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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 September 28, 2003
Commission File Number 0-16852

KOMAG, INCORPORATED

(Registrant)


Incorporated in the State of Delaware
I.R.S. Employer Identification Number 94-2914864
1710 Automation Parkway, San Jose, California 95131
Telephone: (408) 576-2000

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [  ]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act rule 12b-2).  Yes [ X ]  No [  ]

Indicate by check mark whether the Registrant has filed all reports
required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by
a court.   Yes [X]  No [  ]

On September 28, 2003, 23,731,931 shares of the Registrants common stock,
$0.01 par value, were issued and outstanding.





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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                              
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|RISK FACTORS                 
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                              | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION   
|                              | ITEM 1. Legal Proceedings                                                                    
|                              | ITEM 2. Changes in Securities                                                                
|                              | ITEM 3. Defaults Upon Senior Securities                                                      
|                              | ITEM 4. Submission of Matters to a Vote of Security Holders                                  
|                              | ITEM 5. Other Information                                                                    
|                              | ITEM 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   
|EXHIBIT 10.5.2               
|EXHIBIT 31.1                 
|EXHIBIT 31.2                 
|EXHIBIT 32                   



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INDEX
KOMAG, INCORPORATED

|                       |  |                                                                                                                                                                             |    |          |       | 
|---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | -------- | ----- | 
|                       |  |                                                                                                                                                                             |    | Page No.
|                       |  |                                                                                                                                                                             |    |         
|PART I.                |  | FINANCIAL INFORMATION                                                                                                                                                       |    |          |       | 
|Item 1.                |  | Condensed Consolidated Financial Statements (Unaudited)                                                                                                                     |    |          |       | 
|                       |  | Condensed consolidated statements of operations  three and nine months
ended September 28, 2003, three months ended September 29, 2002, and
six months ended June 30, 2002 |    |          | 3     | 
|                       |  | Condensed consolidated balance sheets  September 28, 2003 and
December 29, 2002                                                                                            |    |          | 4     | 
|                       |  | Condensed consolidated statements of cash flows  nine months ended
September 28, 2003 three months ended September 29, 2002, and six
months ended June 30, 2002            |    |          | 5     | 
|                       |  | Notes to condensed consolidated financial statements                                                                                                                        |    |          | 6-12  | 
|Item 2.                |  | Managements Discussion and Analysis of
Financial Condition and Results of Operations                                                                                       |    |          | 13-34 | 
|Item 3.                |  | Quantitative and Qualitative Disclosures about
Market Risk                                                                                                                  |    |          | 35    | 
|Item 4.                |  | Controls and Procedures                                                                                                                                                     |    |          | 35    | 
|PART II.               |  | OTHER INFORMATION                                                                                                                                                           |    |          |       | 
|Item 1.                |  | Legal Proceedings                                                                                                                                                           |    |          | 36    | 
|Item 2.                |  | Changes in Securities                                                                                                                                                       |    |          | 36    | 
|Item 3.                |  | Defaults Upon Senior Securities                                                                                                                                             |    |          | 36    | 
|Item 4.                |  | Submission of Matters to a Vote of Security Holders                                                                                                                         |    |          | 36    | 
|Item 5.                |  | Other Information                                                                                                                                                           |    |          | 36    | 
|Item 6.                |  | Exhibits and Reports on Form 8-K                                                                                                                                            |    |          | 36    | 
|SIGNATURES             |  |                                                                                                                                                                             | 37 |         
|OFFICER CERTIFICATIONS |  |                                                                                                                                                                             |    |         





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##### Table of Contents









PART I.   FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)




KOMAG, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

|                                                                   |                                       |                                                                                                                                                                                       |         |                   |       |              |         |              |         |              |         |         |              |   |        |         |         |   |   |         |         |             |  | 
|------------------------------------------------------------------ | ------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | ----------------- | ----- | ------------ | ------- | ------------ | ------- | ------------ | ------- | ------- | ------------ | - | ------ | ------- | ------- | - | - | ------- | ------- | ----------- |  | 
|                                                                   |                                       |                                                                                                                                                                                       |         |                   |       |              |         |              |         |              |         |         |              |   |        |         |         |   |   |         |         | Predecessor
|                                                                   |                                       |                                                                                                                                                                                       |         | Successor Company |       |              | Company
|                                                                   |                                       |                                                                                                                                                                                       |         |                   |       |              |        
|                                                                   |                                       |                                                                                                                                                                                       |         | Three Months      |       | Three Months |         | Nine Months  |         | Three Months |         |         | Six Months  
|                                                                   |                                       |                                                                                                                                                                                       |         | Ended             |       | Ended        |         | Ended        |         | Ended        |         |         | Ended       
|                                                                   |                                       |                                                                                                                                                                                       |         | Sep 28, 2003      |       | Sep 29, 2002 |         | Sep 28, 2003 |         | Sep 29, 2002 |         |         | Jun 30, 2002
|                                                                   |                                       |                                                                                                                                                                                       |         |                   |       |              |         |              |         |              |         |         |             
|Net sales                                                          |                                       | $                                                                                                                                                                                     | 109,199 |                   |       | $            | 70,241  |              |         | $            | 320,061 |         |              | $ | 70,241 |         |         |   | $ | 111,955 |        
|Cost of sales                                                      |                                       |                                                                                                                                                                                       | 83,840  |                   |       |              | 62,853  |              |         |              | 249,090 |         |              |   | 62,853 |         |         |   |   | 110,397 |        
|                                                                   |                                       |                                                                                                                                                                                       |         |                   |       |              |         |              |         |              |         |         |              |   |        |         |         |   |   |         |        
|                                                                   | Gross profit                          |                                                                                                                                                                                       |         | 25,359            |       |              |         | 7,388        |         |              |         | 70,971  |              |   |        | 7,388   |         |   |   |         | 1,558   |            
|Operating expenses:                                                |                                       |                                                                                                                                                                                       |         |                   |       |              |         |              |         |              |         |         |              |   |        |         |         |   |   |         |        
|                                                                   | Research, development and engineering |                                                                                                                                                                                       |         | 10,778            |       |              |         | 8,708        |         |              |         | 31,089  |              |   |        | 8,708   |         |   |   |         | 18,796  |            
|                                                                   | Selling, general, and administrative  |                                                                                                                                                                                       |         | 4,717             |       |              |         | 4,235        |         |              |         | 13,317  |              |   |        | 4,235   |         |   |   |         | 8,256   |            
|                                                                   | Gain on disposal of assets            |                                                                                                                                                                                       |         | (792              | )     |              |         | (70          | )       |              |         | (1,870  | )            |   |        | (70     | )       |   |   |         | (2,138  | )          
|                                                                   | Restructuring/impairment charges      |                                                                                                                                                                                       |         |                  |       |              |         | 740          |         |              |         |        |              |   |        | 740     |         |   |   |         | 4,318   |            
|                                                                   | In-process research and development   |                                                                                                                                                                                       |         |                  |       |              |         | 6,784        |         |              |         |        |              |   |        | 6,784   |         |   |   |         |        |            
|                                                                   |                                       |                                                                                                                                                                                       |         |                   |       |              |         |              |         |              |         |         |              |   |        |         |         |   |   |         |        
|                                                                   |                                       |                                                                                                                                                                                       | 14,703  |                   |       |              | 20,397  |              |         |              | 42,536  |         |              |   | 20,397 |         |         |   |   | 29,232  |        
|                                                                   |                                       |                                                                                                                                                                                       |         |                   |       |              |         |              |         |              |         |         |              |   |        |         |         |   |   |         |        
|                                                                   | Operating income (loss)               |                                                                                                                                                                                       |         | 10,656            |       |              |         | (13,009      | )       |              |         | 28,435  |              |   |        | (13,009 | )       |   |   |         | (27,674 | )          
|Other income (expense):                                            |                                       |                                                                                                                                                                                       |         |                   |       |              |         |              |         |              |         |         |              |   |        |         |         |   |   |         |        
|                                                                   | Interest income                       |                                                                                                                                                                                       |         | 103               |       |              |         | 66           |         |              |         | 343     |              |   |        | 66      |         |   |   |         | 193     |            
|                                                                   | Interest expense                      |                                                                                                                                                                                       |         | (3,351            | )     |              |         | (3,226       | )       |              |         | (10,095 | )            |   |        | (3,226  | )       |   |   |         |        |            
|Other income, net                                                  |                                       |                                                                                                                                                                                       | 83      |                   |       |              | 2,068   |              |         |              | 307     |         |              |   | 2,068  |         |         |   |   | 397,009 |        
|                                                                   |                                       |                                                                                                                                                                                       |         |                   |       |              |         |              |         |              |         |         |              |   |        |         |         |   |   |         |        
|                                                                   |                                       |                                                                                                                                                                                       | (3,165  | )                 |       |              | (1,092  | )            |         |              | (9,445  | )       |              |   | (1,092 | )       |         |   |   | 397,202 |        
|                                                                   |                                       |                                                                                                                                                                                       |         |                   |       |              |         |              |         |              |         |         |              |   |        |         |         |   |   |         |        
|                                                                   |                                       | Income (loss) before reorganization
costs, income taxes, minority
interest/ equity interest in net
loss of related companies, and
cumulative effect of change in
accounting principle |         |                   | 7,491 |              |         |              | (14,101 | )            |         |         | 18,990       |   |        |         | (14,101 | ) |   |         |         | 369,528     | 
|Reorganization costs, net                                          |                                       |                                                                                                                                                                                       |        |                   |       |              |        |              |         |              |        |         |              |   |       |         |         |   |   | 6,511   |        
|Provision for (benefit from) income taxes                          |                                       |                                                                                                                                                                                       | (2,452  | )                 |       |              | 304     |              |         |              | (607    | )       |              |   | 304    |         |         |   |   | 719     |        
|                                                                   |                                       |                                                                                                                                                                                       |         |                   |       |              |         |              |         |              |         |         |              |   |        |         |         |   |   |         |        
|                                                                   |                                       | Income (loss) before minority
interest/ equity interest in net
loss of related companies, and
cumulative effect of change in
accounting principle                                     |         |                   | 9,943 |              |         |              | (14,405 | )            |         |         | 19,597       |   |        |         | (14,405 | ) |   |         |         | 362,298     | 
|Minority interest/equity interest in net
loss of related companies |                                       |                                                                                                                                                                                       |        |                   |       |              |        |              |         |              |        |         |              |   |       |         |         |   |   | (2,374  | )      
|                                                                   |                                       |                                                                                                                                                                                       |         |                   |       |              |         |              |         |              |         |         |              |   |        |         |         |   |   |         |        
|                                                                   |                                       | Income (loss) before cumulative
effect of change in accounting
principle                                                                                                              |         |                   | 9,943 |              |         |              | (14,405 | )            |         |         | 19,597       |   |        |         | (14,405 | ) |   |         |         | 359,924     | 
|Cumulative effect of change in
accounting principle                |                                       |                                                                                                                                                                                       |        |                   |       |              |        |              |         |              |        |         |              |   |       |         |         |   |   | (47,509 | )      
|                                                                   |                                       |                                                                                                                                                                                       |         |                   |       |              |         |              |         |              |         |         |              |   |        |         |         |   |   |         |        
|                                                                   | Net income (loss)                     |                                                                                                                                                                                       | $       | 9,943             |       |              | $       | (14,405      | )       |              | $       | 19,597  |              |   | $      | (14,405 | )       |   |   | $       | 312,415 |            
|                                                                   |                                       |                                                                                                                                                                                       |         |                   |       |              |         |              |         |              |         |         |              |   |        |         |         |   |   |         |        
|Basic net income (loss) per share                                  |                                       | $                                                                                                                                                                                     | 0.42    |                   |       | $            | (0.63   | )            |         | $            | 0.84    |         |              | $ | (0.63  | )       |         |   |   |         |        
|                                                                   |                                       |                                                                                                                                                                                       |         |                   |       |              |         |              |         |              |         |         |              |   |        |         |         |   |   |         |        
|Diluted net income (loss) per share                                |                                       | $                                                                                                                                                                                     | 0.40    |                   |       | $            | (0.63   | )            |         | $            | 0.81    |         |              | $ | (0.63  | )       |         |   |   |         |        
|                                                                   |                                       |                                                                                                                                                                                       |         |                   |       |              |         |              |         |              |         |         |              |   |        |         |         |   |   |         |        
|Number of shares used in basic per share
computation               |                                       |                                                                                                                                                                                       | 23,558  |                   |       |              | 22,826  |              |         |              | 23,457  |         |              |   | 22,826 |         |         |   |   |         |        
|                                                                   |                                       |                                                                                                                                                                                       |         |                   |       |              |         |              |         |              |         |         |              |   |        |         |         |   |   |         |        
|Number of shares used in diluted per
share computation             |                                       |                                                                                                                                                                                       | 24,860  |                   |       |              | 22,826  |              |         |              | 24,252  |         |              |   | 22,826 |         |         |   |   |         |        
|                                                                   |                                       |                                                                                                                                                                                       |         |                   |       |              |         |              |         |              |         |         |              |   |        |         |         |   |   |         |        

See notes to condensed consolidated financial statements.

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KOMAG, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

|                                     |                                                                          |                            |         |              |         |              |         |         |         | 
|------------------------------------ | ------------------------------------------------------------------------ | -------------------------- | ------- | ------------ | ------- | ------------ | ------- | ------- | ------- | 
|                                     |                                                                          |                            |         | Sep 28, 2003 |         | Dec 29, 2002
|                                     |                                                                          |                            |         |              |         |             
|                                     |                                                                          |                            |         | (Unaudited)  |         | (*)         
|                                     |                                                                          |                            |         |              |         |             
|ASSETS                               |                                                                          |                            |         |              |         |              |         |        
|Current assets:                      |                                                                          |                            |         |              |         |              |         |        
|                                     | Cash and cash equivalents                                                |                            | $       | 47,660       |         |              | $       | 23,520  |        
|                                     | Accounts receivable (less allowances
of $1,545 and $1,101, respectively) |                            |         | 61,688       |         |              |         | 46,241  |        
|                                     | Inventories                                                              |                            |         | 21,405       |         |              |         | 14,925  |        
|                                     | Prepaid expenses and deposits                                            |                            |         | 2,881        |         |              |         | 2,288   |        
|                                     |                                                                          |                            |         |              |         |              |         |         |        
|                                     |                                                                          | Total current assets       |         |              | 133,634 |              |         |         | 86,974  | 
|Property, plant and equipment, net   |                                                                          |                            | 181,011 |              |         |              | 196,414 |        
|Land and buildings held for sale     |                                                                          |                            | 24,600  |              |         |              | 24,600  |        
|Intangible assets, net               |                                                                          |                            | 6,604   |              |         |              | 9,142   |        
|Other assets                         |                                                                          |                            | 70      |              |         |              | 70      |        
|                                     |                                                                          |                            |         |              |         |              |         |         |        
|                                     |                                                                          | $                          | 345,919 |              |         | $            | 317,200 |        
|                                     |                                                                          |                            |         |              |         |              |         |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY |                                                                          |                            |         |              |         |              |         |        
|Current Liabilities:                 |                                                                          |                            |         |              |         |              |         |        
|                                     | Current portion of long-term debt                                        |                            | $       | 20,242       |         |              | $       | 10,229  |        
|                                     | Trade accounts payable                                                   |                            |         | 37,169       |         |              |         | 35,371  |        
|                                     | Accrued expenses and other liabilities                                   |                            |         | 19,226       |         |              |         | 13,717  |        
|                                     |                                                                          |                            |         |              |         |              |         |         |        
|                                     |                                                                          | Total current liabilities  |         |              | 76,637  |              |         |         | 59,317  | 
|Long-term debt                       |                                                                          |                            | 119,599 |              |         |              | 129,923 |        
|                                     |                                                                          |                            |         |              |         |              |         |         |        
|                                     |                                                                          | Total liabilities          |         |              | 196,236 |              |         |         | 189,240 | 
|Stockholders equity:                |                                                                          |                            |         |              |         |              |         |        
|                                     | Common stock                                                             |                            |         | 237          |         |              |         | 232     |        
|                                     | Additional paid-in capital                                               |                            |         | 172,282      |         |              |         | 171,876 |        
|                                     | Deferred stock-based compensation                                        |                            |         | (514         | )       |              |         | (2,229  | )      
|                                     | Accumulated deficit                                                      |                            |         | (22,322      | )       |              |         | (41,919 | )      
|                                     |                                                                          |                            |         |              |         |              |         |         |        
|                                     |                                                                          | Total stockholders equity |         |              | 149,683 |              |         |         | 127,960 | 
|                                     |                                                                          |                            |         |              |         |              |         |         |        
|                                     |                                                                          | $                          | 345,919 |              |         | $            | 317,200 |        
|                                     |                                                                          |                            |         |              |         |              |         |         |        



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

See accompanying notes to condensed consolidated financial statements.

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KOMAG, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                                                                                   |                                                                                                                                          |   |                   |         |              |         |         |              |   |  |   |         |          |             | 
|-------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- | - | ----------------- | ------- | ------------ | ------- | ------- | ------------ | - |  | - | ------- | -------- | ----------- | 
|                                                                                                   |                                                                                                                                          |   |                   |         |              |         |         |              |   |  |   |         |          | Predecessor
|                                                                                                   |                                                                                                                                          |   | Successor Company |         |              | Company
|                                                                                                   |                                                                                                                                          |   |                   |         |              |        
|                                                                                                   |                                                                                                                                          |   |                   |         |              |         | Three   |              |   |  |   |        
|                                                                                                   |                                                                                                                                          |   | Nine Months       |         | Months       |         |         | Six Months  
|                                                                                                   |                                                                                                                                          |   | Ended             |         | Ended        |         |         | Ended       
|                                                                                                   |                                                                                                                                          |   | Sep 28, 2003      |         | Sep 29, 2002 |         |         | Jun 30, 2002
|                                                                                                   |                                                                                                                                          |   |                   |         |              |         |         |             
|                                                                                                   |                                                                                                                                          |   | (unaudited)       |         |              | (*)    
|Operating Activities:                                                                              |                                                                                                                                          |   |                   |         |              |         |         |              |   |  |   |         |         
|Net income (loss)                                                                                  |                                                                                                                                          | $ | 19,597            |         |              | $       | (14,405 | )            |   |  | $ | 312,415 |         
|Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities: |                                                                                                                                          |   |                   |         |              |         |         |              |   |  |   |         |         
|                                                                                                   | Gain on extinguishments of liabilities subject to compromise and
revaluation of assets and liabilities pursuant to fresh-start
reporting |   |                   |        |              |         |         |             |   |  |   |         | (396,376 | )          
|                                                                                                   | Cumulative effect of change in accounting principle                                                                                      |   |                   |        |              |         |         |             |   |  |   |         | 47,509   |            
|                                                                                                   | Impairment charges related to property, plant, and equipment                                                                             |   |                   |        |              |         |         |             |   |  |   |         | 216      |            
|                                                                                                   | Depreciation and amortization on property, plant, and equipment                                                                          |   |                   | 29,998  |              |         |         | 12,729       |   |  |   |         | 25,998   |            
|                                                                                                   | Amortization of intangible assets                                                                                                        |   |                   | 2,809   |              |         |         | 926          |   |  |   |         | 3,609    |            
|                                                                                                   | Amortization of deferred stock-based compensation                                                                                        |   |                   | 1,697   |              |         |         |             |   |  |   |         |         |            
|                                                                                                   | In-process
research and development expense                                                                                              |   |                   |        |              |         |         | 6,784        |   |  |   |         |         |            
|                                                                                                   | Non-cash interest charges                                                                                                                |   |                   | 5,001   |              |         |         | 1,514        |   |  |   |         |         |            
|                                                                                                   | Gain on disposal of assets                                                                                                               |   |                   | (1,870  | )            |         |         | (70          | ) |  |   |         | (2,138   | )          
|                                                                                                   | Minority interest/equity interest in net loss of related companies                                                                       |   |                   |        |              |         |         |             |   |  |   |         | 2,374    |            
|Changes in operating assets and liabilities:                                                       |                                                                                                                                          |   |                   |         |              |         |         |              |   |  |   |         |         
|                                                                                                   | Accounts receivable, net                                                                                                                 |   |                   | (15,447 | )            |         |         | (9,141       | ) |  |   |         | 4,234    |            
|                                                                                                   | Inventories                                                                                                                              |   |                   | (6,480  | )            |         |         | (1,619       | ) |  |   |         | (2,069   | )          
|                                                                                                   | Prepaid expenses and deposits                                                                                                            |   |                   | (593    | )            |         |         | 397          |   |  |   |         | (1,480   | )          
|                                                                                                   | Trade accounts payable                                                                                                                   |   |                   | 1,798   |              |         |         | 9,286        |   |  |   |         | 5,870    |            
|                                                                                                   | Accrued expenses and other liabilities                                                                                                   |   |                   | 5,509   |              |         |         | (7,584       | ) |  |   |         | 1,693    |            
|                                                                                                   |                                                                                                                                          |   |                   |         |              |         |         |              |   |  |   |         |         
|                                                                                                   |                                                                                                                                          |   | 42,019            |         |              |         | (1,183  | )            |   |  |   | 1,855   |         
|Reorganization costs, net                                                                          |                                                                                                                                          |   |                  |         |              |         |        |              |   |  |   | 6,511   |         
|                                                                                                   |                                                                                                                                          |   |                   |         |              |         |         |              |   |  |   |         |         
|                                                                                                   | Net cash provided by (used in) operating activities                                                                                      |   |                   | 42,019  |              |         |         | (1,183       | ) |  |   |         | 8,366    |            
|Investing Activities:                                                                              |                                                                                                                                          |   |                   |         |              |         |         |              |   |  |   |         |         
|Acquisition of property, plant, and equipment                                                      |                                                                                                                                          |   | (14,655           | )       |              |         | (3,033  | )            |   |  |   | (6,855  | )       
|Purchases of short-term investments                                                                |                                                                                                                                          |   |                  |         |              |         |        |              |   |  |   | (338    | )       
|Proceeds from short-term investments at maturity                                                   |                                                                                                                                          |   |                  |         |              |         | 338     |              |   |  |   | 335     |         
|Proceeds from disposal of assets                                                                   |                                                                                                                                          |   | 1,930             |         |              |         | 148     |              |   |  |   | 3,043   |         
|Investment in intangible assets                                                                    |                                                                                                                                          |   | (271              | )       |              |         | (150    | )            |   |  |   | (70     | )       
|Changes in deposits and other assets                                                               |                                                                                                                                          |   |                  |         |              |         | 21      |              |   |  |   | 29      |         
|                                                                                                   |                                                                                                                                          |   |                   |         |              |         |         |              |   |  |   |         |         
|                                                                                                   | Net cash used in investing activities                                                                                                    |   |                   | (12,996 | )            |         |         | (2,676       | ) |  |   |         | (3,856   | )          
|Financing Activities:                                                                              |                                                                                                                                          |   |                   |         |              |         |         |              |   |  |   |         |         
|Proceeds from issuance of common stock                                                             |                                                                                                                                          |   | 429               |         |              |         |        |              |   |  |   |        |         
|Payment of debt                                                                                    |                                                                                                                                          |   | (5,312            | )       |              |         | (165    | )            |   |  |   |        |         
|                                                                                                   |                                                                                                                                          |   |                   |         |              |         |         |              |   |  |   |         |         
|                                                                                                   | Net cash used in financing activities                                                                                                    |   |                   | (4,883  | )            |         |         | (165         | ) |  |   |         |         |            
|                                                                                                   |                                                                                                                                          |   |                   |         |              |         |         |              |   |  |   |         |         
|Increase (decrease) in cash and cash equivalents                                                   |                                                                                                                                          |   | 24,140            |         |              |         | (4,024  | )            |   |  |   | 4,510   |         
|Cash and cash equivalents at beginning of period                                                   |                                                                                                                                          |   | 23,520            |         |              |         | 21,996  |              |   |  |   | 17,486  |         
|                                                                                                   |                                                                                                                                          |   |                   |         |              |         |         |              |   |  |   |         |         
|                                                                                                   | Cash and cash equivalents at end of period                                                                                               |   | $                 | 47,660  |              |         | $       | 17,972       |   |  |   | $       | 21,996   |            
|                                                                                                   |                                                                                                                                          |   |                   |         |              |         |         |              |   |  |   |         |          |            




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


See notes to condensed consolidated financial statements.

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KOMAG, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 28, 2003

Note 1.  Basis of Presentation

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.

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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):

|                |  |              |        |              |  |   |        | 
|--------------- |  | ------------ | ------ | ------------ |  | - | ------ | 
|                |  | Sep 28, 2003 |        | Dec 29, 2002
|                |  |              |        |             
|Raw material    |  | $            | 11,768 |              |  | $ | 9,281  | 
|Work in process |  |              | 6,030  |              |  |   | 2,350  | 
|Finished goods  |  |              | 3,607  |              |  |   | 3,294  | 
|                |  |              |        |              |  |   |        | 
|                |  | $            | 21,405 |              |  | $ | 14,925 | 
|                |  |              |        |              |  |   |        | 

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.

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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.

|                                                                                                                           |                       |   |              |      |              |   |              |       |              |   |        |              |             |   |         |       |   |  |   |         |   |  | 
|-------------------------------------------------------------------------------------------------------------------------- | --------------------- | - | ------------ | ---- | ------------ | - | ------------ | ----- | ------------ | - | ------ | ------------ | ----------- | - | ------- | ----- | - |  | - | ------- | - |  | 
|                                                                                                                           |                       |   | Successor    |      | Successor    |   | Successor    |       | Successor    |   |        |              | Predecessor
|                                                                                                                           |                       |   | Company      |      | Company      |   | Company      |       | Company      |   |        | Company     
|                                                                                                                           |                       |   |              |      |              |   |              |       |              |   |        |             
|                                                                                                                           |                       |   | Three Months |      | Three Months |   | Nine Months  |       | Three Months |   |        | Six Months  
|                                                                                                                           |                       |   | Ended        |      | Ended        |   | Ended        |       | Ended        |   |        | Ended       
|                                                                                                                           |                       |   | Sep 28, 2003 |      | Sep 29, 2002 |   | Sep 28, 2003 |       | Sep 29, 2002 |   |        | Jun 30, 2002
|                                                                                                                           |                       |   |              |      |              |   |              |       |              |   |        |             
|Net income (loss), as reported                                                                                             |                       | $ | 9,943        |      |              | $ | (14,405      | )     |              | $ | 19,597 |              |             | $ | (14,405 | )     |   |  | $ | 312,415 |  
|Add: Stock-based compensation expense included in
reported net income (loss), net of related tax effects                   |                       |   | 297          |      |              |   |             |       |              |   | 1,697  |              |             |   |        |       |   |  |   |        |  
|Deduct: Stock-based compensation
expense determined under the fair value
method for all awards, net of related tax effects |                       |   | (1,333       | )    |              |   |             |       |              |   | (3,346 | )            |             |   |        |       |   |  |   | (4,895  | )
|                                                                                                                           |                       |   |              |      |              |   |              |       |              |   |        |              |             |   |         |       |   |  |   |         |  
|Pro forma net income (loss)                                                                                                |                       | $ | 8,907        |      |              | $ | (14,405      | )     |              | $ | 17,948 |              |             | $ | (14,405 | )     |   |  | $ | 307,520 |  
|                                                                                                                           |                       |   |              |      |              |   |              |       |              |   |        |              |             |   |         |       |   |  |   |         |  
|Net income (loss) per share:                                                                                               |                       |   |              |      |              |   |              |       |              |   |        |              |             |   |         |       |   |  |   |         |  
|                                                                                                                           | Basic  as reported   |   | $            | 0.42 |              |   | $            | (0.63 | )            |   | $      | 0.84         |             |   | $       | (0.63 | ) |  |   |         |   | 
|                                                                                                                           |                       |   |              |      |              |   |              |       |              |   |        |              |             |   |         |       |   |  |   |         |  
|                                                                                                                           | Diluted  as reported |   | $            | 0.40 |              |   | $            | (0.63 | )            |   | $      | 0.81         |             |   | $       | (0.63 | ) |  |   |         |   | 
|                                                                                                                           |                       |   |              |      |              |   |              |       |              |   |        |              |             |   |         |       |   |  |   |         |  
|                                                                                                                           | Basic  pro forma     |   | $            | 0.38 |              |   | $            | (0.63 | )            |   | $      | 0.77         |             |   | $       | (0.63 | ) |  |   |         |   | 
|                                                                                                                           |                       |   |              |      |              |   |              |       |              |   |        |              |             |   |         |       |   |  |   |         |  
|                                                                                                                           | Diluted  pro forma   |   | $            | 0.36 |              |   | $            | (0.63 | )            |   | $      | 0.74         |             |   | $       | (0.63 | ) |  |   |         |   | 
|                                                                                                                           |                       |   |              |      |              |   |              |       |              |   |        |              |             |   |         |       |   |  |   |         |  

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

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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):

|                                                                     |                       |   |                    |     |                   |   |        |     | 
|-------------------------------------------------------------------- | --------------------- | - | ------------------ | --- | ----------------- | - | ------ | --- | 
|                                                                     |                       |   | Successor Company 
|                                                                     |                       |   |                   
|                                                                     |                       |   | Three Months Ended |     | Nine Months Ended
|                                                                     |                       |   | Sep 28, 2003       |     | Sep 28, 2003     
|                                                                     |                       |   |                    |     |                  
|Numerator: Net income                                                |                       | $ | 9,943              |     |                   | $ | 19,597 |    
|                                                                     |                       |   |                    |     |                   |   |        |    
|Denominator
for basic net income per share  weighted average shares |                       |   | 23,558             |     |                   |   | 23,457 |    
|Effect of diluted securities:                                        |                       |   |                    |     |                   |   |        |    
|                                                                     | Stock purchase rights |   |                    | 440 |                   |   |        | 424 | 
|                                                                     | Stock options         |   |                    | 490 |                   |   |        | 287 | 
|                                                                     | Warrants              |   |                    | 372 |                   |   |        | 84  | 
|                                                                     |                       |   |                    |     |                   |   |        |    
|Denominator
for dilutive net income per share                        |                       |   | 24,860             |     |                   |   | 24,252 |    
|                                                                     |                       |   |                    |     |                   |   |        |    
|Basic net income per share                                           |                       | $ | 0.42               |     |                   | $ | 0.84   |    
|                                                                     |                       |   |                    |     |                   |   |        |    
|Diluted net income per share                                         |                       | $ | 0.40               |     |                   | $ | 0.81   |    
|                                                                     |                       |   |                    |     |                   |   |        |    

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 are 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.

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Note 2. Related Parties and Major Customers

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:

|                                    |  |                    |    |                   |  |              |    |              |  |  |    |   |  |  |    |  
|----------------------------------- |  | ------------------ | -- | ----------------- |  | ------------ | -- | ------------ |  |  | -- | - |  |  | -- | -
|                                    |  | Three Months Ended |    | Nine Months Ended
|                                    |  |                    |    |                  
|Customer                            |  | Sep 28, 2003       |    | Sep 29, 2002      |  | Sep 28, 2003 |    | Sep 29, 2002
|                                    |  |                    |    |                   |  |              |    |             
|Western Digital                     |  |                    | 36 | %                 |  |              | 64 | %            |  |  | 41 | % |  |  | 63 | %
|Maxtor                              |  |                    | 36 | %                 |  |              | 29 | %            |  |  | 36 | % |  |  | 29 | %
|IBM                                 |  |                    |   |                   |  |              | 5  | %            |  |  | 7  | % |  |  | 2  | %
|Hitachi Global Storage Technologies |  |                    | 25 | %                 |  |              |   |              |  |  | 15 | % |  |  |   |  
|Seagate                             |  |                    |   |                   |  |              |   |              |  |  |   |   |  |  | 4  | %

Note 3. Interest Expense

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.

Note 4. Reorganization Costs, Net

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.

Note 5. Income Taxes

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

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$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.

Note 6. Minority Interest/Equity Interest in Net Loss of Related Companies

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.

Note 7. Goodwill and Other Intangible Assets

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

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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 operation.

Note 8. Accrued Expenses and Other Liabilities

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

|                                  |  |              |        |              |  |   |        | 
|--------------------------------- |  | ------------ | ------ | ------------ |  | - | ------ | 
|                                  |  | Sep 28, 2003 |        | Dec 29, 2002
|                                  |  |              |        |             
|Accrued compensation and benefits |  | $            | 13,965 |              |  | $ | 7,732  | 
|Restructuring liabilities         |  |              | 743    |              |  |   | 2,356  | 
|Other liabilities                 |  |              | 4,518  |              |  |   | 3,629  | 
|                                  |  |              |        |              |  |   |        | 
|                                  |  | $            | 19,226 |              |  | $ | 13,717 | 
|                                  |  |              |        |              |  |   |        | 

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.

Note 9. Subsequent Events

On October 1, 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 $24.0 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, the
Company utilized approximately 50% of the net proceeds, $12.1 million, to pay down its
debt as required under the terms of its 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,
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, as of October 30, 2003, the Company
has 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 will be redeemed 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.

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

The following discussion should be read in conjunction with the condensed
consolidated financial statements and the accompanying notes included in Part
I., Financial Information, Item 1. Condensed Consolidated Financial Statements
of this report.

The following discussion contains predictions, estimates, and other
forward-looking statements that involve a number of risks and uncertainties
about our business. These statements may be identified by the use of words
such as expects, anticipates, intends, plans, and similar expressions.
In addition, forward-looking statements include, but are not limited to,
statements about our beliefs, estimates or plans about our ability to maintain
low manufacturing and operating costs and costs per unit, our ability to
estimate shipping volumes, revenues, pricing pressures, selling, general, and
administrative expenses, taxes, research, development, and engineering
expenses, our use of available credit, spending on property, plant, and
equipment, expected sales of higher density disks and the market for disk
drives generally and certain customers specifically, our beliefs regarding our
liquidity needs, and estimates of debt payments, accrual of interest, and
future cash needs.

The Companys business is subject to a number of risks and uncertainties.
While this discussion represents our current judgment on the future direction
of our business, these risks and uncertainties could cause actual results to
differ materially from any future performance suggested herein. Some of the
important factors that may influence possible differences are continued
competitive factors, technological developments, pricing pressures, changes in
customer demand, and general economic conditions, as well as those discussed
below in Other Factors that May Affect Future Operating Results.

Results of Operations

Overview

Our business is capital-intensive and is characterized by high fixed
costs, making it imperative that we sell disks in high volume in order to
offset such costs. 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.

Adverse conditions in the thin-film media market, which began in mid-1997,
impacted our business through the majority of 2002. Disk drive demand grew
rapidly during the mid-1990s, and industry forecasts were for continued strong
growth. Along with many of our competitors (both independent disk manufacturers
and captive disk manufacturers owned by vertically integrated disk drive
companies), in 1996 we committed to expansion programs and substantially
increased media manufacturing capacity in 1997. In 1997, the rate of growth in
demand for disk drives fell. Disk drive manufacturers abruptly reduced their
orders for media from independent suppliers and relied more heavily on internal
capacity to supply a

13



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larger proportion of their media requirements. The media
industrys capacity expansion, coupled with the decrease in the rate of demand
growth, resulted in excess media production capacity. Due to classic micro-
economic forces, this excess industry capacity caused sharp declines in
average selling prices for disk products as independent suppliers struggled to
utilize their capacity.

In addition, by the end of 1998, most disk drives manufactured were
transitioned to the use of advanced magneto-resistive media and recording
heads. This transition led to unprecedented increases in areal density and,
therefore, the amount of data that could be stored on a single disk platter.
Increased storage capacity per disk allows drive manufacturers to offer
lower-priced disk drives by incorporating fewer components into their disk
drives. Because of this lower disk-per-drive ratio, overall disk demand
decreased during the period from 1997 through the majority of 2002, resulting
in substantial excess disk production capacity. Significant captive capacity
employed by certain disk drive manufacturers also continues to impair the
market opportunities for independent disk suppliers such as our company.

As a result of the continuing excess disk production capacity in our
industry, we closed U.S. manufacturing operations, merged with HMT Technology
Corporation, and consolidated our combined U.S.-based manufacturing operations
in Malaysia over the three-year period from 1999 through 2001. In June 2002, we
announced the closure of KMT, our research and development facility in Santa
Rosa, California. The closure was completed in the third quarter of 2002.

With the relocation of our manufacturing operations to our Malaysian
facilities, our San Jose, California site is focused solely on activities
related to research, process development, and product prototyping. Our selling,
general, and administrative functions also remain in California. 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, and has improved our ability to respond to the continuing price
pressures in the disk industry. We expect to maintain low costs by fully
utilizing our Malaysian operations. In addition, we may acquire other low cost
operations and enter into long-term contracts with suppliers to reduce or
stabilize costs and grow our business.

As discussed in Note 1, we emerged from chapter 11 bankruptcy on June 30,
2002. In accordance with SOP 90-7, we 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.

To facilitate an understanding of our operating performance, the following
discussion is presented on a traditional comparative basis for all periods;
that is, the discussion compares the results of operations for the three-month
and nine-month periods ended September 28, 2003, to the three-month and
nine-month periods ended September 29, 2002. 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 thee 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.

14



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The following table shows the Companys results of operations (in
thousands):

|                                                                   |                                                                          |                   |         |               |       |               |        |               |         |                  |         |        |        |   |          |         |         |  |  |  |  | 
|------------------------------------------------------------------ | ------------------------------------------------------------------------ | ----------------- | ------- | ------------- | ----- | ------------- | ------ | ------------- | ------- | ---------------- | ------- | ------ | ------ | - | -------- | ------- | ------- |  |  |  |  | 
|                                                                   |                                                                          |                   |         | Three         |       | Three         |        | Nine          |         | Nine             |         |        |        |  
|                                                                   |                                                                          |                   |         | Months        |       | Months        |        | Months        |         | Months           |         |        |        |  
|                                                                   |                                                                          |                   |         | Ended         |       | Ended         |        | Ended         |         | Ended            |         |       
|                                                                   |                                                                          |                   |         |               |       |               |        |               |         |                  |         |       
|                                                                   |                                                                          |                   |         | Sept 28, 2003 |       | Sept 29, 2002 |        | Sept 28, 2003 |         | Sept 29, 2002(1) |         |       
|                                                                   |                                                                          |                   |         |               |       |               |        |               |         |                  |         |       
|Net sales                                                          |                                                                          | $                 | 109,199 |               |       | $             | 70,241 |               |         | $                | 320,061 |        |        | $ | 182,196  |         |         |  |  | 
|Cost of sales                                                      |                                                                          |                   | 83,840  |               |       |               | 62,853 |               |         |                  | 249,090 |        |        |   | 173,250  |         |         |  |  | 
|                                                                   |                                                                          |                   |         |               |       |               |        |               |         |                  |         |        |        |   |          |         |         |  |  | 
|                                                                   | Gross profit                                                             |                   |         | 25,359        |       |               |        | 7,388         |         |                  |         | 70,971 |        |   |          | 8,946   |         |  |  |  | 
|Research, development, and engineering expense                     |                                                                          |                   | 10,778  |               |       |               | 8,708  |               |         |                  | 31,089  |        |        |   | 27,504   |         |         |  |  | 
|Selling, general, and administrative expense                       |                                                                          |                   | 4,717   |               |       |               | 4,235  |               |         |                  | 13,317  |        |        |   | 12,491   |         |         |  |  | 
|Gain on disposal of assets                                         |                                                                          |                   | (792    | )             |       |               | (70    | )             |         |                  | (1,870  | )      |        |   | (2,208   | )       |         |  |  | 
|Restructuring/impairment charges                                   |                                                                          |                   |        |               |       |               | 740    |               |         |                  |        |        |        |   | 5,058    |         |         |  |  | 
|In- process research and development                               |                                                                          |                   |        |               |       |               | 6,784  |               |         |                  |        |        |        |   | 6,784    |         |         |  |  | 
|Interest income                                                    |                                                                          |                   | (103    | )             |       |               | (66    | )             |         |                  | (343    | )      |        |   | (259     | )       |         |  |  | 
|Interest expense                                                   |                                                                          |                   | 3,351   |               |       |               | 3,226  |               |         |                  | 10,095  |        |        |   | 3,226    |         |         |  |  | 
|Other income, net                                                  |                                                                          |                   | (83     | )             |       |               | (2,068 | )             |         |                  | (307    | )      |        |   | (399,077 | )       |         |  |  | 
|Reorganization costs, net                                          |                                                                          |                   |        |               |       |               |       |               |         |                  |        |        |        |   | 6,511    |         |         |  |  | 
|Provision for (benefit from) income taxes                          |                                                                          |                   | (2,452  | )             |       |               | 304    |               |         |                  | (607    | )      |        |   | 1,023    |         |         |  |  | 
|Minority interest/equity interest in net loss of related companies |                                                                          |                   |        |               |       |               |       |               |         |                  |        |        |        |   | (2,374   | )       |         |  |  | 
|                                                                   |                                                                          |                   |         |               |       |               |        |               |         |                  |         |        |        |   |          |         |         |  |  | 
|                                                                   | Income (loss) before cumulative effect of change
in accounting principle |                   |         | 9,943         |       |               |        | (14,405       | )       |                  |         | 19,597 |        |   |          | 345,519 |         |  |  |  | 
|Cumulative effect of change in accounting principle                |                                                                          |                   |        |               |       |               |       |               |         |                  |        |        |        |   | (47,509  | )       |         |  |  | 
|                                                                   |                                                                          |                   |         |               |       |               |        |               |         |                  |         |        |        |   |          |         |         |  |  | 
|                                                                   |                                                                          | Net income (loss) |         | $             | 9,943 |               |        | $             | (14,405 | )                |         | $      | 19,597 |   |          | $       | 298,010 |  |  |  |  | 
|                                                                   |                                                                          |                   |         |               |       |               |        |               |         |                  |         |        |        |   |          |         |         |  |  | 



---

|(1) |  | Comprises combined operating results for the three months ended
September 29, 2002 (successor company) and the six months ended June 30, 2002
(predecessor company).
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

Net Sales

Consolidated
net sales increased by 55.5% to $109.2 million in the third
quarter of 2003, from $70.2 million in the third quarter of 2002. The overall
increase primarily reflected an increase in finished unit sales volume, to 17.5
million units in the third quarter of 2003 from 12.3 million units in the third
quarter of 2002, and an increase in the finished unit average selling price, to
$5.64 in the third quarter of 2003 from $5.43 in the third quarter of 2002.

Net other disk sales in the third quarter of 2003 were $10.1 million,
compared to $3.5 million in the third quarter of 2002. The increase reflected
higher sales of textured aluminum substrates and single-sided disks as a result
of customer specifications.

Consolidated net sales in the first nine months of 2003 increased by
$137.9 million, to $320.1 million in the first nine months of 2003 from $182.2
million in the first nine months of 2002. The increase was driven primarily by
a 68.3% increase in finished unit sales volume, to 50.5 million units in the
first nine months of 2003 from 30.0 million units in the first nine months of
2002. The volume increase was somewhat offset by a decline in the finished
unit average selling price, to $5.63 in the first nine months of 2003 from
$5.69 in the first nine months of 2002.

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Net other disk sales in the first nine months of 2003 were $36.3 million,
compared to $11.8 million in the first nine months of 2002. The increase
reflected higher sales of textured aluminum
substrates and single-sided disks.

The finished unit shipment increases in the third quarter and first nine
months of 2003 compared to the same periods in 2002 primarily reflected market
share gains, which began in the second half of 2002, that resulted from our
early qualification on new advanced programs with our customers, and was also
due to an overall strengthening of industry conditions. The finished unit
average selling price declines in the third quarter and first nine months of
2003 compared to the same periods in 2002 primarily related to our efforts to
increase market share, as well as continued general customer pricing pressure.

In the fourth quarter of 2003, we expect slightly higher finished unit
shipment volume and revenue, offset by a significant decrease in other disk
revenue, resulting in a slight increase in total revenue.

In the third quarter of 2003, sales to Western Digital, Maxtor, and
Hitachi Global Storage Technologies accounted for 36%, 36%, and 25%,
respectively, of our revenue. In the third quarter of 2002, sales to Western
Digital, Maxtor, and IBM accounted for 64%,
29% and 5%, respectively, of our revenue.

We expect to continue to derive a substantial portion of our sales from
Western Digital, Maxtor, Hitachi Global Storage Technologies, and from a small
number of other customers. Historically, our sales have been concentrated
among several significant customers, and we expect it to remain concentrated.
However, our customer sales distribution may vary from quarter to quarter based
on the qualifications of our disks in specific customers drive programs and
the success of those programs in the disk drive marketplace. As a result of
the April 1999 acquisition of Western Digitals media operation and the related
volume purchase agreement, we expect our sales to Western Digital to remain
significant. The volume purchase agreement expires in April 2005. In October
2003, we entered into a five-year supply agreement with Maxtor.

Sales of 60GB and 80GB per platter disks increased to 52% of net sales in
the third quarter of 2003, compared to 27% in the same period of 2002. The
increase was the result of the continued rapid customer evolution to higher
storage densities. There was also a decrease in lower GB disks, from 73% in
the third quarter of 2002 to 48% in the third quarter of 2003. We anticipate
sales of 60/80GB per-platter disks to increase for the remainder of 2003.

Gross Margin

Our overall gross margin percentage for the third quarter of 2003 was
23.2%, a 12.7 point increase compared to a gross margin percentage of 10.5% for
the third quarter of 2002. The economies of scale associated with higher sales
and production volumes (as discussed above) in the third quarter of 2003
significantly lowered our fixed cost per disk, and accounted for 9.4 points of
the gross margin percentage increase. Higher finished unit average selling
prices in the third quarter of 2003 compared to the third quarter of 2002
accounted for the remaining 3.3 point increase.

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For the first nine months of 2003, we achieved an overall gross margin
percentage of 22.2% compared to a gross margin percentage of 4.9% for the first
nine months of 2002, an improvement of 17.3
points. Higher sales and production volumes accounted for 18.3 points of
the increase. However, lower finished unit average sales prices in the first
nine months of 2003 compared to the first nine months of 2002 resulted in a 1.0
point decline in the gross margin percentage.

Amortization of intangible assets is included in our cost of sales.
Amortization of intangible assets in each of the first three quarters of 2003
and the third quarter of 2002 primarily included $0.7 million of amortization
on the volume purchase agreement with Western Digital, and $0.2 million of
developed technology amortization. Amortization of intangible assets in the
second quarter of 2002 was $0.5 million. Amortization of intangible assets in
the first quarter of 2002 was $3.1 million, which included the remaining
amortization of $2.6 million under the original Western Digital volume purchase
agreement, which ended in the first quarter of 2002.

We expect to maintain our variable cost per unit at levels similar to the
first nine months of 2003 while continuing to advance our technology. We
expect our fixed cost per unit in the remainder of 2003 to vary based on
changes in production volumes from the level achieved in the first nine months
of 2003.

Research, Development, and Engineering Expenses

Research, development, and engineering expenses of $10.8 million in the
third quarter of 2003 were $2.1 million higher compared to the $8.7 million in
the third quarter of 2002. The increase primarily reflected $1.8 million of
bonus expense, and $0.1 million of deferred stock-based compensation expense.
There was no deferred stock-based compensation expense in the third quarter of
2002.

Research, development, and engineering expenses of $31.1 million in the
first nine months of 2003 were $3.6 million higher than the $27.5 million in
the first nine months of 2002. The increase primarily reflected $3.3 million of
bonus expense, and $0.7 million of deferred stock-based compensation expense,
offset by a net $0.4 million decrease in other spending. There was no deferred
stock-based compensation expense in the first nine months of 2002.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses of $4.7 million in the
third quarter of 2003 were $0.5 million higher compared to the $4.2 million
incurred in the third quarter of 2002. Higher support and other costs of $0.4
million, and higher deferred stock-based compensation expense of $0.1 million,
accounted for the increase. There was no deferred stock-based compensation
expense in the third quarter of 2002.

Selling, general, and administrative expenses of $13.3 million in the
first nine months of 2003 were $0.8 million higher than the $12.5 million
incurred in the first nine months of 2002. The year-over-year increase
reflected higher deferred stock-based compensation expense of $0.8 million and
higher support and other costs of $1.9 million, offset by a $1.9 million
decrease in bonus expense. There was no

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deferred stock-based compensation
expense in the first nine months of 2002.

Gain on Disposal of Assets

In the third quarter of 2003, we realized a $0.8 million gain on the
disposal of idle manufacturing equipment. For the first nine months of 2003,
we realized a gain of $1.5 million on the disposal of idle manufacturing
equipment, and a net gain of $0.4 million on the sale of other miscellaneous
assets.

In the third quarter of 2002, we realized a gain of $0.1 million gain on
the disposal of other miscellaneous equipment sales. For the first nine months
of 2002, we realized a gain of $2.4 million on the disposal of idle
manufacturing equipment, and a net loss of $0.2 million on the sale of other
miscellaneous assets.

In-Process Research and Development

In accordance with fresh-start reporting as of June 30, 2002, we recorded
an intangible asset for in-process research and development costs of $6.8
million. The entire amount was expensed in the third quarter of 2002. See
Note 7.

Interest Income and Interest Expense

Interest income was $0.1 million in each of the first three quarters of
2003 and 2002.

Total cash and cash equivalents were $47.7 million at the end of the third
quarter of 2003, and $18.0 million at the end of the third quarter of 2002.

We recorded $3.4 million of interest expense in the third quarter of 2003
and $ 10.1 million in the first nine months of 2003. In the third quarter of
2002, we 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.

Other Income, Net

Other income, net in the third quarter of 2003 was less than $0.1 million.
Other income, net in the third quarter of 2002 was $2.1 million, and primarily
reflected a $2.2 million property tax refund related to the former HMT
Technology Corporation properties.

Other income, net in the first nine months of 2003 was $0.3 million, and
primarily reflected a property tax refund. Other income, net in the first nine
months of 2002 was $399.1 million, and primarily reflected income of $379.0
million associated with the debt extinguishment and other liabilities subject
to compromise as of June 30, 2002, 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, a $2.2 million property tax refund,

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and
$0.6 million of other miscellaneous income items.

Reorganization Costs, Net

No reorganization costs were recorded in the first nine months of 2003,
compared to $6.5 million in the first nine months of 2002. Reorganization costs
in the first nine month 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. We do not anticipate
incurring any further reorganization costs.

Income Taxes

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 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, we 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.

Our income tax provisions of $0.3 million for the third quarter of 2002,
and $1.0 million for the first nine months 2002, represented foreign income
taxes and foreign withholding taxes on royalty and interest payments.

Our 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.

Due to the tax holidays and the exemption of withholding tax on royalty
payments, we expect our tax provision in the remainder of 2003 and fiscal 2004
to be minimal.

Minority Interest/Equity Interest in Net Loss of Related Companies

Our minority interest in 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, we recorded zero and
$2.4 million losses, respectively, as our equity share in the net loss of
Chahaya, a former equity investment. Chahaya ceased operations in the fourth
quarter of 2002. We currently have no minority or equity interests in related
companies.

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Cumulative Effect of Change in Accounting Principle

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.

In accordance with SFAS No. 142, we were required to perform a
transitional impairment analysis of our goodwill. The transitional impairment
loss of $47.5 million was recognized in the first quarter of 2002 as the
cumulative effect of a change in accounting principle in our condensed
consolidated statement of operations.

Critical Accounting Policies

In the ordinary course of business, we have made a number of estimates and
assumptions relating to the reporting of results of operations and financial
condition in the preparation of our condensed consolidated financial statements
in conformity with accounting principles generally accepted in the United
States of America. Actual results could differ significantly from those
estimates if our assumptions are incorrect. We believe that the following
discussion addresses our most critical accounting policies. These policies are
most important to the portrayal of our financial condition and results and
require managements most difficult, subjective and complex judgments, often as
a result of the need to make estimates about the effect of matters that are
inherently uncertain.

Allowance for Sales Returns

We estimate our allowance for sales returns based on historical data as
well as current knowledge of product quality. Historically, we have not
experienced material differences between our estimated reserves for sales
returns and actual results. However, it is possible that the failure rate on
products sold could be higher than it has historically been, which could result
in significant changes in future returns. Since estimated sales returns are
recorded as a reduction in revenues, any significant difference between our
estimated and actual experience or changes in our estimate would be reflected
in our reported revenues in the period we determine that difference.

From December 29, 2002 to September 28, 2003, our allowance for sales
returns increased by $0.4 million. The increase primarily reflects current
estimates of expected returns in the fourth quarter of 2003.

Long-lived Assets

Long-lived assets are evaluated as one group for impairment whenever
events or changes in circumstances indicate that these assets may be impaired
or the estimated useful lives are no longer appropriate. We consider the
primary indicators of impairment to include significant decreases in unit
volumes, unit prices or significant increases in production costs. We review
our long-lived assets for impairment based on estimated future undiscounted
cash flows attributable to the assets. In the event that these cash flows are
not expected to be sufficient to recover the recorded value of the assets, the
assets are written down to their estimated fair values utilizing discounted
estimates of future cash flows. The discount

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rate used is based on the
estimated incremental borrowing rate at the date of the event that triggers the
impairment. Land and buildings held for sale are evaluated for impairment on a
quarterly basis and are
stated at the lower of cost or fair value, less estimated selling costs.

Liquidity and Capital Resources

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 reflected 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 options for five
years. We also lease a building, which we no longer occupy, in Santa Rosa,
California. This lease expires in April 2004. We have no capital leases.

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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):

|                  |  |          |        |          |  |   |       | 
|----------------- |  | -------- | ------ | -------- |  | - | ----- | 
|                  |  | Minimum  |        |          |  |  
|                  |  | Lease    |        | Sublease
|                  |  | Payments |        | Payments
|                  |  |          |        |         
|Remainder of 2003 |  | $        | 1,013  |          |  | $ | 376   | 
|2004              |  |          | 3,925  |          |  |   | 1,539 | 
|2005              |  |          | 3,456  |          |  |   | 1,585 | 
|2006              |  |          | 3,331  |          |  |   | 1,633 | 
|2007              |  |          | 403    |          |  |   | 414   | 
|                  |  |          |        |          |  |   |       | 
|                  |  | $        | 12,128 |          |  | $ | 5,547 | 
|                  |  |          |        |          |  |   |       | 

We have a revolving credit facility (the 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. Due to the sale of our Fremont,
California property, available credit under the Exit Facility is
currently 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 (discussed above), on September 28, 2003,
we had outstanding $80.3 million of cash pay notes and $50.5 million of
paid-in-kind (PIK) notes (Senior Notes), $8.1 million of subordinated PIK notes
(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):

|                  |  |           |         | 
|----------------- |  | --------- | ------- | 
|                  |  | Minimum  
|                  |  | Principal
|                  |  | Payments 
|                  |  |          
|Remainder of 2003 |  | $         | 5,102   | 
|2004              |  |           | 20,247  | 
|2005              |  |           | 20,259  | 
|2006              |  |           | 20,271  | 
|2007              |  |           | 73,854  | 
|2008              |  |           | 108     | 
|                  |  |           |         | 
|                  |  | $         | 139,841 | 
|                  |  |           |         | 

Our debt agreements contain affirmative, negative and financial covenants
binding on us and our subsidiaries. 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.

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On
October 1, 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 the Exit
Facility to redeem in full the Junior Notes for approximately
$8.2 million. As such, as of October 30, 2003, we have 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 will be redeemed on
December 2, 2003. Further, we received consent from a majority of holders of Senior Notes and the lender under the Exit
Facility to increase the covenant on capital
expenditures for 2003.

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 Komag as a strategic external media supplier of Maxtor.

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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, 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 our
forward-looking statements.

Risks Related to Our Business

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 effected 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 recently announced that
we will increase our production capacity by approximately 10% to
20% over the next three fiscal quarters by utilizing

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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 82% of disk drive sales during the second
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 manufacturing
scale to be able to compete effectively with these companies as
to production costs or technology development.

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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.

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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

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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.

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.

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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

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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

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a negative impact on our operations. Our normal
operating processes could be hindered by a number of
SARS-related factors, 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.                                                               

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. For example,
in 2000, we acquired HMT Technology Corporation, another disk
manufacturer. Acquisitions involve numerous risks, including the
following:



| |   |                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | difficulties in integrating the operations,
    technologies, products and personnel of the acquired companies;                                                      
|
| |  | diversion of managements attention from
    normal daily operations of the business;                                                                                
|
| |  | potential difficulties in completing projects
    associated with in-process research and development;                                                               
|
| |  | difficulties in entering markets in which we have
    no or limited direct prior experience and where competitors in
    such markets have stronger market positions;
|
| |  | initial dependence on unfamiliar supply chains or
    relatively small supply partners;                                                                              
|
| |  | insufficient revenues to offset increased
    expenses associated with acquisitions; and                                                                             
|
| |  | the potential loss of key employees of the
    acquired companies.                                                                                                   

Acquisitions may also cause us to:



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

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.

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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.

Risks Related to Our Indebtedness

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 long-term debt and short-term debt was
$139.8 million as of September 28, 2003. As of
October 30, 2003, we reduced our debt balance to
approximately $122.8 million and announced the full

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redemption of approximately $8.2 million of
our existing paid-in-kind Junior Notes. Our debt service obligations
may require us to use a substantial
portion of our cash flow from operations to meet our obligations, thereby reducing the
availability of cash flow to fund our business. Our debt service
obligations 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, 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 an offering by the Company of approximately 3,000,000
shares of common stock and an offering of $70.0
million of Convertible Subordinated Notes. However, there can be no
assurance either offering will close successfully (neither offer is
contingent on the other) or that the offerings will provide
sufficient proceeds to repay all of our existing debt. 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, 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.

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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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to foreign currency exchange rate risk. We currently do not
use derivative financial instruments to hedge such risk.

The primary objective of our investment activities is to preserve
principal while at the same time maximizing yields without significantly
increasing risk. We invest primarily in high-quality, short-term debt
instruments.

A substantial majority of our revenue, expense, and capital purchasing
activities are transacted in U.S. dollars. However, a large portion of our
payroll, certain operating expenses, and capital purchases are transacted in
other currencies, primarily Malaysian ringgit. Since late 1998, the ringgit has
been pegged at a conversion rate of 3.8 Malaysian ringgit to the U.S. dollar.
If the pegging is lifted in the future, we will evaluate whether or not we will
enter any hedging contracts for the Malaysian ringgit. Expenses recorded in
Malaysian ringgit in the first nine months of 2003 totaled approximately $37.3
million.

We have $80.3 million in cash pay Senior Secured Notes outstanding which
bear interest at the prime rate plus 3% (such rate not to be less than 8% per
annum) and mature in June 2007. A hypothetical 100 basis point increase in
interest rates would result in approximately $0.8 million of additional
interest expense each year.




ITEM 4. CONTROLS AND PROCEDURES

We maintain a rigorous set of disclosure controls and procedures and
internal controls designed to ensure that information required to be disclosed
in our filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms. Our Chief Executive
Officer and our Chief Financial Officer have designed and evaluated our
disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under their supervision, pursuant to Rules 13a  15
(e) and 15d  15(e) of the Securities Exchange Act of 1934 for the period
covered on this Quarterly Report on Form 10-Q, and have determined that such
disclosure controls and procedures are effective to ensure that the information
required to be disclosed in our filings under periodic Securities and Exchange
Commission filings is gathered, analyzed, and disclosed with adequate
timeliness, accuracy, and completeness, based on an evaluation of such controls
and procedures conducted as part of the end of the period covered by this
report.

Subsequent to our evaluation, there were no significant changes in
internal controls or other factors that could significantly affect our internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.

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PART II. OTHER INFORMATION




ITEM 1. Legal Proceedings

Not applicable.




ITEM 2. Changes in Securities

Not applicable.




ITEM 3. Defaults Upon Senior Securities

Not applicable.




ITEM 4. Submission of Matters to a Vote of Security Holders

Not applicable.




ITEM 5. Other Information

Not applicable.




ITEM 6. Exhibits and Reports on Form 8-K



|a) |  | Exhibits
|-- |  | --------



| |  | 10.5.2 Letter dated August 6, 2003 from the Malaysian Industrial
Development Authority addressed to Komag USA (Malaysia) Sdn. extending
the Pioneer Status of the Companys thin-film media venture in
Malaysia.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | 31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002                                                                                                           
|
| |  | 31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002                                                                                                           
|
| |  | 32 Certifications of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                



|b) |  | Reports on Form 8-K
|-- |  | -------------------



| |  | On July 22, 2003, the Company filed Form 8-K stating that it issued a press
release announcing its financial results for the second quarter ended June
29, 2003.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

KOMAG, INCORPORATED
(Registrant)



|      |  |                  |  |                                         |  |                         |  | 
|----- |  | ---------------- |  | --------------------------------------- |  | ----------------------- |  | 
|DATE: |  | October 31, 2003 |  | BY:                                     |  | /s/ Thian Hoo Tan       |  | 
|      |  |                  |  |                                         |  |                        
|      |  |                  |  |                                         |  |                         |  | 
|      |  |                  |  | Thian Hoo Tan                          
|      |  |                  |  | Chief Executive Officer                
|      |  |                  |  |                                         |  |                         |  | 
|      |  |                  |  |                                         |  |                         |  | 
|DATE: |  | October 31, 2003 |  | BY:                                     |  | /s/ Kathleen A. Bayless |  | 
|      |  |                  |  |                                         |  |                        
|      |  |                  |  |                                         |  |                         |  | 
|      |  |                  |  | Kathleen A. Bayless                    
|      |  |                  |  | Vice President, Chief Financial Officer

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Exhibit Index

|       |  |                                                                                                                                                                                                            
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.5.2 |  | Letter dated August 6, 2003 from the Malaysian Industrial
Development Authority addressed to Komag USA (Malaysia) Sdn. extending
the Pioneer Status of the Companys thin-film media venture in
Malaysia.
|       |  |                                                                                                                                                                                                            
|31.1   |  | Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002                                                                                                         
|       |  |                                                                                                                                                                                                            
|31.2   |  | Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002                                                                                                         
|       |  |                                                                                                                                                                                                            
|32     |  | Certifications of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                            

38