##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarter Ended April 2, 2006
Commission File Number 0-16852
 KOMAG, INCORPORATED
  
 þ o
 þ o o
 o þ
 
 þ o




---



##### 



INDEX
KOMAG, INCORPORATED
 PagePART I. FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements (Unaudited)
    
    
    4Condensed Consolidated Statements of Income  three months ended April 2, 2006 and April 3, 2005
    
    
    4Condensed Consolidated Balance Sheets  April 2, 2006 and January 1, 2006
    
    
    5Condensed Consolidated Statements of Cash Flows  three months ended April 2, 2006 and April 3, 2005.
    
    
    6Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    7-14Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15-21Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    21Item 4. Controls and Procedures
    
    
    23PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 6. Exhibits
    
    
    39SIGNATURES
    
    
    40EXHIBIT 10.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
  2




---



##### Table of Contents



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
   3




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 KOMAG, INCORPORATED
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 Three Months EndedApril 2, 2006
    
    
    April 3, 2005Net sales
    
    $
    208,512
    
    
    $
    140,275Cost of sales
    
    
    149,419
    
    
    
    105,212Gross profit
    
    
    59,093
    
    
    
    35,063Operating expenses:Research, development, and engineering
    
    
    15,075
    
    
    
    11,155Selling, general, and administrative
    
    
    8,024
    
    
    
    5,535Gain on disposal of assets
    
    
    (60
    )
    
    
    (389
    )23,039
    
    
    
    16,301Operating income
    
    
    36,054
    
    
    
    18,762Other income (expense):Interest income
    
    
    2,071
    
    
    
    750Interest expense
    
    
    (441
    )
    
    
    (441
    )Other income (expense), net
    
    
    (476
    )
    
    
    (28
    )1,154
    
    
    
    281Income before income taxes
    
    
    37,208
    
    
    
    19,043Provision for income taxes
    
    
    971
    
    
    
    516Net income
    
    $
    36,237
    
    
    $
    18,527Basic net income per share
    
    $
    1.22
    
    
    $
    0.66Diluted net income per share
    
    $
    1.09
    
    
    $
    0.59Number of shares used in basic per share computations
    
    
    29,685
    
    
    
    28,261Number of shares used in diluted per share computations
    
    
    33,499
    
    
    
    32,313
  4




---



##### Table of Contents



KOMAG, INCORPORATED
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
 April 2, 2006
    
    
    January 1, 2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    105,989
    
    
    $
    99,984Short-term investments
    
    
    85,000
    
    
    
    105,050Accounts receivable (less allowances of $1,978 and $2,866, respectively)
    
    
    119,462
    
    
    
    116,217Inventories
    
    
    72,517
    
    
    
    54,000Prepaid expenses and deposits
    
    
    1,418
    
    
    
    1,846Total current assets
    
    
    384,386
    
    
    
    377,097Property, plant, and equipment, net
    
    
    439,247
    
    
    
    351,046Other assets
    
    
    3,291
    
    
    
    3,308$
    826,924
    
    
    $
    731,451LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesTrade accounts payable
    
    $
    143,557
    
    
    $
    97,901Customer advances
    
    
    122,540
    
    
    
    102,898Accrued expenses and other liabilities
    
    
    16,880
    
    
    
    28,585Total current liabilities
    
    
    282,977
    
    
    
    229,384Long-term debt
    
    
    80,500
    
    
    
    80,500Deferred rent
    
    
    2,694
    
    
    
    2,562Total liabilities
    
    
    366,171
    
    
    
    312,446Stockholders equityCommon stock, $0.01 par value per share:Authorized - 50,000 sharesIssued and outstanding - 30,730 and 30,092 shares,
respectively
    
    
    307
    
    
    
    301Additional paid-in capital
    
    
    263,741
    
    
    
    267,920Deferred stock-based compensation
    
    
    
    
    
    
    (9,695
    )Accumulated other comprehensive loss
    
    
    (645
    )
    
    
    (634
    )Retained earnings
    
    
    197,350
    
    
    
    161,113Total stockholders equity
    
    
    460,753
    
    
    
    419,005$
    826,924
    
    
    $
    731,451
  5




---



##### Table of Contents



KOMAG, INCORPORATED
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Three Months EndedApril 2, 2006
    
    
    April 3, 2005Operating ActivitiesNet income
    
    $
    36,237
    
    
    $
    18,527Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization of property, plant, and equipment
    
    
    14,476
    
    
    
    10,100Tax provision charged to additional paid-in capital
    
    
    810
    
    
    
    297Amortization and adjustments of intangible assets
    
    
    44
    
    
    
    942Stock-based compensation
    
    
    3,536
    
    
    
    841Deferred rent
    
    
    132
    
    
    
    640Non-cash interest charges
    
    
    38
    
    
    
    38Gain on disposal of assets
    
    
    (60
    )
    
    
    (389
    )Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (3,245
    )
    
    
    (6,442
    )Inventories
    
    
    (18,517
    )
    
    
    (6,167
    )Prepaid expenses and deposits
    
    
    428
    
    
    
    984Trade accounts payable
    
    
    16,767
    
    
    
    12,771Customer advances
    
    
    19,642
    
    
    
    Accrued expenses and other liabilities
    
    
    (11,555
    )
    
    
    (5,733
    )Net cash provided by operating activities
    
    
    58,733
    
    
    
    26,409Investing ActivitiesAcquisition of property, plant, and equipment
    
    
    (73,988
    )
    
    
    (16,615
    )Purchases of short-term investments
    
    
    (36,850
    )
    
    
    (67,150
    )Proceeds from sales and maturities of short-term investments
    
    
    56,900
    
    
    
    60,150Proceeds from disposal of property, plant, and equipment
    
    
    99
    
    
    
    443Other
    
    
    (65
    )
    
    
    Net cash used in investing activities
    
    
    (53,904
    )
    
    
    (23,172
    )Financing ActivitiesRepurchase of common stock
    
    
    (1,049
    )
    
    
    Proceeds from sale of common stock
    
    
    2,225
    
    
    
    2,164Net cash provided by financing activities
    
    
    1,176
    
    
    
    2,164Increase in cash and cash equivalents
    
    
    6,005
    
    
    
    5,401Cash and cash equivalents at beginning of period
    
    
    99,984
    
    
    
    26,410Cash and cash equivalents at end of period
    
    $
    105,989
    
    
    $
    31,811
  6




---



##### Table of Contents



Note 1. Basis of Presentation and Summary of Significant Accounting Policies
  Use of Estimates in the Preparation of Financial Statements:
 Fiscal Year:
 Cash and Cash Equivalents:
 Short-Term Investments:
 7




---



##### Table of Contents



Inventories:
 April 2, 2006
    
    
    January 1, 2006Raw materials
    
    $
    58,885
    
    
    $
    39,230Work in process
    
    
    7,811
    
    
    
    6,489Finished goods
    
    
    5,821
    
    
    
    8,281$
    72,517
    
    
    $
    54,000
 Computation of Net Income Per Share: Earnings per Share
  8




---



##### Table of Contents



Three Months EndedApril 2, 2006
    
    
    April 3, 2005Numerator for basic net income per share:Net income as reported
    
    $
    36,237
    
    
    $
    18,527Numerator for diluted net income per share:Net income as reported
    
    $
    36,237
    
    
    $
    18,527Interest adjustment related to contigently convertible debt
    
    
    441
    
    
    
    441$
    36,678
    
    
    $
    18,968Denominator for basic net income per share:Weighted average shares outstanding
    
    
    29,685
    
    
    
    28,261Denominator for diluted net income per share:Weighted average shares
    
    
    29,685
    
    
    
    28,261Effect of dilutive securities:Contingently convertible shares under convertible debt
    
    
    3,049
    
    
    
    3,049Stock options
    
    
    473
    
    
    
    522Warrants
    
    
    
    
    
    
    460Stock purchase rights
    
    
    292
    
    
    
    2133,499
    
    
    
    32,313Basic net income per share
    
    $
    1.22
    
    
    $
    0.66Diluted net income per share
    
    $
    1.09
    
    
    $
    0.59
 Recent Accounting Pronouncements: Inventory Costs .
 Accounting Changes and Error Corrections
 9




---



##### Table of Contents



Note 2. Stock-Based Compensation
 Change in Accounting Principle
 Share-Based Payment
 Accounting for Stock-Based Compensation Accounting for Stock Issued
to Employees
  Plan Description
   10




---



##### Table of Contents



Summary of Assumptions and Activity
   Weighted-averageRemaining
    
    
    AggregateWeighted-average
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term
    
    
    Value(per share)
    
    
    (years)Outstanding at January 1, 2006
    
    
    868,853
    
    
    $
    12.99Granted
    
    
    
    
    
    
    Exercised
    
    
    (188,434
    )
    
    $
    11.79Cancelled
    
    
    (607
    )
    
    $
    13.41Outstanding at April 2, 2006
    
    
    679,812
    
    
    $
    13.33
    
    
    
    7.58
    
    
    $
    23,297,419Exercisable at April 2, 2006
    
    
    295,224
    
    
    $
    12.12
    
    
    
    7.39
    
    
    $
    10,474,866
  11




---



##### Table of Contents



Weighted-averageGrant DateShares
    
    

Fair Value(per share)Outstanding at January 1, 2006
    
    
    573,201
    
    
    $
    22.34Granted
    
    
    473,374
    
    
    
    46.76Vested
    
    
    (145,437
    )
    
    
    20.65Cancelled
    
    
    (1,814
    )
    
    
    30.98Outstanding at April 2, 2006
    
    
    899,324
    
    
    $
    35.45
     Accounting for Stock-Based Compensation Accounting for Stock-Based Compensation  Transition and Disclosure  an Amendment of SFAS
123
 12




---



##### Table of Contents



ThreeMonthsEndedApril 3, 2005Net income, as reported
    
    $
    18,527Add: Stock-based employee compensation expense included
in reported net income, net of related tax effects
    
    
    841Deduct: Stock-based compensation expense determined under
the fair value method for all awards, net of related tax effects
    
    
    (1,566
    )Pro forma net income
    
    $
    17,802Net income per share:Basic  as reported
    
    $
    0.66Diluted  as reported
    
    $
    0.59Basic  pro forma
    
    $
    0.63Diluted  pro forma
    
    $
    0.56
 Note 3. Concentration of Customer, Supplier, and Geographic Risk
  Three Months EndedApril 2, 2006
    
    April 3, 2005Western Digital Corporation
    
    
    35
    %
    
    
    19
    %Hitachi Global Storage Technologies (1)
    
    
    22
    %
    
    
    25
    %Maxtor Corporation
    
    
    21
    %
    
    
    35
    %Seagate Technology
    
    
    18
    %
    
    
    16
    %
 
 (1)
    
    Includes sales to Hitachi Global Storage Technologies contract manufacturer, Excelstor  13




---



##### Table of Contents



Note 4. Accrued Expenses and Other Liabilities
  April 2, 2006
    
    
    January 1, 2006Accrued compensation and benefits
    
    $
    14,384
    
    
    $
    24,986Other liabilities
    
    
    2,496
    
    
    
    3,599$
    16,880
    
    
    $
    28,585
 Note 5. Customer Advances
  14




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    15




---



##### Table of Contents



Results of Operations
 Overview
      16




---



##### Table of Contents



Three Months EndedApril 2, 2006
    
    
    April 3, 2005Net sales
    
    $
    208,512
    
    
    
    100.0
    %
    
    $
    140,275
    
    
    
    100.0
    %Cost of sales
    
    
    149,419
    
    
    
    71.7
    %
    
    
    105,212
    
    
    
    75.0
    %Gross profit
    
    
    59,093
    
    
    
    28.3
    %
    
    
    35,063
    
    
    
    25.0
    %Research, development, and engineering expense
    
    
    15,075
    
    
    
    7.2
    %
    
    
    11,155
    
    
    
    8.0
    %Selling, general, and administrative expense
    
    
    8,024
    
    
    
    3.8
    %
    
    
    5,535
    
    
    
    3.9
    %Gain on disposal of assets
    
    
    (60
    )
    
    
    (0.0
    %)
    
    
    (389
    )
    
    
    (0.3
    %)Interest income
    
    
    (2,071
    )
    
    
    (1.0
    %)
    
    
    (750
    )
    
    
    (0.5
    %)Interest expense
    
    
    441
    
    
    
    0.2
    %
    
    
    441
    
    
    
    0.3
    %Other expense, net
    
    
    476
    
    
    
    0.2
    %
    
    
    28
    
    
    
    0.0
    %Provision for income taxes
    
    
    971
    
    
    
    0.5
    %
    
    
    516
    
    
    
    0.4
    %Net income
    
    $
    36,237
    
    
    
    17.4
    %
    
    $
    18,527
    
    
    
    13.2
    %
 Net Sales
     17




---



##### Table of Contents



Gross Profit
  Research, Development, and Engineering Expenses
  Selling, General, and Administrative Expenses
  18




---



##### Table of Contents



Interest Expense
  Other income (expense), net
  Tax provision
 Accounting for Income Taxes.
 Critical Accounting Policies
  Allowance for Sales Returns
  Inventory Obsolescence
  19




---



##### Table of Contents



Liquidity and Capital Resources
    
    
    net income of $36.2 million, net of non-cash depreciation and amortization of
property, plant and equipment of $14.5 million and other net non-cash charges of $4.5
million;
    
    an accounts receivable increase of $3.2 million, which reflected an increase in
sales during the first quarter of 2006 compared to fourth quarter of 2005;
    
    an inventory increase of $18.5 million, which primarily reflected increased
inventory to support increased production and sales volumes;
    
    an accounts payable increase of $16.8 million, which primarily reflected
increased inventory and higher capital spending; and
    
    an accrued expenses and other liabilities increase of $8.1 million, which
primarily reflected a net increase in customer advances, offset by payments of
incentive compensation accruals.
   20




---



##### Table of Contents



Remainderof2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    TotalLong-Term Debt Obligations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    80,500
    
    
    $
    80,500Operating Lease Obligations
    
    
    2,078
    
    
    
    2,203
    
    
    
    2,051
    
    
    
    3,154
    
    
    
    3,146
    
    
    
    13,241
    
    
    
    25,873Unconditional Purchase Obligations (1)
    
    
    6,594
    
    
    
    1,225
    
    
    
    1,184
    
    
    
    1,184
    
    
    
    1,184
    
    
    
    2,075
    
    
    
    13,446Total Contractual Cash
Obligations
    
    $
    8,672
    
    
    $
    3,428
    
    
    $
    3,235
    
    
    $
    4,338
    
    
    $
    4,330
    
    
    $
    95,816
    
    
    $
    119,819
 
 (1)
    
    Unconditional purchase obligations are defined as agreements to purchase goods or services
that are enforceable and legally binding, and that specify all significant terms, including: fixed
or minimum quantities to be purchased; fixed, minimum, or variable pricing provisions; and the
approximate timing of the transactions. The amounts are based on our contractual commitments.  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  21




---



##### Table of Contents



22




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Internal Control over Financial Reporting
  
    
    pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company;
    
    provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and
    
    provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the companys assets that could have a
material effect on the financial statements.
  Changes in Internal Control Over Financial Reporting
  23




---



##### Table of Contents



Limitations on the Effectiveness of Controls
  
 PART II. OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
 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 occur, or other unexpected
events occur, our business, financial condition or results of operations could be materially
adversely affected, the value of our stock could decline, and investors may lose part or all of
their investment. Further, this Form 10-Q contains forward-looking statements, and actual results
may differ significantly from the results contemplated by our forward-looking statements.
 Risks Related to Our Business
 Our business is concentrated in the disk drive market, so downturns in the disk drive manufacturing
market and related markets may decrease our revenues and margins.
   24




---



##### Table of Contents



We are in the process of significantly increasing the scope of our manufacturing operations in
Malaysia, and if we fail to successfully manage and integrate our expanding operations, we may be
unable to exploit potential market opportunities, which would materially and adversely affect our
business.
   We receive a large percentage of our net sales from only a few disk drive manufacturing customers,
the loss of any of which would adversely affect our sales.
  25




---



##### Table of Contents



The proposed Seagate acquisition of Maxtor will reduce our total number of significant customers,
which may result in reduced sales and thereby adversely affect our business, revenues and operating
results.
   Our agreements with each of our major customers require us to meet certain production volumes, and
if we fail to successfully perform under these agreements, we may incur substantial costs and
expenses, and our business could be materially and adversely affected.
 26




---



##### Table of Contents



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.
   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.
  27




---



##### Table of Contents



If we are not able to attract and retain key personnel, including a successor Chief Executive
Officer for our company, our business and operations could be harmed.
  If our production capacity is underutilized, our gross margin will be adversely affected and we
could sustain significant losses.
  28




---



##### Table of Contents



Internal disk operations of disk drive manufacturers may adversely affect our ability to sell our
disk products.
  All of our manufacturing operations are in Malaysia and our foreign operations and international
sales subject us to additional risks inherent in doing business on an international level that
could make it more costly and difficult to conduct our business.
   29




---



##### Table of Contents




    
    compliance with changing legal and regulatory requirements of foreign jurisdictions;
    
    fluctuations in tariffs or other trade barriers;
    
    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.
  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.
  Disk drive programs are highly customized. If we fail to respond to our customers demanding
requirements, we will not be able to compete effectively.
  30




---



##### Table of Contents



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.
   If we fail to improve the quality of, and control contamination in our manufacturing processes, we
will lose our ability to remain competitive.
  31




---



##### Table of Contents



An industry trend towards glass-based applications could negatively impact our ability to remain
competitive.
  If we do not protect our patents and other intellectual property rights, our net sales could
suffer.
  We may face intellectual property infringement claims that are costly to resolve, may divert our
managements attention, and may negatively impact our operations.
  Historical quarterly results may not accurately predict our performance due to a number of
uncertainties and
 32




---



##### Table of Contents



market factors, and as a result it is difficult to predict our future results.
  
    
    timing of significant orders, or order cancellations;
    
    changes in our product mix and average selling prices;
    
    modified, adjusted, or rescheduled shipments;
    
    actions by our competitors, including announcements of new products or technological innovations;
    
    availability of disks versus demand for disks;
    
    the cyclical nature of the disk drive industry;
    
    our ability to develop and implement new and efficient manufacturing process technologies;
    
    increases in our production and engineering costs associated with initial
design and production of new product programs;
    
    our ability to execute future product development and production ramps effectively;
    
    fluctuations in exchange rates, particularly between the US dollar and the Malaysian ringgit;
    
    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;
    
    structural changes within the disk industry, including combinations, failures,
and joint venture arrangements; and
    
    changes in tax regulations in foreign jurisdictions that could potentially
reduce our tax incentives in areas such as Malaysian capital allowances, tax holidays,
and exemptions on withholding tax on royalty payments made by our Malaysian operations
to our subsidiary in the Netherlands.
  33




---



##### Table of Contents



If we make unprofitable acquisitions or are unable to successfully integrate future acquisitions,
our business could suffer.
  
    
    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;
    
    incur large and immediate write-offs; or
    
    become subject to litigation.
  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.
  
    
    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.
  34




---



##### Table of Contents




    
    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.
  From time to time, we may have to defend lawsuits in connection with the operation of our business.
  Earthquakes, tsunamis or other natural or man-made disasters could disrupt our operations.
  Terrorist attacks may adversely affect our business and operating results.
  35




---



##### Table of Contents



Compliance with the rules and regulations concerning corporate governance may be costly,
time-consuming, and difficult to achieve, which could harm our operating results and business.
   In the future, we may need additional capital, which may not be available on favorable terms, or at
all.
  
    
    the rate of our sales growth;
    
    the level of our profits or losses;
    
    the timing and extent of our spending to expand manufacturing capacity, support
facilities upgrades and product development efforts;
    
    the timing and size of business or technology acquisitions;
    
    the timing of introductions of new products and enhancements to our existing products; and
    
    the length of product life cycles.
  36




---



##### Table of Contents



Anti-takeover provisions in our certificate of incorporation could discourage potential acquisition
proposals or delay or prevent a change of control.
  Risks Related to our Indebtedness
 We are leveraged, and our debt obligations will continue to make us vulnerable to economic
downturns.
  Our holding company structure makes us dependent on cash flow from our subsidiaries to meet our
obligations.
  The assets of our subsidiaries may not be available to make payments on our debt obligations.
  37




---



##### Table of Contents



ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  TotalNumber ofShares
    
    
    Maximum NumberPurchased
    
    
    (or Approximateas Part of
    
    
    Dollar Value)Total
    
    
    Average
    
    
    Publicly
    
    
    of SharesNumber of
    
    
    Price
    
    
    Announced
    
    
    that May Yet BeShares
    
    
    Paid per
    
    
    Plans or
    
    
    Purchased under thePeriod
    
    Purchased (1)
    
    
    Share
    
    
    Programs
    
    
    Plans or ProgramsJanuary 2 to January 29
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    January 30 to February 26
    
    
    22,165
    
    
    $
    46.76
    
    
    
    
    
    
    
    February 27 to April 2
    
    
    268
    
    
    $
    49.16
    
    
    
    
    
    
    
    Total
    
    
    22,433
    
    
    $
    46.76
    
    
    
    
    
    
    
    
 
 (1)
    
    Shares repurchased from certain of our officers pursuant to net share tax settlement
transactions upon the vesting of shares of restricted common stock held by such officers. 38




---



##### Table of Contents



ITEM 6. Exhibits
 10.1
    
    Volume Purchase Agreement dated March 31, 2006 between Hitachi Global Storage
Technologies Singapore Pte., Ltd. And Komag USA (Malaysia) Sdn., and Komag, Incorporated.*31.1
    
    Rule 13a  14 (a) Certification of Chief Executive Officer31.2
    
    Rule 13a  14 (a) Certification of Chief Financial Officer32
    
    Section 1350 Certification of Chief Executive Officer and Chief Financial Officer,
furnished herewith
 
 *
    
    Confidential treatment has been requested with respect to certain portions of this exhibit.
Omitted portions have been filed separately with the Securities and Exchange Commission. 39




---



##### Table of Contents



SIGNATURES
  KOMAG, INCORPORATED
 DATE: May 3, 2006
    
    BY:
    
    /s/ Thian Hoo TanThian Hoo TanChief Executive OfficerKomag, IncorporatedDATE: May 3, 2006
    
    BY:
    
    /s/ Kathleen A. BaylessKathleen A. BaylessSenior Vice President, Chief Financial OfficerKomag, Incorporated
 40




---



##### Table of Contents



EXHIBIT INDEX
 10.1
    
    Volume Purchase Agreement dated March 31, 2006 between Hitachi Global Storage
Technologies Singapore Pte., Ltd. And Komag USA (Malaysia) Sdn., and Komag, Incorporated.*31.1
    
    Rule 13a  14 (a) Certification of Chief Executive Officer31.2
    
    Rule 13a  14 (a) Certification of Chief Financial Officer32
    
    Section 1350 Certification of Chief Executive Officer and Chief Financial Officer,
furnished herewith
 
 *
    
    Confidential treatment has been requested with respect to certain portions of this exhibit.
Omitted portions have been filed separately with the Securities and Exchange Commission. 41