a labor union, and we have never experienced a work stoppage.

Our executive officers and directors and their ages as of December 28, 2003 are as follows:

Set forth below is certain information relating to our executive officers and directors.

Mr. Thian Hoo Tan joined our company in 1989, and started our first San Jose, California, manufacturing facility in 1989, our Penang operations in 1993, and our Sarawak operations in 1996. Mr. Tan returned to the United States and assumed the position of Senior Vice President, Worldwide Operations, from 1996 through his appointment to his present position of Chief Executive Officer in 1999. Before joining our company, Mr. Tan was Vice President of Operations at HMT. Mr. Tan holds B.S. and M.S. degrees in Physics from the University of Malaya in Kuala Lumpur.

Dr. Russak joined our company in October, 2000, as Chief Technical Officer and Executive Vice President of Research and Development after our merger with HMT. He was appointed President and Chief Technical Officer of Komag in January 2001. Previously, Dr. Russak was with HMT, which he joined in 1993 as Vice President — Research and Development. He subsequently became Chief Technical Officer in 1998 and Executive Vice President — Research & Development and Chief Technical Officer in 1999. From 1985 to 1993, Dr. Russak held several staff and management positions with IBM. Dr. Russak holds a B.S. in Ceramic Engineering and a Ph.D. in Materials Science from Rutgers University.

Dr. Bajorek joined our company in 1996 as Senior Vice President and Chief Technical Officer. He became our Executive Vice President and Chief Technical Officer in January 2000, and then was appointed Executive Vice President, Advanced Technology, in October 2000. Before joining our company, Dr. Bajorek was Vice President, Technology Development and Manufacturing, for IBM. He holds a Ph.D. degree in Electrical Engineering and Business Economics from the California Institute of Technology. Dr. Bajorek is one of ten scientists awarded the Millennium award by the Magnetics Society of the IEEE in 2000. He also received the 2002 Reynold B. Johnson IEEE Information Storage Award for leadership in the development and manufacturing of magneto resistive recording heads for data storage devices.

Mr. Martin joined our company in 1997 as Vice President, Product Assurance and Product Test, and became our Senior Vice President, Customer Sales and Service in 1998. In 2001, Mr. Martin became our Executive Vice President, Sales and Customer Service. From 1990 to 1997, he was Director of Process and Technology at Quantum Corporation. Prior to working at Quantum, Mr. Martin held a number of

Mr. Norris joined our company in October 2000, as Executive Vice President, Strategic Business Development, after the merger with HMT. He joined HMT in 1995 as Vice President, Finance, Chief Financial Officer and Treasurer and became its Executive Vice President, Finance, Chief Financial Officer and Treasurer in 1999. From 1975 to 1995, Mr. Norris worked for General Instrument Corporation. Mr. Norris holds a B.A. degree in Economics from Upsala College.

Ms. Bayless joined our company in 1994 as Corporate Controller, became a Vice President in 2000, and became our Chief Financial Officer in September 2002. Before joining us, Ms. Bayless worked for the public accounting firm of Ernst & Young, LLP. Ms. Bayless holds a B.S. degree in Accounting from California State University Fresno, and is a Certified Public Accountant.

Mr. Dabier joined our company in October 2000, as General Manager of Oregon manufacturing facilities, after the merger with HMT. In June 2001, Mr. Dabier became the Managing Director of Malaysian Operations. In January of 2003 he was promoted to Vice President, Managing Director of Komag USA (Malaysia) Sdn. He joined HMT in 1988 where he held various manufacturing management positions. From 1983 to 1988 Mr. Dabier worked for Lin Data Corporation.

Mr. Hammack joined our company in June 2002, as Vice President, Human Resources. He previously held the title of Vice President, Human Resources at Zambeel, Inc. from February 2001 until May 2002. Prior to that, he served as Vice President, Human Resources at QRS Corporation from January 1999 to February 2001. From January 1982 to January 1999, he served as Vice President, Human Resources at General Electric Medical Systems/Diasonics. Mr. Hammack holds a B.A. degree from San Diego State University.

Mr. Honardoost joined our company in October, 2000, as Vice President, New Product Introduction and Design, after the merger with HMT. He joined HMT in 1991, and became its Vice President, New Product Development in 1998. He previously held the title of Executive Director, New Product Development for HMT. Prior to HMT, he worked for Nashua Corporation (previously Lin Data Corporation) from 1984 to 1991. Mr. Honardoost holds a B.S. degree in Mechanical Engineering from Fresno State University and an M.S. degree in Thermo/Air Dynamics from San Jose State University.

Mr. Yamashita joined our company in 1984 as an engineer, and became Vice President, Research and Development in 1995. Mr. Yamashita currently serves as Vice President, Process Development. Mr. Yamashita holds a B.S. degree in Chemistry and a M.S. degree in Materials Science from Stanford University.

Mr. Brahe has served as a member of our Board of Directors since June 30, 2002, when we emerged from bankruptcy. Mr. Brahe is currently affiliated with Tiburon Research, a consulting group he founded in 2001. From 2000 through 2001, and also from 1994 through 1998, he was a partner and portfolio manager for Apodaca Investment Group. From 1998 through 2000, Mr. Brahe served as a principal and also as Director of Research for Preferred Capital Markets. Mr. Brahe holds a B.A. degree from Stanford University.

Mr. Eyre has served as a member of our Board of Directors since September 1983. Mr. Eyre served as Chairman of the Board from October 2000 to January 2002. He has been Managing Director of Legacy Venture, an organization devoted to amplifying the size and effectiveness of philanthropy. Mr. Eyre has been a private investor for many years and from 1976 to 1987 he served as a founding general partner of Merrill, Pickard, Anderson & Eyre, the pioneering venture capital firm that emerged from Bank of America. He has served on the boards of numerous public and private companies. He is now a board member of or advisor to several non-profit philanthropic organizations. Mr. Eyre holds a B.S. degree from Utah State University and an M.B.A. from Harvard Business School.

Mr. Subin has served as a member of our Board of Directors since June 30, 2002, when we emerged from bankruptcy. Mr. Subin is currently Managing Director and President of Trendex Capital Management, a private investment fund focusing primarily on financially distressed companies, which he formed in 1991. Mr. Subin is also currently a member of the Board of Directors of Nucentrix Broadband Networks, Inc., First Avenue Networks, Inc., New Alliance Insurance Company and TTR Technologies, Inc. Mr. Subin has been actively involved in the formation of, and has served on, official and ad hoc committees of debt and equity

security holders in restructuring of companies including The Lionel Corporation, The Zale Corporation, R.I.I., Macy & Co., Interco, Inc., Hillsborough Holdings Corp./ Jim Walter Corp., Morrison Knudsen Corp., Flagstar Cos., Anacomp, Inc., UDC Homes, Inc., Trans World Airlines, Inc., Buenos Aires Embotteladora S.A., Golden Books Family Entertainment, Inc., Boston Chicken, Inc., Iridium LLC, Metricom, Inc., and the Federal Mogul Corporation. Mr. Subin holds a B.A. degree from Brooklyn College.

Mr. Swimm has served as a member of our Board of Directors since June 30, 2002, when we emerged from bankruptcy. In 1997 Mr. Swimm retired after enjoying 35 years in the aerospace business, most recently as President of the Lockheed Martin Management and Data Systems Company. Mr. Swimm is a veteran in the business of national security and held key management positions with the U.S. Navy, the Nordem Division of United Aircraft, and General Electric’s Space Division and their Strategic Systems Department. Mr. Swimm has served on the Board of Directors for many companies, including Wam!net, the United Way, the Navy League, the Philadelphia Chamber of Commerce, AFCEA, the Security Affairs Support Association, the Philadelphia Museum of Art and the Philadelphia Opera Company. Mr. Swimm holds a B.A. degree in Liberal Arts and a B.S. degree in Electrical Engineering from Columbia College, and an M.S. in Electrical Engineering from the University of New Mexico.

Mr. Takata has served as a member of our Board of Directors since June 30, 2002, when we emerged from bankruptcy. Mr. Takata is currently the President and CEO of Engage Capital, an independent investment firm. From 1999 through 2001, Mr. Takata served as a Senior Vice President of Equity Research, Technology Group of Gerard Klauer Mattison. From 1994 through 1999, Mr. Takata was a Vice President of Equity Research, Technology of Gruntal & Company, a full service investment firm, and from 1986 to 1991, he was a Manager of Computer Security for Hughes Aircraft Company. Mr. Takata holds a B.S. degree in Business Administration and Finance from California State University in Fresno.

Mr. Van Wickle has served as a member of our Board of Directors since October 2000 when we merged with HMT. Mr. Van Wickle served as a member of HMT’s Board of Directors from May 1998 to October 2000. Mr. Van Wickle has been President and Chief Executive Officer of Intarsia Corporation, an integrated electronic component design and manufacturing company. Mr. Van Wickle is a 30-year veteran in semiconductor and disk drive manufacturing. From 1974 to 1992, Mr. Van Wickle held management positions at Texas Instruments, Fairchild Semiconductor, AT&T and Micropolis Corporation. From 1992 and prior to joining Intarsia, he was a Vice President in Operations of Dastek, a former subsidiary of Komag; Vice President of Manufacturing at Cypress Semiconductor; and President of Alphatec Electronics Corporation. Mr. Van Wickle holds a B.A. degree from Hobart College.

Mr. Wechsler has served as a member of our Board of Directors since June 30, 2002, when we emerged from bankruptcy. Mr. Wechsler is currently Chairman and Chief Executive Officer of American Equity Partners, Inc., a holding company that was formed in 1992 to specifically focus on the restructuring of financially distressed companies. Mr. Wechsler has held executive officer positions and served as Chairman or on the Board of Directors of many companies, including Mueller Industries, United Press International, AT&T International, ERC Industries, Tandem Staffing Solutions, Accessory Place, Crystal Oil, Jos. A. Bank, Protect Services Industries, and Victoria Station, among others. He has been Administrative Trustee of the Towers Financial Corporation Administrative Trust. He is currently a member of the Board of Directors of Airway Industries, AMC Financial, CFN Liquidating Trust, Galaxy Cable, Tandem Staffing Solutions and Wam!net. Mr. Wechsler is a Certified Public Accountant and holds a B.A. from Queens College and an M.B.A. from Columbia University.

Dr. Workman has served as a member of our Board of Directors since June 30, 2002, when we emerged from bankruptcy. Dr. Workman is currently the Chief Executive Officer and President of Pillar Data Systems, a post he has held since July 2001. Prior to joining Pillar, Dr. Workman was a Vice President of the Storage Systems Division of IBM. From 1993 to 1995, Dr. Workman served as Chief Technical Officer and Senior Vice President of Connor Peripherals. He has co-authored textbooks on digital control and magnetic recording, numerous publications, and holds 15 patents. Dr. Workman holds a Ph.D. and an M.S. in Electrical Engineering from Stanford University, and a B.S. in Electrical Engineering from U.C. Berkeley.

The following table sets forth certain information regarding the ownership of our common stock as of December 28, 2003 by each of our directors, each of our executive officers, all of our executive officers and directors as a group, each person known by us to be the beneficial owner of more than five percent of our outstanding common stock and each selling stockholder.


(1)	Includes 168,750 shares of unissued, restricted common stock held in our deferred compensation plan, which may be withdrawn within 60 days of December 28, 2003 and 50,000 shares of our common


	stock that may be acquired upon the exercise of stock options exercisable within 60 days of December 28, 2003.

(2)	Includes 44,500 shares of unissued, restricted common stock held in our deferred compensation plan, which may be withdrawn within 60 days of December 28, 2003 and 16,667 shares of our common stock that may be acquired upon the exercise of stock options exercisable within 60 days of December 28, 2003.

(3)	Includes 56,250 shares of unissued, restricted common stock held in our deferred compensation plan, which may be withdrawn within 60 days of December 28, 2003 and 15,000 shares of our common stock that may be acquired upon the exercise of stock options exercisable within 60 days of December 28, 2003.

(4)	Includes 12,500 shares of unissued, restricted common stock held in our deferred compensation plan, which may be withdrawn within 60 days of December 28, 2003 and 13,334 shares of our common stock that may be acquired upon the exercise of stock options exercisable within 60 days of December 28, 2003.

(5)	Includes 37,500 shares of unissued, restricted common stock held in our deferred compensation plan, which may be withdrawn within 60 days of December 28, 2003 and 8,333 shares of our common stock that may be acquired upon the exercise of stock options exercisable within 60 days of December 28, 2003.

(6)	Includes 26,250 shares of unissued, restricted common stock held in our deferred compensation plan, which may be withdrawn within 60 days of December 28, 2003 and 8,333 shares of our common stock that may be acquired upon the exercise of stock options exercisable within 60 days of December 28, 2003.

(7)	Includes 18,750 shares of unissued, restricted common stock held in our deferred compensation plan, which may be withdrawn within 60 days of December 28, 2003 and 5,000 shares of our common stock that may be acquired upon the exercise of stock options exercisable within 60 days of December 28, 2003.

(8)	Includes 5,000 shares of our common stock that may be acquired upon the exercise of stock options exercisable within 60 days of December 28, 2003.

(9)	Includes 8,750 shares of unissued, restricted common stock held in our deferred compensation plan, which may be withdrawn within 60 days of December 28, 2003 and 8,333 shares of our common stock that may be acquired upon the exercise of stock options exercisable within 60 days of December 28, 2003.


(10)	Includes 26,250 shares of unissued, restricted common stock held in our deferred compensation plan, which may be withdrawn within 60 days of December 28, 2003 and 8,333 shares of our common stock that may be acquired upon the exercise of stock options exercisable within 60 days of December 28, 2003.

(11)	Includes 5,000 shares of our common stock that may be acquired upon the exercise of stock options exercisable within 60 days of December 28, 2003.

(12)	Includes 5,000 shares of our common stock beneficially owned by Mr. Eyre and 5,000 shares of our common stock that may be acquired upon the exercise of stock options exercisable within 60 days of December 28, 2003.

(13)	Includes 5,000 shares of our common stock that may be acquired upon the exercise of stock options exercisable within 60 days of December 28, 2003.

(14)	Includes 5,000 shares of our common stock that may be acquired upon the exercise of stock options exercisable within 60 days of December 28, 2003.

(15)	Includes 5,000 shares of our common stock that may be acquired upon the exercise of stock options exercisable within 60 days of December 28, 2003.


(16)	Includes 3,000 shares of our common stock beneficially owned by Mr. Van Wickle and 5,000 shares of our common stock that may be acquired upon the exercise of stock options exercisable within 60 days of December 28, 2003.

(17)	Includes 5,000 shares of our common stock that may be acquired upon the exercise of stock options exercisable within 60 days of December 28, 2003.

(18)	Includes 5,000 shares of our common stock that may be acquired upon the exercise of stock options exercisable within 60 days of December 28, 2003.

(19)	See notes 1 through 18.

(20)	As disclosed in the reports filed by Stephen Feinberg on November 3, 2003 pursuant to Sections 13 and 16 of the Exchange Act of 1934, as amended. Mr. Feinberg exercises the sole power to vote and the sole power to direct the disposition of all of the shares of the common stock held by: Cerberus Partners, L.P., Cerberus International, Ltd., Cerberus Series One Holdings, LLC, Cerberus Series Two Holdings, LLC, Cerberus America Series One Holdings, LLC.

	Following our emergence from chapter 11 bankruptcy, and pursuant to the plan of reorganization, the Cerberus entities were granted shares of our common stock, as well as Senior Notes, in exchange for discharging their claims against us as senior creditors prior to the bankruptcy.


(21)	As disclosed in the Form 4 filed by JDS Capital LP on October 15, 2003. The JDS Capital Management, Inc. ownership was calculated by aggregating the ownership of the following: JDS Capital L.P., J & G, LLC, JDS Capital Management, LLC and Joseph D. Samberg.



	Following our emergence from chapter 11 bankruptcy, and pursuant to the plan of reorganization, JDS entities were granted shares of our common stock, as well as Senior Notes, in exchange for discharging their claims against us as senior creditors prior to the bankruptcy.



(22)	As disclosed in the Schedule 13G filed by Michael A. Roth and Brian J. Stark on March 6, 2003. The Stark/Shepherd ownership was calculated by aggregating the ownership of the following: Staro Partners, Shepherd Investments International, Ltd. and Shark Investments Limited Partnership.

Subject to the terms and conditions of an underwriting agreement, dated as of , 2004, among us, the selling stockholders and the underwriters named below, acting through their representatives, the underwriters have severally agreed to purchase from us and the selling stockholders the number of shares of common stock set forth below opposite their respective names.

This offering is a firm commitment underwritten offering and the underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any are purchased, other than the shares covered by the over-allotment option described below. The underwriting agreement provides that the obligations of the underwriters to pay for and accept delivery of the shares of common stock offered hereby is subject to approval of legal matters by their counsel, including regarding the validity of the shares, and other conditions contained in the underwriting agreement such as the receipt by the underwriters of officer’s certificates from us and opinions from our counsel.

The underwriters’ representatives have advised us and the selling stockholders that the underwriters propose to offer the shares of common stock to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $ per share, of which $ may be reallowed to other dealers. After this offering, the public offering price, concession and reallowance to dealers may be reduced by the representatives. No such reduction shall change the amount of proceeds to be received by us as set forth on the cover page of this prospectus. The common stock is offered by the underwriters as stated herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority.

We have granted to the underwriters an option, exercisable within 30 days after the date of this prospectus, to purchase up to a total of 750,000 shares of common stock from us to cover over-allotments, if any, at the public offering price less underwriting discounts and commissions. If the underwriters exercise their over-allotment option to purchase any of the additional 750,000 shares of common stock, each underwriter, subject to certain conditions, will become obligated to purchase its pro-rata portion of these additional shares based on the underwriter’s percentage of the total underwriting commitment in the offering as indicated in the table above. If purchased, these additional shares will be sold by the underwriters on the same terms as those on which the shares offered hereby are being sold. We will be obligated, pursuant to the over-allotment option, to sell shares to the underwriters to the extent the over-allotment option is exercised. The underwriters may exercise the over-allotment option only to cover over-allotments made in connection with the sale of the shares of common stock offered in this offering.

The following table shows the public offering price, underwriting discounts and commissions and proceeds to us and the selling stockholders before expenses from the sale of common stock. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ over-allotment option to purchase additional shares.

The expenses of the offering and the concurrent Convertible Subordinated Notes offering, other than the underwriting discounts and commissions referred to above, are estimated at approximately $1.1 million and are payable entirely by us.

We and the selling stockholders have severally agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the underwriters may be required to make in respect of those liabilities.

We and each of our executive officers and directors and each of the selling stockholders have agreed for a period of 90 days after the date of this prospectus, subject to specified exceptions, not to issue, offer, sell, agree to offer or sell, solicit offers to purchase, grant any call option or purchase any put option with respect to, pledge, borrow or otherwise dispose of, make any short sale or maintain any short position, establish or increase a “put equivalent position” or liquidate or decrease a “call equivalent position,” or otherwise enter into any swap, derivative transaction or other transaction or arrangement that transfers to another, in whole or in part, any of the economic consequences of common stock, whether or not such transaction is to be settled by delivery of common stock, other securities, cash or other consideration, or otherwise dispose of, any common stock, or any securities convertible into, exercisable or exchangeable for common stock, or interest therein of ours or of any of our subsidiaries without the prior consent of Bear, Stearns & Co. Inc. Bear, Stearns & Co. Inc. may, in its sole discretion and at any time or from time to time before the termination of the 90-day period, without notice, release all or any portion of the securities subject to lock-up agreements. Bear, Stearns & Co. Inc. does not have any current intention to release any portion of the securities subject to lock-up agreements. The foregoing restrictions will not apply to the sale of common stock in this offering, the sale of our % Convertible Subordinated Notes due 2024 in our concurrent public debt offering and issuances of common stock as part of any conversion of the notes or exercise of put rights or the grant and exercise of options under, or the issuance and sale of shares pursuant to, employee stock option plans.

Other than in the United States, no action has been taken by us, the selling stockholders or the underwriters that would permit a public offering of the shares of common stock offered by this prospectus in any jurisdiction where action for that purpose is required. The shares of common stock offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such shares of common stock be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of any offer to buy any shares of common stock offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

Our common stock trades on the Nasdaq National Market under the symbol “KOMG.” On January 14, 2004, the last reported sale price of our common stock was $23.71 per share.

A prospectus in electronic format may be made available on the Internet sites or through other online services maintained by one or more of the underwriters of this offering, or by their affiliates. The underwriters may allocate a number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the underwriters on the same basis as other allocations. Other than any prospectus made available in electronic format as described above, the information on any web site containing the prospectus is not intended to be a part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in such capacity and should not be relied on by investors.

In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, syndicate covering transactions and stabilizing transactions. Short sales involve syndicate sales of common stock in excess of the number of shares to be purchased by the underwriters in the offering, which creates a syndicate short position. “Covered” short sales are sales of shares made in an amount up to the number of shares represented by the underwriters’ over-

allotment option. In determining the source of shares to close out the covered syndicate short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which the underwriters may purchase shares through the over-allotment option. Transactions to close out the covered syndicate short involve either purchases of the common stock in the open market after the distribution has been completed or the exercise of the over-allotment option. The underwriters may also make “naked” short sales of shares in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares of common stock in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of bids for or purchases of shares in the open market while the offering is in progress.

The underwriters also may impose a penalty bid. Penalty bids permit the underwriters to reclaim a selling concession from an underwriter or syndicate member when the underwriters repurchase shares originally sold by that underwriter or syndicate member in order to cover syndicate short positions or make stabilizing purchases.

Any of these activities may have the effect of preventing or retarding a decline in the market price of the common stock. They may also cause the price of the common stock to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The underwriters may conduct these transactions on the Nasdaq National Market or otherwise. If the underwriters commence any of these transactions, the underwriters may discontinue them at any time.

Certain of the underwriters and their affiliates have in the past provided, and may in the future provide, investment banking and other financial and banking services to us for which they have in the past received, and may in the future receive, customary fees. Bear, Stearns & Co. Inc., Piper Jaffray & Co., Needham & Company, Inc., and Thomas Weisel Partners LLC are the underwriters with respect to our concurrent public offering of Convertible Subordinated Notes. Approximately $7.2 million of our outstanding Senior Notes held by Bear, Stearns & Co. Inc. will be repaid with a portion of the net proceeds from this offering and the concurrent Convertible Subordinated Notes offering.

The validity of the shares of common stock offered by this prospectus will be passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. Certain legal matters will be passed upon for the underwriters by Morrison & Foerster LLP, Palo Alto, California.

The consolidated financial statements and schedule of Komag, Incorporated as of December 29, 2002, and December 30, 2001, and for the six-month periods ended December 29, 2002 and June 30, 2002, and for the year ended December 30, 2001, have been incorporated by reference herein and in the registration statement in reliance upon the reports of KPMG LLP, independent accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.

KPMG LLP’s report dated January 16, 2003, except as to Note 17, which is as of February 25, 2003, contains two explanatory paragraphs. The first paragraph states that effective as of the beginning of the 2002 fiscal year, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. The second paragraph states that the Company’s plan of reorganization under chapter 11 of the United States Bankruptcy Code became effective on June 30, 2002. As a result of the adoption of “fresh-start” reporting in accordance with Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,” the consolidated financial statements as of and for the six-month period ended December 29, 2002, are presented on a different reporting basis than the periods before emergence from bankruptcy, and are therefore not comparable.

The consolidated statements of operations, stockholders’ equity, and cash flows of Komag, Incorporated for the year ended December 31, 2000 appearing in Komag, Incorporated’s Annual Report (Form 10-K) for the year ended December 29, 2002, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon (which contains an explanatory paragraph describing conditions that raise substantial doubt about Komag, Incorporated’s ability to continue as a going concern as described in Note 1 to the consolidated financial statements) included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

We have filed with the Securities and Exchange Commission, Washington, D.C. 20549, under the Securities Act of 1933, a registration statement on Form S-3 relating to the common stock offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to our company and the shares we are offering by this prospectus you should refer to the registration statement, including the exhibits and schedules thereto. You may inspect a copy of the registration statement without charge at the Public Reference Section of the Securities and Exchange Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 or at the Securities and Exchange Commission’s regional offices at 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036. The public may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission also maintains an Internet site that contains reports, proxy and information statements and other information at http://www.sec.gov regarding registrants that file electronically with the Securities and Exchange Commission.

We file periodic reports, proxy statements and other information with the Securities and Exchange Commission in accordance with requirements of the Exchange Act. These periodic reports, proxy statements and other information are available for inspection and copying at the regional offices, public reference facilities and Internet site of the Securities and Exchange Commission referred to above. In addition, you may request a copy of any of our periodic reports filed with the Securities and Exchange Commission at no cost, by writing or telephoning us at the following address:

We intend to provide our stockholders with annual reports containing audited financial statements and with quarterly reports for the first three quarters of each fiscal year containing unaudited interim financial information in compliance with the requirements of the rules and regulations promulgated by the Securities Exchange Commission.

Information contained on our website is not a prospectus and does not constitute a part of this prospectus.

We incorporate by reference into this prospectus the documents listed below, except as modified or superseded by statements contained in this prospectus or in any other document that we file after the date of this prospectus that also is or is deemed to be incorporated by reference.


	•	our Annual Report on Form 10-K for the fiscal year ended December 29, 2002;

	•	our Quarterly Report on Form 10-Q for the quarter ended March 30, 2003;

	•	our Quarterly Report on Form 10-Q for the quarter ended June 29, 2003;

	•	our Quarterly Report on Form 10-Q for the quarter ended September 28, 2003;

	•	our Form 8-K filed on December 19, 2003; and

	•	the description of our common stock contained in our Registration Statement on Form S-1/ A, as filed with the SEC on October 4, 2002.

All documents that we file after the date of this prospectus pursuant to Section 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended, shall be deemed to be incorporated by reference into this prospectus. All such documents that we file after the date of the initial registration statement and prior to effectiveness of the registration statement shall be deemed to be incorporated by reference into this prospectus.

You should rely only on the information contained in or incorporated by reference or provided in this prospectus. We have not authorized anyone else to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume the information in this prospectus is accurate as of any date other than the date on the front of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock.


*	The balance sheet at December 29, 2002 was derived from the audited consolidated financial statements at that date.


*	The condensed consolidated statement of cash flows for the six months ended June 30, 2002 was derived from the audited consolidated financial statements.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation of the condensed consolidated financial position, operating results, and cash flows for the periods presented, have been included. Operating results for the nine-month period ended September 28, 2003, are not necessarily indicative of the results that may be expected for the year ending December 28, 2003.

Komag, Incorporated (KUS) filed a voluntary petition for reorganization under chapter 11 of the United States Bankruptcy Code on August 24, 2001 (the Petition Date). The petition was filed with the United States Bankruptcy Court for the Northern District of California. The petition related only to the Company’s U.S. corporate parent, KUS, and did not include any of its subsidiaries.

KUS proposed, and in May 2002 the Bankruptcy Court confirmed, the Further Modified First Amended Plan of Reorganization (the Plan), which became effective on June 30, 2002. KUS emerged from bankruptcy on that date. In accordance with Statement of Position 90-7 (SOP 90-7), Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, issued by the American Institute of Certified Public Accountants, the Company adopted fresh-start reporting and reflected the effects of the adoption in the condensed consolidated financial statements for the six months ended June 30, 2002. Fresh-start reporting requires the recording of assets and liabilities at fair value, and requires the recording of stockholders’ equity based on the reorganization (enterprise) value.

As a result of the adoption of fresh-start reporting, the condensed consolidated statements of operations and statements of cash flows for periods ended after June 30, 2002 are prepared on a basis of accounting that is different from that utilized for periods ended prior to June 30, 2002. Therefore, the Company’s condensed consolidated statements of operations and cash flows for the six months ended June 30, 2002, are presented as the predecessor company and for the three months ended September 29, 2002, as the successor company, and are not comparable to the condensed consolidated statements of operations and cash flows for the nine months ended September 28, 2003.

Certain reclassifications have been made to prior period balances in order to conform to the current period presentation.

Fiscal Year: The Company uses a 52-53 week fiscal year ending on the Sunday closest to December 31. The three-month reporting periods included in this report consisted of 13 weeks.

Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market, and consist of the following (in thousands):

Stock-Based Compensation: The Company uses the intrinsic value method to account for employee stock-based compensation. The intrinsic value method is in accordance with the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, compensation cost is recorded on the date of grant to the extent that the fair value of the underlying share of common stock exceeds the exercise price for a stock option or the purchase price for a share of common stock.

In accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure — an Amendment of SFAS No. 123, the Company provides pro forma disclosure of the effect on net income and earnings per share had the fair value method, as prescribed by SFAS No. 123, been used.

The following table reflects the effect on the Company’s net income (loss) and income (loss) per share after emergence from bankruptcy (the Successor Company) for the three and nine months ended September 28, 2003, the three months ended September 29, 2002, and on the Company’s net income prior to emergence from bankruptcy (the Predecessor Company) for the six months ended June 30, 2002, had the fair value method been applied to all outstanding and unvested awards.

Upon emergence from chapter 11 on June 30, 2002, the Company had a significant change in the structure of stockholders’ equity. Accordingly, earnings per share of the Predecessor Company are not presented, as the amounts are not meaningful. The table is in thousands, except per share data.

For pro forma disclosure purposes, the Company used the Black-Scholes option pricing model to estimate the fair value of each option and stock purchase right grant on the date of grant.

The following assumptions were used to estimate the fair value of option grants in the first and third quarters of 2003 (there were no grants in the second quarter of 2003): risk-free interest rates of 2.68% and 2.54%, respectively; volatility factors of the expected market price of the Company’s common stock of 87.1%

and 85.5%, respectively; and a weighted-average expected option life of four years. The weighted average fair values of options granted during the first and third quarters of 2003 were $4.34 and $8.28, respectively. There were no grants in the first nine months of 2002.

The following assumptions were used to estimate the fair value of employee purchase rights under the Amended and Restated 2002 Employee Stock Purchase Plan (ESPP) in the first, second, and third quarters of 2003: risk-free interest rates of 1.18%, 1.18%, and 0.99%, respectively; volatility factors of the expected market price of the Company’s common stock of 62.2%, 62.2%, and 51.8%, respectively; and a weighted-average expected purchase rights life of six months. The weighted-average fair value of purchase rights granted during the first, second, and third quarters of 2003 was $2.07. There was no ESPP Plan in effect in the first nine months of 2002.

Because the Company does not pay dividends, there was no dividend yield included in the pro forma disclosure calculation.

Net Income (Loss) Per Share: The Company determines net income (loss) per share in accordance with SFAS No. 128, Earnings per Share.

Basic net income (loss) per common share is computed by dividing income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted-average number of shares and dilutive potential shares of common stock outstanding during the period. The dilutive effect of outstanding options and stock purchase rights is reflected in diluted net income per share by application of the treasury stock method.

Upon emergence from chapter 11 on June 30, 2002, the Company had a significant change in the structure of stockholders’ equity. Accordingly, net income per share amounts of the Predecessor Company are not presented, as the amounts are not meaningful.

The following table sets forth the computation of net income per share (in thousands, except per share amounts):

Prior year periods are not included in the above table, as there are no reconciling items since the number of shares for basic and diluted is the same.

Incremental common shares attributable to outstanding common stock options (assuming proceeds would be used to purchase treasury stock) of 5,597 and 105,457 for the three and nine months ended

September 28, 2003, respectively, were not included in the diluted net income per share calculation because the effect would have been anti-dilutive.

Recent Accounting Pronouncements: In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected include mandatorily redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003 and must be applied to existing financial instruments effective with the beginning of the first fiscal period after June 15, 2003. The Company adopted SFAS No. 150 on the first day of its fiscal 2003 third quarter. The adoption had no impact on the Company’s condensed consolidated financial statements.

Prior to June 30, 2002, sales to Western Digital Corporation (Western Digital) were reported as related party transactions, as Western Digital owned more than 5% of the Company’s outstanding common stock. For the periods subsequent to June 30, 2002, Western Digital was no longer a related party, as it owned less than 5% of the Company’s outstanding stock. Sales to Western Digital for the three and six months ended June 30, 2002 were $28.3 million and $69.3 million, respectively.

The following table reflects the percentage of the Company’s revenue by major customer:

In the third quarter and first nine months of 2003, the Company recorded $3.4 million and $10.1 million, respectively, in interest expense. In the third quarter of 2002, the Company recorded $3.2 million in interest expense. No interest expense was recorded in the first half of 2002, as interest expense was suspended while the Company was in chapter 11. Interest expense represented interest on the Company’s debt issued on emergence from chapter 11.

No reorganization expenses were recorded in the third quarter and first nine months of 2003, compared to zero and $6.5 million, respectively, in the third quarter of 2002 and first six months of 2002. Reorganization expenses in the first six months of 2002 primarily reflected professional fees related to the chapter 11 bankruptcy proceeding, and a $5.0 million adjustment associated with a chapter 11-related creditor claim.

In the third quarter of 2003, the Company received approval from the Malaysian Ministry of Finance for the exemption of withholding tax on royalty payments made by its Malaysian operations to its subsidiary in

the Netherlands. The exemption is for a period of five years effective retroactively from January 2002 through December 2006. As a result, the Company recorded an income tax benefit of $2.5 million in the third quarter of 2003 related to withholding taxes it previously accrued which are no longer payable. The third quarter of 2003 income tax provision without the $2.5 million tax benefit was less than $0.1 million. For the first nine months of 2003, the Company recorded an income tax benefit of $0.6 million, which includes the $2.5 million tax benefit described above, net of $1.9 million of foreign withholding taxes and foreign income taxes.

The Company’s income tax provisions of $0.3 million for the third quarter of 2002, and $0.7 million for the first six months of 2002, represented foreign income taxes and foreign withholding taxes on royalty and interest payments.

The Company’s wholly-owned thin-film media operation, KMS, received an eight-year extension of its tax holiday, which expired in June 2003, for its first plant site. The additional extension extends the tax holiday through June 2011. KMS has also been granted additional tax holidays for its second and third plant sites in Malaysia. These tax holidays are effective through December 2006 and 2008, respectively.

The minority interest for Kobe USA’s 20% share of KMT’s net income in the third quarter and first six months of 2002 was less than $0.1 million. KMT ceased operations in the third quarter of 2002.

In the third quarter and first six months of 2002, the Company recorded zero and $2.4 million losses, respectively, as its equity share in the net loss of Chahaya, a former equity investment. Chahaya ceased operations in the fourth quarter of 2002. The Company currently has no minority or equity interests in related companies.

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets, which requires that goodwill not be amortized, but be subject to an impairment test at least annually.

The Company completed a transitional impairment analysis of its goodwill during the six months ended June 30, 2002 and recorded a transitional impairment loss of $47.5 million as of the first day of fiscal 2002. The transitional impairment loss of $47.5 million was recognized as the cumulative effect of a change in accounting principle in the Company’s condensed consolidated statement of operations.

Upon the adoption of fresh-start reporting as of June 30, 2002, the Company recorded goodwill of $33.9 million, which equaled the reorganization value in excess of amounts allocable to identifiable net assets recorded in accordance with SOP 90-7. In the fourth quarter of 2002, the Company performed its first annual goodwill impairment analysis under SFAS No. 142. Because the Company’s fair value based on market capitalization was significantly less than net book value at December 29, 2002, the Company wrote off the entire $33.9 million goodwill balance in the fourth quarter of 2002.

Upon the adoption of fresh-start reporting as of June 30, 2002, the Company recorded other intangible assets in the amount of $17.6 million. As of September 28, 2003, other intangible assets included: 1) developed technology of $3.1 million (less accumulated amortization of $1.1 million), which is being amortized on a straight-line basis over its estimated useful life of three and one-half years; 2) a volume purchase agreement of $7.7 million (less accumulated amortization of $3.5 million), which is being amortized on a straight-line basis over its useful life of two and three-quarter years; and 3) patent costs of $0.5 million (less accumulated amortization of $0.1 million).

Amortization of intangible assets in the third quarter and first nine months of 2003 was $0.9 million and $2.8 million, respectively, and was $0.9 million and $3.6 million in the third quarter and first six months of

2002, respectively. These expenses were recorded in cost of sales in the accompanying condensed consolidated statements of operations.

The following table summarizes accrued expenses and other liabilities balances as of September 28, 2003 and December 29, 2002 (in thousands):

Cash payments under the Company’s restructuring liabilities were $0.3 million and $1.6 million in the third quarter and first nine months of 2003, respectively.

On September 30, 2003, the Company completed the sale of its idle Fremont, California land and buildings. The land and buildings were acquired through the merger with HMT Technology Corporation in October 2000 and had been idle and held for sale since 2001. The net proceeds from the sale of the land and buildings were approximately $24 million, resulting in a gain of approximately $1.0 million. The sale will be recorded in the fourth quarter of 2003. On October 21, 2003, the Company utilized approximately 50% of the net proceeds, $12.1 million, to pay down its debt as required under the terms of the indenture governing the Senior Notes. Additionally, we made a required principal payment of $5.0 million on the Senior Notes on October 15, 2003.

Further, the Company received consent from a majority of the holders of the Senior Notes and the lender under the Exit Facility to redeem in full the Junior Notes for approximately $8.2 million. As such, on October 30, 2003, the Company called for the full redemption of the Junior Notes at a total cost of approximately $8.2 million for outstanding principal and accrued interest. The Junior Notes were redeemed in full on December 2, 2003. Further, the Company received consent from the majority of the holders of the Senior Notes and the lender under the Exit Facility to increase the covenant on capital expenditures for 2003 to approximately $40.0 million.

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the Securities and Exchange Commission declares our registration statement effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

This is a public offering of $70.0 million aggregate principal amount of notes of Komag, Incorporated. We will pay interest on the notes on February 1 and August 1 of each year, beginning August 1, 2004. At maturity on February 1, 2024, we will repay the notes at their principal amount.

You may convert the notes into our common stock prior to stated maturity if: (1) the sale price of our common stock exceeds a specified threshold; (2) the trading price of the notes falls below a specified threshold prior to February 1, 2019; (3) the notes have been called for redemption; or (4) specified corporate transactions occur. The conversion rate will initially be shares of our common stock per $1,000 principal amount of notes equivalent to a conversion price of approximately $ per share, except in connection with conversion following satisfaction of the trading price condition. The conversion rate will be subject to adjustment upon the occurrence of specified events.

The notes will be our general unsecured obligations, ranking subordinate to all of our existing and future senior indebtedness, and effectively subordinated to all indebtedness and other liabilities of our subsidiaries.

We may redeem the notes on or after February 6, 2007 at declining redemption premiums as set forth in this prospectus. You may require us to purchase the notes on February 1, 2011, February 1, 2014 or February 1, 2019 or upon the occurrence of a fundamental change, at a purchase price equal to 100% of the principal amount of the notes plus accrued and unpaid interest to, but excluding, the purchase date.

Concurrent with this offering, and by a separate prospectus, we and certain selling stockholders are offering an aggregate of 5,000,000 shares of our common stock, plus up to an additional 750,000 shares to cover over-allotments by the underwriters for that offering. Neither the completion of the common stock offering nor the completion of this convertible note offering is contingent upon the other.

Prior to this offering, there has been no public trading market for the notes. The notes are expected to be traded on the over-the-counter market. Our common stock currently trades under the symbol “KOMG” on the Nasdaq National Market. On January 14, 2004, the last reported sale price of our common stock on the Nasdaq National Market was $23.71 per share.

See “Risk Factors” beginning on page 10 to read about risks that you should consider before buying our notes.

The offering prices set forth above do not include accrued interest, if any. Interest on the notes will accrue from the date of original issuance of the notes, expected to be January , 2004.

We have granted the underwriters a 30-day option to purchase from us from time to time up to an additional $10.5 million of notes to cover any over-allotments. The underwriters are offering our notes as described herein under “Underwriting.”

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all the information you should consider before purchasing the notes offered hereby. You should read the entire prospectus, including the “Risk Factors” section beginning on page 10, and the financial data and related notes included in this prospectus and incorporated by reference herein, before deciding to invest in the notes. Unless indicated otherwise, all information contained in this prospectus assumes the underwriters’ overallotment option with respect to the offering is not exercised.

On December 19, 2003, we announced that we signed an agreement with Trace Storage Technology Corporation (Trace), which will provide us, upon satisfaction of certain conditions, with additional substrate capacity as well as a substrate supply relationship with Trace. Under the agreement, we expect to purchase Trace’s Malaysian substrate manufacturing facility including land, building and equipment for approximately $10 million. We intend to use cash currently held to pay for the acquisition and are not relying on consummation of the proposed notes offering in this prospectus or the concurrent common stock offering to fund this acquisition. We intend to manufacture both aluminum ground substrates and plated and polished substrates in this factory for our own use and to sell Trace a portion of the output under a supply agreement entered into in connection with the purchase.

The offering of the notes and the concurrent offering by us and certain selling stockholders of an aggregate of 5,000,000 shares of common stock is part of the refinancing transactions pursuant to which we intend to issue the notes and the common stock and terminate our existing revolving credit facility, or Exit Facility, and use the proceeds from these offerings to redeem (in whole or in part) our Senior Secured Notes due 2007, or Senior Notes.

In accordance with our plan of reorganization, we issued $7.0 million Junior Secured Notes due 2007, or Junior Notes, that were subordinated paid in-kind notes. The Junior Notes were fully subordinated to the Exit Facility and the indenture governing the Senior Notes, and were secured by a security interest in the collateral pledged to secure the Exit Facility and Senior Notes. On October 30, 2003, we sent a redemption notice to the holders of the Junior Notes that we would redeem the Junior Notes. The Junior Notes were redeemed in full on December 2, 2003.

We issued a total of $128.8 million of Senior Notes in connection with our reorganization. As of December 28, 2003, the Senior Notes had a cash-pay portion of $63.2 million and a paid-in-kind portion of $52.0 million. The Senior Notes are secured by a security interest in substantially all of our assets, except in the case of our ownership interest in our foreign subsidiaries, which is limited to a pledge of 65% of such equity interests. In order for us to issue the notes pursuant to this offering, the notes must be subordinated and junior to the Senior Notes and must satisfy the conditions set forth in the indenture governing the Senior Notes. Upon the closing of the offering of the notes and the concurrent common stock offering, we will promptly mail a redemption notice to the holders of the Senior Notes to redeem all or a portion of the Senior Notes with the proceeds of such offerings.

The collateral agent under our Exit Facility and the trustee for the Senior Notes entered into an intercreditor arrangement that governs as among them, among other things, the priority of their security interests in our assets. Pursuant to this intercreditor arrangement, the liens granted to secure the Exit Facility have priority over the liens granted to secure the Senior Notes.

The following summary contains basic information about the notes and is not intended to be complete. It does not contain all the information that is important to a holder of the notes. For a more complete understanding of the notes, please refer to the section of this document entitled “Description of Notes.” For purposes of the description of the notes included in this prospectus, references to “the Company,” “us,” “we” and “our” refer only to Komag, Incorporated.


		conversion price in effect on the first trading day of the conversion period; a “conversion period” will be the period from and including the first trading day of any fiscal quarter (beginning with the quarter ending July 4, 2004) up to, but not including, the first trading day of the following fiscal quarter;

		• during the five consecutive business day period following any five consecutive trading-day period at any time prior to February 1, 2019 in which the average trading price for a note was less than 98% of the average of the closing sale price of our common stock during such five trading-day period multiplied by the then applicable conversion rate;

		• if the notes have been called for redemption; or

		• upon the occurrence of specified corporate transactions described under “Description of Notes — Conversion Upon Specified Corporate Transactions.”

		The notes are convertible into shares of our common stock prior to maturity (or their earlier purchase or redemption by us) at an initial conversion rate of shares of common stock per $1,000 principal amount of the notes (equivalent to a conversion price of approximately $ per share), except in connection with conversions following satisfaction of the trading price condition under certain circumstances. The conversion rate may be adjusted under certain circumstances, as described under “Description of Notes Conversion Procedures — Conversion Rate Adjustment.”

		Upon conversion, a holder generally will not receive any payment representing accrued and unpaid interest.

Sinking Fund		None.

Optional Redemption		We may at our option redeem the notes in whole or in part on or after February 6, 2007, at the redemption prices set forth in this prospectus. See “Description of Notes — Optional Redemption.”

Purchase of Notes at Holder’s Option		Holders may require us to repurchase the notes for cash on a purchase date of February 1, 2011, February 1, 2014 and February 1, 2019. We will pay a purchase price equal to 100% of the principal amount of the notes plus accrued and unpaid interest, if any, to, but excluding, the purchase date. See “Description of Notes — Purchase of Notes at a Holder’s Option” and “Risk Factors — We may be unable to repay or repurchase the notes or our other indebtedness.”

Fundamental Change		Upon the occurrence of a fundamental change, as described in this prospectus, you may require us to purchase all or part of your notes in cash at a price equal to 100% of the principal amount of the notes being purchased plus accrued and unpaid interest to, but excluding, the fundamental change purchase date. See “Description of Notes — Purchase of Notes at a Holder’s Option Upon a Fundamental Change” and “Risk Factors — We may be unable to repay or repurchase the notes or our other indebtedness.”

Investment in the notes involves certain risks. You should carefully consider the information under “Risk Factors” beginning on page 10 of this prospectus, all other information included in this prospectus and the documents incorporated by reference before investing in the notes.

The following table sets forth our summary consolidated financial data for the three months ended September 29, 2002, December 29, 2002, March 30, 2003, June 29, 2003 and September 28, 2003. The following data is derived from our unaudited condensed consolidated financial statements and should be read in conjunction with these financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere or incorporated by reference in this prospectus. The unaudited condensed consolidated financial statements include, in the opinion of management, all adjustments, consisting only of normal, recurring adjustments, that management considers necessary for a fair statement of the results for those periods. The historical results are not necessarily indicative of results to be expected in any future period and should not be considered indicative of results expected for the full fiscal years. The summary consolidated balance sheet data is presented on an actual basis; on an as adjusted basis to reflect $24.0 million net proceeds received from the sale of idle buildings and land, giving effect to the application of these proceeds and approximately $1.2 million of cash on October 21, 2003 to repay a portion of our Senior Notes and our Junior Notes in full; and on an as adjusted further basis to reflect the sale of notes offered by us in this offering after deducting the estimated underwriting discounts and commissions and estimated offering costs and to reflect the issuance of our shares of common stock in the concurrent offering, giving effect to the application of the net proceeds. We have also included a table that sets forth our ratio of earnings to fixed charges for the fiscal years ended 1998, 1999, 2000, 2001 and the six months ended June 30, 2002 and December 29, 2002, and the nine months ended September 28, 2003. The following table also includes pro forma calculations for the six months ended December 29, 2002 and the nine months ended September 28, 2003. The pro forma calculations set forth below should be read in conjunction with the consolidated financial statements incorporated by reference in this prospectus.


(1)	Restructuring/impairment charges of $0.7 million for the three months ended September 29, 2002 related to chapter 11 bankruptcy and Exit Facility professional fees.

(2)	Other income, net includes a property tax refund of $2.2 million.

(3)	Restructuring/impairment charges for the three months ended December 29, 2002 include chapter 11 bankruptcy professional fees of $0.1 million and a goodwill impairment charge of $33.9 million.

(4)	Provision for (benefit from) income taxes includes an income tax benefit of $2.5 million related to withholding taxes previously accrued which are no longer payable as a result of a tax exemption.


(1)	On September 30, 2003, we completed the sale of our idle Fremont, California land and buildings. The land and buildings were acquired through our merger with HMT Technology Corporation in October 2000 and had been idle and held for sale since 2001. The net proceeds from the sale of the land and buildings were approximately $24.0 million resulting in a gain of approximately $1.0 million. The sale will be recorded in the fourth quarter of 2003. On October 21, 2003, we used approximately 50% of the net proceeds, $12.1 million, to pay down our debt as required under the terms of our Senior Notes Indenture, which Senior Notes are due in 2007. Additionally, we made a required principal payment of $5.0 million on the Senior Notes on October 15, 2003. Further, we received consent from a majority of the holders of the Senior Notes and the lender under the Exit Facility to redeem in full the Junior Notes for approximately $8.2 million and called for their redemption on October 30, 2003. The Junior Notes were redeemed on December 2, 2003.

(2)	Reflects the adjustments described in (1) above; the issuance of $70.0 million aggregate principal amount of our % convertible notes due February 1, 2024; and the sale of 3,000,000 shares of common stock offered by us in our concurrent common stock offering at an assumed public offering price of $20.60 per share after deducting the estimated underwriting discounts and commissions and estimated offering costs,


	giving effect to the application of the net proceeds. Consummation of this notes offering is not contingent upon consummation of the concurrent offering of shares of our common stock.

The following table sets forth our selected consolidated financial data and other operating information for the four fiscal years and the first six months prior to our emergence from bankruptcy (the Predecessor Company), and the six months after emergence from bankruptcy on June 30, 2002 (the Successor Company). The financial data and operating information is derived from our consolidated financial statements, and should be read in conjunction with the consolidated financial statements, related notes, and other financial information incorporated by reference in this prospectus. We declared no cash dividends during the five-year period. The values in the table below are in thousands, except per share amounts.


	(1)	Results of operations for the six months ended December 29, 2002 included a $33.9 million impairment charge related to the write-off of all remaining goodwill, in accordance with FAS 142.

	(2)	Results of operations for the six months ended June 30, 2002, included other income of $379.0 million associated with the extinguishment of liabilities subject to compromise as of June 30, 2002, and other income of $17.3 million to revalue our assets and liabilities at June 30, 2002, to fair value as prescribed by fresh-start reporting under SOP 90-7.

	(3)	Results of operations for the six months ended June 30, 2002, included a $4.3 million restructuring/impairment charge in connection with the shutdown of our research and development facility in Santa Rosa, California.

	(4)	Results of operations for the six months ended June 30, 2002, included a $47.5 million transitional impairment loss under SFAS 142. The loss was recognized as the cumulative effect of a change in accounting principle in our consolidated statement of operations.


	(5)	Results of operations for 2001 included a $45.8 million impairment charge related to the write-down of land and buildings held for sale, a $4.4 million impairment charge related to manufacturing equipment no longer in service, and restructuring charges of $7.2 million primarily related to lease obligations on equipment no longer in service and additional facility closure costs.

	(6)	Results of operations for 2001 included a $99.1 million interest expense charge related to accretion to bring the subordinated convertible notes up to their full face value of $230.0 million.

	(7)	Results of operations for 2000 included a net $5.3 million restructuring charge, including an $8.0 million charge in connection with the ceasing of our Santa Rosa manufacturing operations, plus a net $2.7 million reversal of charges previously accrued for restructurings we undertook in 1997, 1998, and 1999.

	(8)	Results of operations for 1999 included $143.7 million in restructuring charges and a $44.3 million impairment charge. The restructuring charges related primarily to the closing of our U.S. manufacturing operations. The impairment charge related to the write-down of goodwill which originated from the acquisition of Western Digital Corporation’s media operation.

	(9)	Results of operations for 1998 included a $187.8 million restructuring charge that primarily related to an asset impairment charge of $175.0 million. Based on analysis of our production capacity and our expectations of the media market over the remaining life of our fixed assets, we concluded that we would not be able to recover the book value of those assets.


(10)	In accordance with SOP 90-7, we did not record interest expense on our outstanding debt during the chapter 11 proceedings from August 24, 2001, through June 30, 2002.

(11)	Earnings per share of the Predecessor Company are not presented as the amounts are not meaningful.

The following table sets forth our ratio of earning to fixed charges for each of the periods indicated:


(1)	The pro forma calculations give effect to the application of the assumed proceeds of $70.0 million related to the issuance of our new % convertible subordinated notes to repay a portion of the $115.2 million of our existing debt at an average interest rate of 9.5%. Earnings were inadequate to cover fixed charges for the pro forma calculation for the six months ended December 29, 2002 by approximately $40.7 million.

(2)	Earnings were inadequate to cover fixed charges for fiscal 1998, 1999, 2000, 2001, and the six months ended December 29, 2002, by approximately $337.5 million, $307.7 million, $75.8 million, $301.9 million, and $40.7 million, respectively.

Investing in the notes involves a high degree of risk. You should carefully consider the risks and uncertainties described below when considering whether or not to purchase the notes. These risks and uncertainties are not the only ones facing our company. Additional risks and uncertainties that we are unaware of or currently deem immaterial may also become important factors that may harm our business. If any of the following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected, the trading price of our common stock or the notes offered hereby could decline, and you may lose part or all of your investment. Further, this prospectus contains forward-looking statements and actual results may differ significantly from the results contemplated by such forward-looking statements.