##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number 0-16852
  Komag, Incorporated
 (Exact name of registrant as
    specified in its charter)
  Delaware


94-2914864(State or other jurisdiction
    of
    incorporation or organization)


(I.R.S. Employer
    Identification No.
)   1710 Automation Parkway, San Jose, California 95131
 (Address of Principal Executive
    Offices, including Zip Code)
  Registrants telephone number, including area code:
 (408) 576-2000
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredNone

None   Securities registered pursuant to Section 12(g) of the
    Act:
 Common Stock, $0.01 par value
  þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  þ o o
  rule 12b-2 o þ
      APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
    PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
  þ o
  Documents
    Incorporated by Reference
  Form 10-K




---



##### 



KOMAG,
    INCORPORATED
  TABLE OF
    CONTENTS TO ANNUAL REPORT ON
    FORM 10-K
  
  PageItem 1.


Business


3Item 1A.


Risk
    Factors


11Item 1B.


Unresolved Staff
    Comments


22Item 2.


Properties


22Item 3.


Legal
    Proceedings


23Item 4.


Submission of
    Matters to a Vote of Security Holders


23Item 5.


Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


24Item 6.


Selected
    Consolidated Financial Data


27Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


27Item 7A.


Quantitative and
    Qualitative Disclosures about Market Risk


36Item 8.


Consolidated
    Financial Statements and Supplementary Data


37Item 9.


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


62Item 9A.


Controls and
    Procedures


62Item 9B.


Other
    Information


62Item 10.


Directors and
    Executive Officers of the Registrant


63Item 11.


Executive Compensation


63Item 12.


Security Ownership of Certain
    Beneficial Owners and Management and Related Stockholder
    Matters


63Item 13.


Certain Relationships and Related
    Transactions


63Item 14.


Principal Accountant Fees and
    Services


63Item 15.


Exhibits and
    Financial Statement Schedules


63EXHIBIT 21EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32   2




---



##### Table of Contents



PART I
  CAUTIONARY
    STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
  Form 10-K
    Item 1.
    Business  General
      (408) 576-2000. Form 10-K, Form 10-Q, Form 8-K,
 3




---



##### Table of Contents



Industry
    Background
  Demand
    for Disks
    
    increased demand for desktop and notebook PCs with high storage
    capacities driven by consumer multi-media, broadband, and
    wireless applications, increased business usage, and an
    increased number of computers in developing economies;
    increased demand for enterprise storage driven by a broader
    deployment of applications, which require significant storage
    capacity, such as enterprise software, data warehousing, data
    recovery and data security operations; and
    increased demand for new consumer electronic applications, which
    require significant digital data storage capability, including
    digital video and audio recorders, video game platforms,
    emerging high-definition television applications and global
    positioning systems.      Disk
    Market
  1 2 1 2 1 2
     4




---



##### Table of Contents



Competitive
    Strengths
    
    Leading Independent Disk Supplier.  We believe
    that we have developed a deep understanding of market needs in
    the disk drive market and offer a broad portfolio of advanced
    solutions to address those needs. Additionally, we believe the
    scale of our manufacturing and our technology development
    programs provide us with competitive advantages in maintaining
    and growing our market share.
    Technology Leadership.  We have been in the
    thin-film media business for over 23 years, during which
    time we have invested heavily in research and development. Our
    research, development and engineering team has 448 employees in
    the U.S. and Malaysia, and is focused on developing
    next-generation products and efficient manufacturing processes.
    As a recent example of our success in technology innovation, 36%
    of our 2006 fourth quarter shipments were 160 GB and greater
    disks, compared to less than 1% in the same period in 2005.
    Further, we believe we are the only independent disk supplier
    shipping greater than one million units of
    31/2-inch
    PMR disks in the fourth quarter of 2006, which demonstrates our
    leadership in developing next-generation technologies, such as
    PMR, to allow us to stay at the forefront of technology
    development in the disk industry. We believe our research and
    development strategy allows us to design and manufacture high
    volumes of advanced disks for our customers.
    Strong Relationships with Top-Tier Disk Drive
    Manufacturers.  We believe that we have developed
    strong relationships with many of the leading disk drive
    manufacturers, including HGST, Seagate and Western Digital.
    Further, we added Samsung as a customer in 2006. Our
    San Jose, California headquarters and research and
    development operations are in close proximity to the design
    centers of many of the worlds largest disk drive
    manufacturers. Our ability to have our design teams work in such
    close proximity to our customers has, in part, facilitated the
    strong and collaborative customer relationships that we have
    established with these large disk drive manufacturers. We devote
    significant time working with our customers to produce disks
    that are highly specialized and customized for our
    customers particular technological requirements, and these
    close relationships provide added insight into our
    customers product and technology roadmaps.
    Low-Cost Efficient Manufacturing
    Operations.  We believe our manufacturing costs
    are among the lowest in our industry. Our manufacturing
    operations, all of which are located in Malaysia, are located in
    the same region as the manufacturing operations of many of the
    worlds largest disk drive manufacturers. We believe the
    location of our manufacturing operations, together with our
    experience in the industry and our economies of scale, provide
    us with timing and cost advantages in delivering consistently
    high-quality products to our customers in high volumes.
    Broad Range of Disk Products to Address Large and Emerging
    Markets.  We provide a broad range of disk
    products that are incorporated into disk drives for desktop,
    enterprise and consumer electronics applications. Our primary
    market focus has been
    31/2-inch
    disks for the desktop and consumer electronic applications,
    which constitute the majority of the highest volume business of
    our largest customers. As our customers pursue applications and
    products in other growth areas, such as the enterprise server,
    mobile and small form factor consumer electronics storage
    markets, we believe that we are well positioned to meet their
    needs based on our ability to produce a wide range of products
    with varying areal densities and form factors. To meet customer
    demand and the growing market for
    21/2-inch
    disk drives, we entered the
    21/2-inch
    market with aluminum disks and are currently designing and
    sampling
    21/2-inch
    glass disks for shipment in 2007. 5




---



##### Table of Contents



Strategy
    
    Maintain Technology Leadership.  We intend to
    maintain and extend our technology leadership in the disk market
    by continuing to invest in leading-edge research and
    development. We intend to continue to focus our technology
    development efforts primarily on large and emerging market
    opportunities, such as high-density storage for PCs, enterprise
    storage systems, communications infrastructure and consumer
    electronics appliances. We currently manufacture disks at
    various capacity points from 80 GB to 188 GB for
    31/2-inch
    disks, and expect to ship disks at 200 GB and greater in 2007.
    We are currently shipping disks using both longitudinal magnetic
    recording (LMR) and PMR technology. Additionally, we are
    pursuing new technologies, such as discrete track recording
    (DTR), in an effort to achieve technological advantages over our
    competitors.
    Continue Improving Manufacturing Efficiency and Reducing
    Production Costs.  We intend to continue to
    improve the efficiency and quality of our manufacturing
    operations in Malaysia where we believe we can achieve lower
    costs than other disk manufacturers. We believe that our
    advanced manufacturing operations allow us to accelerate
    delivery of high volumes of reasonably priced disks, which
    enable our customers to rapidly introduce new products. As a
    leading independent disk supplier, we believe our highly
    experienced operations personnel can continue to drive yield
    improvements and reduce costs faster than our competitors. We
    believe our strategy of improving our manufacturing efficiency
    while reducing costs contributes to our customers success
    and will help grow our market share.
    Leverage Collaborative Relationships with Disk Drive
    Manufacturers.  We believe that we have
    established strong relationships with our customers, enabling us
    to participate in establishing technological and design
    requirements for new products. We believe that close technical
    collaboration with our customers and their other component
    suppliers during the design of our customers new disk
    drives facilitates integration of our disks, improves our
    ability to achieve cost-effective, high-volume manufacturing
    rapidly, and enhances the likelihood that we will remain a
    significant supplier of disks for high-performance disk drive
    products.
    Maintain a Strong Customer Base.  Our principal
    customers include HGST, Seagate and Western Digital. In 2006, we
    added Samsung as a customer. We continue to target increased
    volumes with disk drive manufacturers and believe that our
    combination of high-performance products and competitive pricing
    will enable us to further diversify our products and customer
    mix. In combination with offering a broad product mix to address
    multiple storage markets, we believe this strategy will reduce
    our dependence on the success of any one customer or market.
    Balance Capacity Growth with Customer
    Demand.  Our strategy is to balance, in a
    cost-effective manner, our investments in new capacity with the
    expected growth in demand for our products. In 2005 and 2006, we
    expanded our facilities to increase our capacity. Our expansion
    plans were based on strategic supply agreements with several of
    our customers. As part of these agreements, we made certain
    commitments to increase capacity, and our customers have agreed
    to purchase certain amounts of disks. Additionally, our
    customers agreed to make certain prepayments for media to help
    mitigate the cash impact of the capital spending that was
    required for us to increase our capacity. We believe that these
    arrangements with our customers were the correct strategy to
    allow for prudent capacity increases to meet the continuing
    growing demand for disks, as disk drives further expand
    penetration into multiple growing consumer applications. Any
    future capacity expansion will be based on customer requirements
    and overall industry demand.  Technology
   6




---



##### Table of Contents




    Transition from LMR Media to PMR Media.  The
    hard disk drive industry is currently in the process of
    converting from a longitudinal magnetic recording (LMR) system
    to a perpendicular magnetic recording (PMR) system. This change
    allows transition to higher areal densities, which translates to
    higher recording capacity per platter. This change in technology
    is one of the most significant ones to take place in the
    industry in many years. The processes and materials used for
    making PMR media are significantly different compared to those
    used for making LMR media. For example, the manufacture of PMR
    products requires the use of increased quantities of ruthenium.
    Ruthenium has recently become increasingly more expensive and at
    times difficult to acquire. We are currently making this
    transition. Our PMR volume production and sales began in the
    fourth quarter of 2006. Completion of our transition to PMR
    products is expected by the end of 2008.
    Density of Disk Storage.  The primary factors
    governing the density of storage achievable on a disks
    surface are:  
    the minimum distance at which read/write heads can reliably pass
    over the surface of the disk to detect a change in magnetic
    polarity when reading from the disk, which is called flying
    height now typically measured in nanometers (one nanometer
    equals one billionth of a meter).
    the strength of the magnetic field required to change the
    polarity of a bit of data on the magnetic layer of a disk when
    writing, which is called coercivity; and
    the ability of the head to discriminate a signal from background
    media noise, which is called the
    signal-to-noise
    ratio (SNR).        
    Aluminum Substrates.  In order to manufacture
    the best possible disks and achieve the high yields we desire,
    we require superb substrates. The substrate is constructed out
    of an aluminum base which is then plated with electroless nickel
    phosphorus (NiP) coating. The NiP coating is then
    highly-polished to
    sub-nano-meter
    smoothness. We believe that our polished substrates, in
    conjunction with our automatic optical inspection systems,
    provide us with the highest quality aluminum based substrates
    available in the market. We are the largest producer of NiP
    coated and polished aluminum substrates in the world.
    Glass Substrates.  Another type of
    substrate used for hard disks is based on glass. Typically the
    glass substrates are used for hard disk drives in mobile
    applications, including notebook computers, high-capacity 7




---



##### Table of Contents



IPods®
    and other high-capacity mp-3 players, digital cameras and other
    mobile devices. Recently, we have decided to introduce glass
    based PMR media for notebook and consumer applications in 2007.
    Although we do not intend to make our own glass substrates, it
    is expected that there will be sufficient volume of glass
    substrates available to be purchased for our requirements. If
    market acceptance of the product is good, we are prepared to
    develop and manufacture larger volumes of glass based media in
    the future.  
    Sputter Process.  We have developed our
    cleaning, sputter (film deposition), lubrication, final test,
    and packaging technology to achieve not only high performance
    but at low cost for the materials and operating supplies needed
    to make our disks. Our multi-layer sputter process, with
    nanometer-thin structures, provides magnetic stability,
    mechanical durability, and corrosion resistance, which we
    believe are at the forefront of our industry. To improve
    durability and corrosion resistance, we have developed and
    qualified advanced diamond-like carbon films specifically for
    each of our sputter tools.  Research,
    Development and Engineering
    1 2 1 2
    Products
    and Customers
      1 2
     8




---



##### Table of Contents



Competition
  U.S.-headquartered
    Manufacturing
    per-unit
        
    Sizing and Grinding of the Substrate.  A raw
    aluminum blank substrate is sized by precisely cutting the inner
    and outer diameter of the blank. A mechanical grinding process
    is then utilized to provide a relatively flat surface on the
    substrate prior to nickel alloy plating. 9




---



##### Table of Contents




    Nickel Alloy Plating and Polishing of the
    Substrate.  Through a series of chemical baths,
    aluminum substrates are plated with a uniform nickel phosphorus
    layer in order to provide support for the magnetic layer. Next,
    this layer is polished to produce surface characteristics
    required for magnetic deposition.
    Texturing and Cleaning.  During these process
    steps, a precisely controlled, fine texture is applied to the
    polished disk surface to allow the read/write heads of the disk
    drives to fly at low and constant levels and then the disks are
    cleaned in preparation for the sputtering process.
    Sputtering and Lube.  By a technically
    demanding vacuum deposition process, magnetic layers are
    successively deposited on the disk and a hard protective
    overcoat is applied. After sputtering, a microscopic layer of
    lubrication is applied to the disks surface to improve
    durability and reduce surface friction.
    Glide Test and Certification.  In
    robotically-controlled test cells, disks are tested for glide
    height and surface defects, and then certified for magnetic
    properties. Based on these test results, disks are graded
    against our customers specific performance requirements.    Environmental
    Regulation
  on-site
      Patents
    and Proprietary Information
     10




---



##### Table of Contents



Employees
      Item 1A.
    Risk
    Factors  These risks and uncertainties are not the only ones facing
    our company. Additional risks and uncertainties that we are
    unaware of or currently deem immaterial may also become
    important factors that may harm our business. If any of the
    following risks actually occur, or other unexpected events
    occur, our business, financial condition and results of
    operations could be materially adversely affected, the value of
    our stock could decline, and investors may lose part or all of
    their investment. Further, this
    Form 10-K
    contains forward-looking statements, and actual results may
    differ significantly from the results contemplated by our
    forward-looking statements.
  Risks
    Related to Our Business
  Our
    business is concentrated in the disk drive market, so downturns
    in the disk drive manufacturing market and related markets may
    decrease our revenues and margins, which would materially and
    adversely affect our business.
    The
    disk drive market in which our business is concentrated is
    seasonal and cyclical, so it is difficult to predict our
    revenues and margins, which could make our stock price more
    volatile.
   11




---



##### Table of Contents



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 business and
    operating results would be harmed.
    If we
    do not keep pace with the rapid technological changes in the
    disk drive industry, we will not be able to compete effectively,
    and our operating results could suffer.
  1 2
  If we
    fail to effectively implement our perpendicular magnetic
    recording media (PMR) product transition plans, our operating
    results will suffer.
   12




---



##### Table of Contents



If we
    are unable to minimize the use of precious metals in our
    products and the price and scarcity of these precious metals
    continue to increase, our ability to transition to PMR products
    could be delayed or eliminated.
    
    our PMR products could become more expensive and therefore less
    competitive than alternative or existing technologies regardless
    of technological superiority; or
    our PMR products could simply become unsustainably expensive to
    manufacture, which would require us to abandon the development
    of PMR products and cause us to sell more LMR products.  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.
    
    our production capacity could be reduced if we lack the supplies
    necessary to manufacture the number of products for which we
    have sales orders, which could cause us to breach agreements
    with our customers, make price concessions or otherwise cause a
    reduction in our revenues;
    we might have to modify our products, which could both delay
    shipment of those products and cause those modified products to
    be more expensive to manufacture resulting is a lower rate of
    return on those products; 13




---



##### Table of Contents




    even if we were able to obtain alternative supplies, those
    supplies could be more expensive, thereby causing our costs of
    production to increase;
    if we are not able to pass these price increases along to our
    customers, our operating margins would decline; and
    we might be delayed in shipping products or unable to ship
    products at all, which could cause existing and potential
    customers to make purchases from our competitors, thus causing
    our revenues and margins to decline.    We
    receive a large percentage of our net sales from only a few disk
    drive manufacturing customers, the loss or reduction of any of
    which would materially and adversely affect our business and
    sales.
      Our
    agreements with each of our major customers require us to meet
    certain production volumes and to provide certain credits on
    future disk sales, and if we fail to successfully perform under
    these agreements, we may incur substantial costs and expenses,
    and our business and financial condition could be materially and
    adversely affected.
   14




---



##### Table of Contents



Our
    failure to timely and efficiently transition our enterprise
    resource planning software from the system we currently use to a
    new system, could adversely affect our business and financial
    results.
    If we
    are not able to attract and retain key personnel our business
    and operation results could be harmed.
    If our
    production capacity is underutilized, our gross margin will be
    adversely affected and we could sustain significant
    losses.
  per-unit
  Internal
    disk operations of disk drive manufacturers may adversely affect
    our ability to sell our disk products.
   15




---



##### Table of Contents



All of
    our manufacturing operations are in Malaysia and our foreign
    operations and international sales subject us to additional
    risks inherent in doing business on an international level that
    could make it more costly and difficult to conduct our
    business.
        
    compliance with changing legal and regulatory requirements of
    foreign jurisdictions;
    fluctuations in tariffs or other trade barriers;
    difficulties in staffing and managing foreign operations;
    political, social, and economic instability;
    increased exposure to threats and acts of terrorism;
    exposure to taxes in multiple jurisdictions;
    exposure to fluctuations in the value of currency;
    local infrastructure problems or failures including but not
    limited to loss of power and water supply; and
    transportation delays and interruptions.   16




---



##### Table of Contents



Because
    our products require a lengthy sales cycle with no assurance of
    high volume sales, we may expend significant financial and other
    resources without a return.
    Disk
    drive programs are highly customized. If we fail to respond to
    our customers demanding requirements, we will not be able
    to compete effectively.
  just-in-time time-to-market
  If we
    fail to improve the quality of, and control contamination in our
    manufacturing processes, we will lose our ability to remain
    competitive.
    An
    industry trend towards glass-based applications could negatively
    impact our ability to remain competitive.
   17




---



##### Table of Contents



If we
    do not protect our patents and other intellectual property
    rights, our net sales could suffer.
    We may
    face intellectual property infringement claims that are costly
    to resolve, may divert our managements attention, and may
    negatively impact our business and operating
    results.
  case-by-case
  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.
    
    timing of significant orders, or order cancellations;
    changes in our product mix and average selling prices;
    modified, adjusted, or rescheduled shipments;
    actions by our competitors, including announcements of new
    products or technological innovations;
    availability of disks versus demand for disks;
    the cyclical nature of the disk drive industry;
    our ability to develop and implement new and efficient
    manufacturing process technologies;
    increases in our production and engineering costs associated
    with initial design and production of new product programs;
    availability and price of key materials; 18




---



##### Table of Contents




    our ability to execute future product development and production
    ramps effectively;
    fluctuations in exchange rates, particularly between the US
    dollar and the Malaysian ringgit;
    the ability of our process equipment to meet more stringent
    future product requirements;
    our ability to introduce new products that achieve
    cost-effective high-volume production in a timely manner, timing
    of product announcements, and market acceptance of new products;
    the availability of our production capacity, and the extent to
    which we can use that capacity;
    changes in our manufacturing efficiencies, in particular product
    yields and input costs for direct materials, operating supplies
    and other running costs;
    prolonged disruptions of operations at any of our facilities for
    any reason;
    changes in the cost of or limitations on availability of labor;
    structural changes within the disk industry, including
    combinations, failures, and joint venture arrangements; and
    changes in tax regulations in foreign jurisdictions that could
    potentially reduce our tax incentives in areas such as Malaysian
    capital allowances, tax holidays, and exemptions on withholding
    tax on royalty payments made by our Malaysian operations to our
    subsidiary in the Netherlands.    If we
    make unprofitable acquisitions or are unable to successfully
    integrate future acquisitions, our business could
    suffer.
    
    difficulties in integrating the operations, technologies,
    products and personnel of the acquired companies, especially
    given the specialized nature of our technology;
    diversion of managements attention from normal daily
    operations of the business;
    potential difficulties in completing projects associated with
    in-process research and development;
    initial dependence on unfamiliar supply chains or relatively
    small supply partners; and
    the potential loss of key employees of the acquired companies.    
    issue stock that would dilute our current stockholders
    percentage ownership;
    assume liabilities;
    record goodwill and
    non-amortizable
    intangible assets that will be subject to impairment testing and
    potential periodic impairment charges; 19




---



##### Table of Contents




    incur amortization expenses related to certain intangible assets;
    incur large and immediate write-offs; or
    become subject to litigation.    The
    nature of our operations makes us susceptible to material
    environmental liabilities, which could result in significant
    compliance and
    clean-up
    expenses and adversely affect our financial
    condition.
    
    the use, storage, discharge, and disposal of hazardous materials
    used during our manufacturing process;
    the treatment of water used in our manufacturing
    process; and
    air quality management.      
    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.  clean-up
  From
    time to time, we may have to defend against lawsuits in
    connection with the operation of our business.
    Earthquakes,
    tsunamis or other natural or man-made disasters could disrupt
    our operations.
   20




---



##### Table of Contents



Terrorist
    attacks may adversely affect our business and operating
    results.
    Compliance
    with the rules and regulations concerning corporate governance
    may be costly, time-consuming, and difficult to achieve, which
    could harm our operating results and business.
  day-to-day
    In the
    future, we may need additional capital, which may not be
    available on favorable terms, or at all.
    
    the rate of our sales growth;
    the level of our profits or losses;
    the timing and extent of our spending to increase inventories to
    support our transition to PMR products, support facilities
    upgrades and product development efforts;
    the timing and size of business or technology acquisitions;
    the timing of introductions of new products and enhancements to
    our existing products; and
    the length of product life cycles.  and/or
 21




---



##### Table of Contents



Anti-takeover
    provisions in our certificate of incorporation could discourage
    potential acquisition proposals or delay or prevent a change of
    control.
    Risks
    Related to our Indebtedness
  We are
    leveraged, and our debt obligations will continue to make us
    vulnerable to economic downturns.
    We are
    dependent on cash flow from our subsidiaries to meet our
    obligations.
    The
    assets of our subsidiaries may not be available to make payments
    on our debt obligations.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Current LeaseLocation

Description

Term Expires


Renewal Options


Square FeetLeased FacilitiesSan Jose, California

Headquarters and R&D Center


December 2014



two 5-year
    options



188,000Owned FacilitiesPenang, Malaysia

Manufacturing










785,000Sarawak, Malaysia

Manufacturing










275,000Johor, Malaysia

Manufacturing










243,000  22




---



##### Table of Contents



Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders    Our
    Executive Officers
    Timothy D. Harris


51


Chief Executive OfficerRay L. Martin


63


Executive Vice President, Customer
    Sales and ServicePeter S. Norris


55


Executive Vice President,
    Strategic Business DevelopmentTsutomu T. Yamashita


52


Executive Vice President, Chief
    Technical OfficerKathleen A. Bayless


50


Senior Vice President, Chief
    Financial Officer, and SecretaryWilliam G. Hammack


57


Senior Vice President, Human
    ResourcesEdward J. Casey


52


Vice President, Chief Operating
    OfficerPaul G. Judy


44


Vice President, Corporate
    Controller, and Chief Accounting Officer   Mr. Harris
  Mr. Martin
  Mr. Norris
 23




---



##### Table of Contents



Mr. Yamashita
  Ms. Bayless
  Mr. Hammack
  Mr. Casey
  Mr. Judy
  PART II
  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder
    Matters, and Issuer Purchases of Equity Securities    High


Low2005First Quarter

$
23.33


$
17.33Second Quarter


32.30



19.96Third Quarter


39.95



28.33Fourth Quarter


37.62



24.932006First Quarter


53.48



34.73Second Quarter


48.83



40.35Third Quarter


47.54



30.83Fourth Quarter


40.72



32.47    24




---



##### Table of Contents



Dividend
    Policy
    Recent
    Sales of Unregistered Securities
    TotalNumber ofShares


Maximum NumberPurchased


(or Approximateas Part of


Dollar Value)Total


Average


Publicly


of SharesNumber of


Price


Announced


that May Yet beShares


Paid per


Plans or


Purchased Under thePeriod

Purchased(1)


Share


Programs


Plans or ProgramsOctober 2 to October 29


29,099


$
32.49







October 30 to November 26


512


$
37.49







November 27 to December 31














Total


29,611


$
32.57







     (1)
    
    Shares purchased from certain of our officers and employees
    pursuant to net share settlement transactions upon the vesting
    of shares of restricted common stock held by such officers and
    employees.  Securities
    Authorized for Issuance Under Equity Compensation
    Plans
  Form 10-K Form 10-K,
  Stock
    Performance Graph
     25




---



##### Table of Contents



Comparison
    of the last five years Cumulative Total Return of Komag,
    Incorporated,
    The Nasdaq Stock Market (US Companies) Index, and the Nasdaq
    Computer Manufacturers Index
  
 26




---



##### Table of Contents



Item 6.
    Selected
    Consolidated Financial Data    Successor Company



Predecessor CompanySix Months



Six MonthsFiscal Year Ended


Ended



EndedDecmber 31,


January 1,


January 2,


December 28,


December 29,



June 30,Consolidated Statements of Operations Data

2006


2006


2005


2003


2002



2002(1)




(2)(3)(4)(5)(6)Net sales

$
937,676


$
685,946


$
458,377


$
438,292


$
174,749



$
111,955Gross profit


247,682



188,733



112,117



107,422



31,740




1,558Restructuring/impairment charges


















34,763




4,318Operating income (loss)


149,452



117,932



54,382



49,419



(36,380)




(27,674)Interest expense


1,764



1,765



3,176



13,153



6,553




Other income (expense), net


(426
)


(415
)


(151
)


250



2,150




397,009Reorganization costs, net























6,511Income (loss) before cumulative
    effect of change in accounting principle


157,533



115,637



51,355



36,040



(41,919)




359,924Cumulative effect of change in
    accounting principle























(47,509)Net income (loss)

$
157,533


$
115,637


$
51,355


$
36,040


$
(41,919)



$
312,415Basic net income (loss) per share

$
5.27


$
3.99


$
1.88


$
1.53


$
(1.84)




Diluted net income (loss) per share

$
4.75


$
3.55


$
1.71


$
1.47


$
(1.84)




 Successor CompanyAs ofDecember 31,


January 1,


January 2,


December 28,


December 29,Consolidated Balance Sheet Data

2006


2006


2005


2003


2002Property, plant, and equipment,
    net, and land and buildings held for sale

$
542,585


$
351,046


$
205,642


$
184,536


$
221,014Total assets


977,687



731,451



431,095



347,807



317,200Current portion of long-term debt














20,247



10,229Long-term debt, less current portion


80,500



80,500



80,500



95,801



129,923Stockholders equity

$
602,026


$
419,005


$
287,626


$
166,588


$
127,960     (1)
    
    Results of operations for the six
    months ended December 29, 2002 included a
    $33.9 million impairment charge related to the write-off of
    all remaining goodwill, in accordance with Statement of
    Financial Accounting Standards (SFAS) No. 142, Goodwill and
    Other Intangible Assets (SFAS No. 142).(2)
    
    Results of operations for the six
    months ended June 30, 2002 included other income of
    $379.0 million associated with the extinguishment of
    liabilities subject to compromise as of June 30, 2002, and
    other income of $17.3 million to revalue the Companys
    assets and liabilities at June 30, 2002 to fair value as
    prescribed by fresh-start reporting under Statement of Position
    90-7
    (SOP 90-7),
    Financial Reporting by Entities in Reorganization Under the
    Bankruptcy Code.(3)
    
    Results of operations for the six
    months ended June 30, 2002, included a $4.3 million
    restructuring/impairment charge in connection with the shutdown
    of the Companys research and development facility in Santa
    Rosa, California.(4)
    
    Results of operations for the six
    months ended June 30, 2002, included a $47.5 million
    transitional impairment loss under SFAS No. 142. The
    loss was recognized as the cumulative effect of a change in
    accounting principle in the Companys consolidated
    statement of operations.(5)
    
    In accordance with
    SOP 90-7,
    we did not record interest expense on our outstanding debt
    during the chapter 11 proceedings from August 24,
    2001, through June 30, 2002.(6)
    
    Earnings per share of the
    Predecessor Company are not presented, as the amounts are not
    meaningful.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-K.
   27




---



##### Table of Contents



Results
    of Operations
  Overview
       28




---



##### Table of Contents



Year EndedDecember 31, 2006


January 1, 2006


January 2, 2005Net sales

$
937,676



100.0
%

$
685,946



100.0
%

$
458,377



100.0
%Cost of sales


689,994



73.6
%


497,213



72.5
%


346,260



75.5
%Gross profit


247,682



26.4
%


188,733



27.5
%


112,117



24.5
%Research, development, and
    engineering expense


64,185



6.7
%


48,873



7.1
%


40,783



9.0
%Selling, general, and
    administrative expense


34,409



3.7
%


23,622



3.4
%


17,980



3.9
%Gain on disposal of assets


(364
)


(0.0
)%


(1,694
)


(0.2
)%


(1,028
)


(0.2
)%Interest income


7,007



0.7
%


5,327



0.8
%


1,371



0.3
%Interest expense


(1,764
)


(0.2
)%


(1,765
)


(0.3
)%


(3,176
)


(0.7
)%Other expense, net


(426
)


0.0
%


(415
)


(0.1
)%


(151
)


0.0
%Provision for (benefit from)
    income taxes


(3,264
)


(0.3
)%


5,442



0.8
%


1,071



0.2
%Net income

$
157,533



16.8
%

$
115,637



16.8
%

$
51,355



11.2
%   Fiscal
    Year 2006 versus Fiscal Year 2005
  Net
    Sales
         29




---



##### Table of Contents



Gross
    Profit
    Research,
    Development, and Engineering Expenses
    Selling,
    General, and Administrative Expenses
    Gain on
    Disposal of Assets
    Interest
    Expense
    Other
    Income
  Accounting for
    Derivative Instruments and Hedging Activities
  Income
    Taxes
   30




---



##### Table of Contents



10-year
  Fiscal
    Year 2005 versus Fiscal Year 2004
  Net
    Sales
          Gross
    Profit
    Research,
    Development, and Engineering Expenses
    Selling,
    General, and Administrative Expenses
   31




---



##### Table of Contents



Gain on
    Disposal of Assets
    Interest
    Expense
    Income
    Taxes
    Critical
    Accounting Policies
    Allowance
    for Sales Returns
      Inventory
    Obsolescence
    Provision
    for Income Tax and Valuation Allowance
   32




---



##### Table of Contents



Stock-based
    Compensation
  Share-Based Payment
  SFAS No. 123-R, Accounting for Stock Issued to Employees Accounting for Stock-Based
    Compensation
    Liquidity
    and Capital Resources
        
    net income of $157.5 million, net of non-cash depreciation
    and amortization of property, plant and equipment of
    $79.5 million and other non-cash charges and gains of
    $15.9 million;
    an accounts receivable increase of $23.9 million, which
    primarily reflected an increase in sales in 2006 compared to
    2005; 33




---



##### Table of Contents




    an inventory increase of $50.2 million, which primarily
    reflected increased inventory to support increased production
    and sales volumes;
    an accounts payable increase of $51.7 million, which
    primarily reflected increased spending for inventory and other
    costs to support our increased level of operations; and
    a customer advance of $24.3 million, which primarily
    reflected the receipt of customer advances, offset by
    $3.6 million in lower incentive compensation accruals.            2007


2008


2009


2010


2011


Thereafter


TotalLong-Term Debt Obligations(1)

$



$



$



$



$
80,500


$



$
80,500Operating Lease Obligations


2,512



2,057



3,159



3,150



3,143



10,101



24,122Unconditional PurchaseObligations(2)


3,763



2,604



2,604



2,604



2,581



9,189



23,345Total Contractual Cash Obligations

$
6,275


$
4,661


$
5,763


$
5,754


$
86,224


$
19,290


$
127,967     (1)
    
    The long-term debt obligations have a maturity date of
    February 1, 2024; however, the Holders of the Notes may
    require us to purchase the Notes on February 1, 2011, 2014,
    or 2019, or upon the occurrence of a fundamental change, at a
    purchase price equal to 100% of the principal amount of the
    Notes, plus accrued and unpaid interest.(2)
    
    Unconditional purchase obligations are defined as agreements to
    purchase goods or services that are enforceable and legally
    binding, and that specify all significant terms, including:
    fixed or minimum quantities 34




---



##### Table of Contents



to be purchased; fixed, minimum, or variable pricing provisions;
    and the approximate timing of the transactions. The amounts are
    based on our contractual commitments.      Off-Balance
    Sheet Arrangements
    Recent
    Accounting Pronouncements
  Inventory Costs
  Accounting Changes and Error Corrections
  Accounting for Uncertainty in Income Taxes  an
    interpretation of FASB Statement No. 109
    Considering the Effects of Prior
    Year Misstatements when Quantifying Misstatements in Current
    Year Financial Statements
 35




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk             36




---



##### Table of Contents



Item 8.
    Consolidated
    Financial Statements and Supplementary Data  KOMAG,
    INCORPORATED
    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
  Reports of
    Independent Registered Public Accounting Firm


38Consolidated
    Statements of Income


40Consolidated
    Balance Sheets


41Consolidated
    Statements of Cash Flows


42Consolidated
    Statements of Stockholders Equity and Comprehensive
    Income


43Notes to
    Consolidated Financial Statements


44  37




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm           Share-Based
    Payment.
  Internal Control 
    Integrated Framework
      38




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
     Managements Report on Internal Control
    over Financial Reporting Internal Control  Integrated
    Framework
        Internal
    Control  Integrated Framework Internal Control  Integrated Framework
        39




---



##### Table of Contents



KOMAG,
    INCORPORATED



CONSOLIDATED
    STATEMENTS OF INCOME  Year EndedDecember 31, 2006


January 1, 2006


January 2, 2005(In thousands, except per share amounts)Net sales

$
937,676


$
685,946


$
458,377Cost of sales


689,994



497,213



346,260Gross profit


247,682



188,733



112,117Operating expenses:Research, development, and
    engineering


64,185



48,873



40,783Selling, general, and
    administrative


34,409



23,622



17,980Gain on disposal of assets


(364
)


(1,694
)


(1,028
)98,230



70,801



57,735Operating income


149,452



117,932



54,382Other income (expense):Interest income


7,007



5,327



1,371Interest expense


(1,764
)


(1,765
)


(3,176
)Other expense, net


(426
)


(415
)


(151
)4,817



3,147



(1,956
)Income before income taxes


154,269



121,079



52,426Provision for (benefit from)
    income taxes


(3,264
)


5,442



1,071Net income

$
157,533


$
115,637


$
51,355Basic net income per share

$
5.27


$
3.99


$
1.88Diluted net income per share

$
4.75


$
3.55


$
1.71Number of shares used in basic per
    share computations


29,919



29,003



27,384Number of shares used in diluted
    per share computations


33,566



33,042



31,017    40




---



##### Table of Contents



KOMAG,
    INCORPORATED



CONSOLIDATED
    BALANCE SHEETS  December 31, 2006


January 1, 2006(In thousands)ASSETSCurrent assetsCash and cash equivalents

$
129,632


$
99,984Short-term investments


41,500



105,050Accounts receivable (less
    allowances of $2,326 and $2,866, respectively)


140,230



116,217Inventories


104,181



54,000Prepaid expenses and other current
    assets


2,119



1,846Total current assets


417,662



377,097Property, plant, and equipment, net


542,585



351,046Deferred income taxes


7,346



Other assets


10,094



3,308$
977,687


$
731,451LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilitiesTrade accounts payable

$
139,477


$
97,901Customer advances


127,181



102,898Accrued expenses and other
    liabilities


25,412



28,585Total current liabilities


292,070



229,384Long-term debt


80,500



80,500Deferred rent


3,091



2,562Total liabilities


375,661



312,446Stockholders equityCommon stock, $0.01 par value
    per share:Authorized 
    120,000 sharesIssued and outstanding 
    31,178 and 30,092 shares, respectively


312



301Additional paid-in capital


283,679



267,920Deferred stock-based compensation






(9,695
)Accumulated other comprehensive
    loss


(611
)


(634
)Retained earnings


318,646



161,113Total stockholders equity


602,026



419,005$
977,687


$
731,451    41




---



##### Table of Contents



KOMAG,
    INCORPORATED



CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Year EndedDecember 31, 2006


January 1, 2006


January 2, 2005(In thousands)Operating ActivitiesNet income

$
157,533


$
115,637


$
51,355Adjustments to reconcile net income
    to net cash provided by operating activities:Depreciation and amortization of
    property, plant, and equipment


79,488



44,519



37,086Deferred income tax benefit


(6,978
)






Tax provision charged to additional
    paid-in capital


2,971



5,194



Amortization and adjustments of
    intangible assets


231



1,072



3,023Stock-based compensation


18,086



3,308



555Deferred rent


529



2,562



Non-cash interest charges


154



154



436Gain on disposal of assets


(364
)


(1,694
)


(1,028
)Foreign exchange loss


1,309







Changes in operating assets and
    liabilities:Accounts receivable, net


(23,939
)


(37,004
)


(18,585
)Inventories


(50,181
)


(18,185
)


(10,314
)Prepaid expenses and other current
    assets


181



(31
)


221Trade accounts payable


51,728



18,741



3,338Customer advances


24,283



102,898



Accrued expenses and other
    liabilities


(3,591
)


8,353



(4,820
)Other non-current assets


(7,066
)






Net cash provided by operating
    activities


244,374



245,524



61,267Investing ActivitiesAcquisition of property, plant, and
    equipment


(286,082
)


(155,613
)


(59,202
)Purchases of short-term investments


(157,755
)


(282,450
)


(157,000
)Proceeds from short-term investments


221,305



255,100



122,150Proceeds from disposal of property,
    plant, and equipment


456



3,173



2,038Other


(42
)


(34
)


(257
)Net cash used in investing
    activities


(222,118
)


(179,824
)


(92,271
)Financing ActivitiesPayment of debt










(116,341
)Proceeds from the issuance of
    long-term debt










77,419Proceeds from sale of common stock,
    net of issuance costs


5,630



7,874



69,128Repurchase of common stock


(2,044
)






Net cash provided by financing
    activities


3,586



7,874



30,206Effect of exchange rate changes on
    cash and cash equivalents


3,806







Increase (decrease) in cash and
    cash equivalents


29,648



73,574



(798
)Cash and cash equivalents at
    beginning of year


99,984



26,410



27,208Cash and cash equivalents at end of
    year

$
129,632


$
99,984


$
26,410Supplemental disclosure of cash
    flow informationCash paid for interest

$
1,610


$
1,611


$
2,739Cash paid for income taxes

$
908


$
541


$
331    42




---



##### Table of Contents



KOMAG,
    INCORPORATED



CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE
    INCOME  Retained


AccumulatedAdditional


Deferred


Earnings


OtherCommon Stock


Paid-in


Stock-Based


(Accumulated


ComprehensiveShares


Amount


Capital


Compensation


Deficit)


Loss


Total(In thousands)Balance at December 28,
    2003


23,753


$
238


$
172,457


$
(228
)

$
(5,879
)

$



$
166,588Net income


















51,355







51,355Issuance of common stock, net of
    issuance costs


3,525



35



66,356















66,391Deferred stock-based compensation










252



(252
)










Stock-based compensation










166



389











555Exercise of warrants


90



1



1















2Common stock issued under stock
    plans


697



7



2,728















2,735Balance at January 2,
    2005


28,065



281



241,960



(91
)


45,476







287,626Net income


















115,637







115,637Unrealized loss on cash flow
    hedging arrangements






















(634
)


(634
)Comprehensive income


























115,003Deferred stock-based compensation










12,769



(12,769
)










Stock-based compensation










143



3,165











3,308Income tax adjustments










5,194















5,194Exercise of warrants


604



6



2,103















2,109Common stock issued under stock
    plans


1,423



14



5,751















5,765Balance at January 1,
    2006


30,092



301



267,920



(9,695
)


161,113



(634
)


419,005Net income


















157,533







157,533Net change to unrealized gain or
    loss under cash flow hedging arrangements






















23



23Comprehensive income


























157,556Reversal of deferred stock-based
    compensation










(9,695
)


9,695











Stock-based compensation










18,086















18,086Income tax adjustments










3,793















3,793Common stock issued under stock
    plans


1,139



11



5,619















5,630Repurchase of common stock


(53
)






(2,044
)














(2,044
)Balance at December 31,
    2006


31,178


$
312


$
283,679


$



$
318,646


$
(611
)

$
602,026    43




---



##### Table of Contents



KOMAG,
    INCORPORATED
 NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  Note 1.
    Basis of
    Presentation and Significant Accounting Policies  Company Business:
  Consolidation:
  Fiscal Year: 52-53 week 52-week 53-week
  Use of Estimates in the Preparation of Financial
    Statements:
  Foreign Currency Translation:
  Cash and Cash Equivalents:
  Short-Term Investments: available-for-sale Accounting for Certain
    Investments in Debt and Equity Securities
  December 31, 2006


January 1, 2006Municipal auction rate preferred
    securities

$
41,500


$
105,050Corporate debt securities


76,529



73,168Mortgage-backed securities


10,672



13,527$
128,701


$
191,745Amounts included in cash and cash
    equivalents

$
87,201


$
86,695Amounts included in short-term
    investments


41,500



105,050$
128,701


$
191,745  44




---



##### Table of Contents



KOMAG,
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Inventories: (first-in,
  December 31, 2006


January 1, 2006Raw materials

$
78,701


$
39,230Work in process


15,900



6,489Finished goods


9,580



8,281$
104,181


$
54,000   Property, Plant, and Equipment:
    December 31, 2006


January 1, 2006Land

$
8,206


$
8,206Buildings


221,571



153,433Leasehold improvements


5,499



3,974Furniture


3,959



1,968Equipment


522,738



324,123761,973



491,704Less accumulated depreciation and
    amortization


(219,388
)


(140,658
)$
542,585


$
351,046   Impairment of Long-lived Assets:
  Revenue Recognition: Revenue Recognition
     45




---



##### Table of Contents



KOMAG,
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Cost of Sales:
  Research and Development:
  Leases: Accounting for Leases
  Stock-Based Compensation: Share-Based Payment
  Accounting for Stock-Based
    Compensation Accounting for Stock-Based Compensation 
    Transition and Disclosure  an Amendment of
    SFAS 123
  Income Taxes:
  Comprehensive Income:
  Computation of Net Income Per Share:
 46




---



##### Table of Contents



KOMAG,
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year EndedDecember 31, 2006


January 1, 2006


January 2, 2005Numerator for basic net income per
    share:Net income as reported

$
157,533


$
115,637


$
51,355Numerator for diluted net income
    per share:Net income as reported

$
157,533


$
115,637


$
51,355Interest adjustment related to
    contingently convertible debt


1,764



1,765



1,642$
159,297


$
117,402


$
52,997Denominator for basic net income
    per share:Weighted average shares


29,919



29,003



27,384Denominator for diluted net income
    per share:Weighted average shares


29,919



29,003



27,384Effect of dilutive securities:Contingently convertible shares
    under convertible debt


3,049



3,049



2,803Stock options


343



572



468Warrants






220



362Stock purchase rights


255



198



33,566



33,042



31,017Basic net income per share

$
5.27


$
3.99


$
1.88Diluted net income per share

$
4.75


$
3.55


$
1.71       Recent Accounting Pronouncements:
 47




---



##### Table of Contents



KOMAG,
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Accounting Changes and Error Corrections
  Accounting for Uncertainty in Income Taxes  an
    interpretation of FASB Statement No. 109
  Fair Value Measurement
  Considering the Effects of Prior
    Year Misstatements when Quantifying Misstatements in Current
    Year Financial Statements
  Note 2.
    Segment
    and Geographic Information   48




---



##### Table of Contents



KOMAG,
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Year EndedDecember 31,  2006


January 1, 2006


January 2, 2005Net sales:To customers from U.S. parent

$
29,912


$
37,021


$
21,520To customers from Malaysian
    subsidiary


907,764



648,925



436,857Intercompany from Malaysian
    subsidiary


19,584



24,284



20,868Intercompany from U.S. parent


986



808



170958,246



711,038



479,415Intercompany eliminations


(20,570
)


(25,092
)


(21,038
)Total net sales

$
937,676


$
685,946


$
458,377Operating income (loss):U.S. parent

$
(14,520
)

$
1,604


$
(5,823
)Malaysian subsidiary


163,972



116,328



60,205Total operating income

$
149,452


$
117,932


$
54,382Long-lived assets:U.S. parent

$
36,357


$
31,475Malaysian subsidiary


506,228



319,571Total long-lived assets

$
542,585


$
351,046     Year EndedDecember 31, 2006


January 1, 2006


January 2, 2005Thailand

$
559,770


$
272,392


$
111,904Malaysia


157,340



78,047



42,704Singapore


93,073



201,007



201,686China


71,626



65,341



1,792Taiwan


33,932



32,855



25,940United States


19,992



33,735



53,535Europe


1,563



1,574



37Japan


380



995



20,779Total net sales

$
937,676


$
685,946


$
458,377   Note 3.
    Concentration
    of Customer and Supplier Risk   49




---



##### Table of Contents



KOMAG,
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Year EndedDecember 31,


January 1,


January 2,2006


2006


2005Western Digital Corporation


37
%


24
%


14
%Seagate Technology(1)


36
%


16
%


4
%Hitachi Global Storage
    Technologies(2)


23
%


21
%


29
%Maxtor Corporation






32
%


47
%     (1)
    
    Seagate Technology acquired Maxtor Corporation in the second
    quarter of 2006. Sales to Maxtor for all of 2006 have been
    presented on a combined basis with Seagate Technology.(2)
    
    Sales to HGST include sales made to its contract manufacturer.   50




---



##### Table of Contents



KOMAG,
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 4.
    Employee
    Savings and Deferred Profit Sharing Plan    Note 5.
    Income
    Taxes    Year EndedDecember 31,


January 1,


January 2,2006


2006


2005Domestic

$
(1,368
)

$
9,311


$
(3,977
)Foreign


155,637



111,768



56,403$
154,269


$
121,079


$
52,426     Year EndedDecember 31,


January 1,


January 2,2006


2006


2005U.S. Federal:Current

$
2,646


$
4,747


$
Deferred


(6,280
)






(3,634
)


4,747



U.S. State:Current


226



525



1Deferred


(698
)






(472
)


525



1Foreign:Current


842



170



1,070Deferred










842



170



1,070Total Current


3,714



5,442



1,071Total Deferred


(6,978
)






Provision for (benefit from)
    income taxes

$
(3,264
)

$
5,442


$
1,071  51




---



##### Table of Contents



KOMAG,
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year EndedDecember 31,


January 1,


January 2,2006


2006


2005Income tax expense at federal
    statutory rate

$
53,994


$
42,378


$
18,349State income taxes, net of federal
    benefit


(472
)


525



1Foreign withholding taxes (refund)


49







(182
)Foreign rate differential


(53,685
)


(38,431
)


(18,489
)Change in valuation allowance


(4,566
)


1,176



1,392Other


1,416



(206
)


$
(3,264
)

$
5,442


$
1,071     December 31,


January 1,2006


2006Deferred tax assetsProperty, plant and equipment

$
13,702


$
16,469Accrued compensation and benefits


5,144



2,547Other


4,550



3,772Tax benefit of net operating loss
    carryforwards


72,510



75,340Tax benefit of credit carryforwards


36,090



33,810Gross deferred tax assets


131,996



131,938Valuation allowance


(124,196
)


(131,938
)Total net deferred tax assets

$
7,800


$
   December 31,


January 1,2006


2006Current:Gross deferred tax assets

$
7,326


$
4,005Valuation allowance


(6,872
)


(4,005
)Net deferred tax
    assets  current


454



Long-term:Gross deferred tax assets


124,670



127,933Valuation allowance


(117,324
)


(127,933
)Net deferred tax
    assets  long-term


7,346



Total net deferred tax assets

$
7,800


$
    52




---



##### Table of Contents



KOMAG,
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        ,
    10-year
    Note 6.
    Fair
    Value of Financial Instruments   53




---



##### Table of Contents



KOMAG,
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Note 7.
    Accrued
    Expenses and Other Liabilities    December 31,


January 1,2006


2006Accrued compensation and benefits

$
22,481


$
24,986Other liabilities


2,931



3,599$
25,412


$
28,585   Note 8.
    Customer
    Advances    Note 9.
    Debt and
    Bank Guarantee    20-year
   54




---



##### Table of Contents



KOMAG,
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 10.
    Derivative
    Financial Instruments        Note 11.
    Stockholders
    Equity  Common
    Stock
    Convertible Subordinated Notes


3,0492002 Qualified Stock Plan


5,3908,439   Amended
    and Restated 2002 Qualified Stock Plan
     55




---



##### Table of Contents



KOMAG,
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Stock-Based
    Compensation
        Summary
    of Assumptions and Activity
     56




---



##### Table of Contents



KOMAG,
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Weighted-AverageRemaining


AggregateWeighted-Average


Contractual


IntrinsicShares


Exercise Price


Term


Value(Per share)


(Years)Outstanding at December 28,
    2003


1,220,085


$
8.68Granted


422,880


$
17.19Exercised


(237,912
)

$
5.78Cancelled


(37,669
)

$
12.50Outstanding at January 2, 2005


1,367,384


$
11.72Granted


53,436


$
20.34Exercised


(489,716
)

$
10.13Cancelled


(62,251
)

$
13.80Outstanding at January 1, 2006


868,853


$
12.99Granted


100,000


$
38.65Exercised


(479,209
)

$
11.73Cancelled


(4,382
)

$
14.55Outstanding at December 31,
    2006(1)


485,262


$
19.51



7.53


$
8,990,193Exercisable at December 31,
    2006


244,341


$
12.99



6.75


$
6,082,026     (1)
    
    Also represents vested and expected to vest.      Weighted-AverageGrant DateShares


Fair Value(Per share)Outstanding at January 1, 2006


573,201


$
22.34Granted


659,809


$
44.25Vested


(240,719
)

$
24.03Cancelled


(17,823
)

$
34.87Outstanding at December 31,
    2006


974,468


$
36.53    57




---



##### Table of Contents



KOMAG,
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Form 10-K
  Pro forma
    information for Periods Prior to the Adoption of
    SFAS 123R
  Accounting for Stock-Based Compensation 
    Transition and Disclosure  an Amendment of
    SFAS 123
    Year EndedJanuary 1,


January 2,2006


2005Net income, as reported

$
115,637


$
51,355Add stock-based employee
    compensation expense included in reported net income


3,308



555Deduct stock-based compensation
    expense determined under the fair value method for all awards


(5,973
)


(3,571
)Pro forma net income

$
112,972


$
48,339Net income per share:Basic  as reported

$
3.99


$
1.88Diluted  as reported

$
3.55


$
1.71Basic  pro forma

$
3.90


$
1.77Diluted  pro forma

$
3.49


$
1.63    58




---



##### Table of Contents



KOMAG,
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2005


2004Risk-free interest rate


4.0
%


2.7
%Volatility factor of the expected
    market price of the Companys common stock


71.8
%


81.8
%Weighted-average expected option
    life (in years)


4.0



4.0Weighted-average per share fair
    value of options granted

$
11.57


$
7.02     2005


2004Risk-free interest rate


1.7
%


1.6
%Volatility factor of the expected
    market price of the Companys common stock


50.8
%


61.2
%Weighted-average expected purchase
    rights life (in years)


0.5



0.5Weighted-average fair value of
    purchase rights granted

$
3.12


$
3.43     Deferred
    Compensation Plan
      Warrants
    Note 12.
    Leases
    and Commitments   59




---



##### Table of Contents



KOMAG,
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     MinimumLeasePayments2007

$
2,5122008


2,0572009


3,1592010


3,1502011


3,143Thereafter


10,101$
24,122       Note 13.
    Quarterly
    Financial Data(Unaudited,
    in thousands, except per share data)  20061st Quarter(1)


2nd Quarter


3rd Quarter


4th QuarterNet sales

$
208,512


$
233,627


$
239,608


$
255,929Gross profit


59,093



64,968



61,780



61,841Operating income


36,054



39,788



34,321



39,289Net income

$
36,237


$
40,289


$
34,498


$
46,509Basic net income per share

$
1.22


$
1.35


$
1.15


$
1.54Diluted net income per share

$
1.09


$
1.21


$
1.04


$
1.39Number of shares used in basic per
    share computations


29,685



29,883



29,969



30,138Number of shares used in diluted
    per share computations


33,499



33,544



33,565



33,715     (1)
    
    Fourth quarter results included a release of $7.0 million,
    representing a portion of the Companys deferred tax
    valuation allowance, to recognize deferred tax assets that in
    the Companys judgment are more likely than not to be
    realized in 2007.  60




---



##### Table of Contents



KOMAG,
    INCORPORATED
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  20051st Quarter


2nd Quarter


3rd Quarter


4th QuarterNet sales

$
140,275


$
172,740


$
180,011


$
192,920Gross profit


35,063



48,080



50,887



54,703Operating income


18,762



30,819



32,343



36,008Net income

$
18,527


$
29,893


$
31,982


$
35,235Basic net income per share

$
0.66


$
1.04


$
1.09


$
1.20Diluted net income per share

$
0.59


$
0.92


$
0.97


$
1.07Number of shares used in basic per
    share computations


28,261



28,834



29,396



29,476Number of shares used in diluted
    per share computations


32,313



32,971



33,381



33,329   Note 14.
    Subsequent
    Events  Stock
    Purchase Rights and Stock Options
  1/24 th
 61




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Rule 13a-15(b)
  Internal
    Control over Financial Reporting
    
    pertain to the maintenance of records that, in reasonable
    detail, accurately and fairly reflect the transactions and
    dispositions of the assets of the company;
    provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles, and
    that receipts and expenditures of the company are being made
    only in accordance with authorizations of management and
    directors of the company; and
    provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of the
    companys assets that could have a material effect on the
    financial statements.    Managements
    Report on Internal Control Over Financial Reporting
  Rules 13a-15(f) 15d-15(f)
  Internal Control 
    Integrated Framework
  Changes
    in Internal Control Over Financial Reporting
    Item 9B.
    Other
    Information   62




---



##### Table of Contents



PART III
 Item(s) 10,
    11, 12, 13, and 14.    10-K
    Item


Description

Caption in 2007 Proxy Statement10


Directors and Executive Officers
    of the Registrant

Item
    No. 1  Election of Class II
    Directors, Corporate Governance Matters,
    and Other Information11


Executive Compensation

Executive Compensation
    and Related Information and Director Compensation
    and Related Information12


Security Ownership of Certain
    Beneficial Owners

Principal
    Stockholders, Stockand Management and Related
    Stockholder Matters

Ownership by Directors, Nominees
    and Executive Officers and Equity Compensation
    Plan Information13


Certain Relationships and Related
    Transactions

Other Information14


Principal Accountant Fees and
    Services

Principal Accountant
    Fees and Services   Form 10-K Form 10-K.
  Form 10-K.
  Rule 10b5-1
  PART IV
  Item 15.
    Exhibits
    and Financial Statement Schedules  (a) List of Items filed as part of this Report
  Financial Statements.
  Form 10-K:
            Financial Statement Schedules.
 63




---



##### Table of Contents



Form 10-K:
      Exhibits.
    (b) Exhibits
  ExhibitNumber

Description3
.1

Amended and Restated Certificate
    of Incorporation of Komag, Incorporated (incorporated by
    reference from Exhibit 3.1 filed with the Companys
    Form 10-Q
    filed on August 13, 2002), as amended by Certificate of
    Amendment of Amended and Restated Certificate of Incorporation
    of Komag, Incorporated (incorporated by reference from
    Exhibit 3.1 filed with the Companys report on
    Form 10-Q
    filed for the quarter ended on July 2, 2006).3
.2

Bylaws of Komag, Incorporated
    (incorporated by reference from Exhibit 3.2 filed with the
    Companys
    Form 10-Q
    filed on August 13, 2002).4
.1

Form of Stock Certificate for
    Common Stock (incorporated by reference from Exhibit 4.1 filed
    with the Companys
    Form 10-Q
    filed on August 13, 2002).4
.2

Form of Indenture by and between
    Komag, Incorporated and U.S. Bank National Association
    (incorporated by reference from Exhibit 4.8 filed with the
    Companys
    Form S-3/A
    filed on January 15, 2004).10
.1

Lease Agreement (B10) dated
    May 24, 1996 between Sobrato Development Companies #871 and
    Komag, Incorporated (incorporated by reference from
    Exhibit 10.1.1.1 filed with the Companys report on
    Form 10-K
    for the year ended January 2, 2005).10
.1.1

Second Amendment to Lease (B10)
    dated December 17, 2004, between DIVCO West Properties and
    Komag, Incorporated (incorporated by reference from Exhibit
    10.1.1.1 filed with the companys report on
    form 10-K
    for the year ended January 2, 2005).10
.2

Form of Indemnification Agreement
    (incorporated by reference from Exhibit 10.2 filed with the
    Companys report on
    Form S-1
    on August 27, 2002).10
.3

Amended and Restated 2002
    Qualified Stock Option Plan (incorporated by reference from
    Appendix A of the Companys Proxy Statement filed with the
    Companys Schedule 14A as filed on April 14, 2006).10
.3.1

Komag, Incorporated 2002 Deferred
    Compensation Plan (incorporated by reference from
    Exhibit 10.4.2 filed with the Companys report on
    Form S-1
    on August 27, 2002).10
.4

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 (incorporated by reference from Exhibit 10.5.2
    filed with the Companys report on
    Form 10-Q
    for the quarter ended September 28, 2003).10
.4.1

Letter dated July 21, 2005
    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 (incorporated by reference from Exhibit 10.4.1
    filed with the Companys report on
    Form 10-K
    for the year ended January 1, 2006).10
.5

Business Agreement by and between
    the Company and Maxtor Corporation dated October 6, 2003
    (incorporated by reference from Exhibit 10.7 filed with the
    Companys
    Form S-3/A
    filed on December 9, 2003).*10
.5.1

Addendum to Business Agreement
    between Maxtor, Inc. and Komag, Incorporated dated
    October 6, 2003, as amended on July 8, 2005
    (incorporated by reference from Exhibit 10.2 filed with the
    Companys report on
    Form 10-Q
    for the quarter ended October 2, 2005).* 64




---



##### Table of Contents



ExhibitNumber

Description10
.6

Discretionary Bonus Plan
    (incorporated by reference from Exhibit 10.7 filed with the
    Companys
    Form 10-K
    for the year ended January 2, 2005).10
.7

Bonus Plan (incorporated by
    reference from Exhibit 10.7 filed with the Companys
    Form 10-K
    for the year ended January 1, 2006).10
.7.1

Target Incentive Plan
    (incorporated by reference from Exhibit 10.7.1 filed with
    the Companys
    Form 10-K
    for the year ended January 1, 2006).10
.8

Form of Notice of Grant of Stock
    Purchase Right   Employees (incorporated by reference
    from Exhibit 10.9 filed with the Companys
    Form 10-K
    for the year ended January 2, 2005).10
.8.1

Form of Notice of Grant of Stock
    Purchase Right   Officers and Directors (incorporated
    by reference from Exhibit 10.9.1 filed with the
    Companys
    Form 10-K
    for the year ended January 2, 2005).10
.9

Form of Stock Option Agreement
    (incorporated by reference from Exhibit 10.10 filed with
    the Companys
    Form 10-K
    for the year ended January 2, 2005).10
.10

Volume Purchase Agreement dated
    June 6, 2005 between the Company, Komag USA (Malaysia) Sdn,
    and Western Digital Technologies, Inc. as amended by Amendment
    No. 1 thereto dated July 22, 2005 (incorporated by
    reference from Exhibit 10.1 filed with the Companys
    report on
    Form 10-Q
    for the quarter ended July 3, 2005).*10
.10.1

Amendment No. 2 to Volume
    Purchase Agreement, dated November 29, 2005, and Amendment
    No. 3 to Volume Purchase Agreement, dated January 31,
    2006, between the Company, Komag USA (Malaysia) Sdn., and
    Western Digital Technologies, Incorporated (incorporated by
    reference from Exhibit 10.10.1 filed with the
    Companys
    Form 10-K
    for the year ended January 1, 2006).*10
.11

Media Supply Agreement dated
    July 4, 2005 between the Company, Komag USA (Malaysia) Sdn,
    and Seagate Technology International. (incorporated by reference
    from Exhibit 10.1 filed with the Companys report on
    Form 10-Q
    for the quarter ended October 2, 2005).*10
.12

Form of Officer Employment
    Agreements (incorporated by reference from Exhibit 10.3
    filed with the Companys report on
    Form 10-Q
    for the quarter ended October 2, 2005).10
.13

Amendment to Stock Option
    Agreements, Amendment to Stock Purchase Agreements, Amended and
    Restated Notice of Grant of Stock Purchase Right, and Consulting
    Services Agreement, each dated February 15, 2006, between
    the company and Thian H. Tan (incorporated by reference from
    Exhibit 10.13 filed with the Companys
    Form 10-K
    for the year ended January 1, 2006).10
.14

Volume Purchase Agreement dated
    March 31, 2006 between Hitachi Global Storage Technologies
    Singapore Pte., Ltd. And Komag USA (Malaysia) Sdn., and Komag,
    Incorporated (incorporated by reference from Exhibit 10.1
    filed with the Companys report on
    Form 10-Q
    for the quarter ended April 2, 2006).*10
.15

Executive Employment Agreement,
    dated August 1, 2006, between the Company and Timothy
    Harris (incorporated by reference from Exhibit 10.1 filed
    with the Companys report on
    Form 10-Q
    for the quarter ended October 1, 2006).10
.16

Separation Agreement and Release
    dated October 3, 2006, between the Company and Michael
    Russak (incorporated by reference from Exhibit 10.2 filed
    with the Companys report on
    Form 10-Q
    for the quarter ended October 1, 2006).10
.17

Consulting Agreement, dated
    October 3, 2006, between the Company and Michael Russak
    (incorporated by reference from Exhibit 10.3 filed with the
    Companys report on
    Form 10-Q
    for the quarter ended October 1, 2006).10
.18

Second Amendment to Stock Option
    Agreements, dated October 3, 2006, between the Company and
    Thian H. Tan (incorporated by reference from Exhibit 10.4
    filed with the Companys report on
    Form 10-Q
    for the quarter ended October 1, 2006).21


Subsidiaries of Komag,
    Incorporated. 65




---



##### Table of Contents



ExhibitNumber

Description23
.1

Consent of KPMG LLP, Independent
    Registered Public Accounting Firm.24


Power of Attorney. Reference is
    hereby made to the signature pages of this report.31
.1

Rule 13a-14(a)
    Certification of Chief Executive Officer.31
.2

Rule 13a-14(a)
    Certification of Chief Financial Officer.32


Section 1350 Certifications
    of Chief Executive Officer and Chief Financial Officer.     *
    
    Confidential treatment has been requested with respect to
    certain portions of this exhibit. Omitted portions have been
    filed separately with the SEC.    Item 15(c)
    Financial
    Statement Schedule   66




---



##### Table of Contents



SIGNATURES
      By:
    /s/  Timothy
    D. Harris   Chief Executive Officer
  POWER OF
    ATTORNEY
  attorneys-in-fact Form 10-K, attorneys-in-fact attorneys-in-fact
    Signature

Title

Date/s/  TIMOTHY
    D. HARRIS(Timothy
    D. Harris)

Chief Executive Officer and
    Director (Principal Executive Officer)

February 22, 2007/s/  KATHLEEN
    A. BAYLESS(Kathleen
    A. Bayless)

Senior Vice President, Chief
    Financial Officer, and Secretary
    (Principal Financial Officer)

February 22, 2007/s/  PAUL
    G. JUDY(Paul
    G. Judy)

Vice President, Corporate
    Controller, and Chief Accounting Officer
    (Principal Accounting Officer)

February 22, 2007/s/  PAUL
    A. BRAHE(Paul
    A. Brahe)

Director

February 22, 2007/s/  CHRIS
    A. EYRE(Chris
    A. Eyre)

Director

February 22, 2007/s/  RICHARD
    A. KASHNOW(Richard
    A. Kashnow)

Director

February 22, 2007 67




---



##### Table of Contents



Signature

Title

Date/s/  KENNETH
    R. SWIMM(Kenneth
    R. Swimm)

Director

February 22, 2007/s/  DAVID
    G. TAKATA(David
    G. Takata)

Director

February 22, 2007/s/  HARRY
    G. VAN
    WICKLE(Harry
    G. Van Wickle)

Director

February 22, 2007/s/  DENNIS
    P. WOLF(Dennis
    P. Wolf)

Director

February 22, 2007/s/  MICHAEL
    LEE WORKMAN(Michael
    Lee Workman)

Director

February 22, 2007  68




---



##### Table of Contents



KOMAG,
    INCORPORATED
  Schedule II 
    VALUATION AND QUALIFYING ACCOUNTS
  Column A

Column B


Column C


Column D


Column EAdditionsBalance at


Charged to





BalanceBeginning


Costs and





at EndDescription

of Year


Expenses


Deductions


of Year(In thousands)Year ended January 2, 2005Allowance for doubtful accounts

$
398


$
(398
)

$



$
Year ended January 1, 2006Allowance for doubtful accounts

$



$



$



$
Year ended December 31, 2006Allowance for doubtful accounts

$



$



$



$
  69




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description3
.1

Amended and Restated Certificate
    of Incorporation of Komag, Incorporated (incorporated by
    reference from Exhibit 3.1 filed with the Companys
    Form 10-Q
    filed on August 13, 2002), as amended by Certificate of
    Amendment of Amended and Restated Certificate of Incorporation
    of Komag, Incorporated (incorporated by reference from
    Exhibit 3.1 filed with the Companys report on
    Form 10-Q
    filed for the quarter ended on July 2, 2006).3
.2

Bylaws of Komag, Incorporated
    (incorporated by reference from Exhibit 3.2 filed with the
    Companys
    Form 10-Q
    filed on August 13, 2002).4
.1

Form of Stock Certificate for
    Common Stock (incorporated by reference from Exhibit 4.1 filed
    with the Companys
    Form 10-Q
    filed on August 13, 2002).4
.2

Form of Indenture by and between
    Komag, Incorporated and U.S. Bank National Association
    (incorporated by reference from Exhibit 4.8 filed with the
    Companys
    Form S-3/A
    filed on January 15, 2004).10
.1

Lease Agreement (B10) dated
    May 24, 1996 between Sobrato Development Companies #871 and
    Komag, Incorporated (incorporated by reference from
    Exhibit 10.1.1.1 filed with the Companys report on
    Form 10-K
    for the year ended January 2, 2005).10
.1.1

Second Amendment to Lease (B10)
    dated December 17, 2004, between DIVCO West Properties and
    Komag, Incorporated (incorporated by reference from Exhibit
    10.1.1.1 filed with the companys report on
    form 10-K
    for the year ended January 2, 2005).10
.2

Form of Indemnification Agreement
    (incorporated by reference from Exhibit 10.2 filed with the
    Companys report on
    Form S-1
    on August 27, 2002).10
.3

Amended and Restated 2002
    Qualified Stock Option Plan (incorporated by reference from
    Appendix A of the Companys Proxy Statement filed with the
    Companys Schedule 14A as filed on April 14, 2006).10
.3.1

Komag, Incorporated 2002 Deferred
    Compensation Plan (incorporated by reference from
    Exhibit 10.4.2 filed with the Companys report on
    Form S-1
    on August 27, 2002).10
.4

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 (incorporated by reference from Exhibit 10.5.2
    filed with the Companys report on
    Form 10-Q
    for the quarter ended September 28, 2003).10
.4.1

Letter dated July 21, 2005
    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 (incorporated by reference from Exhibit 10.4.1
    filed with the Companys report on
    Form 10-K
    for the year ended January 1, 2006).10
.5

Business Agreement by and between
    the Company and Maxtor Corporation dated October 6, 2003
    (incorporated by reference from Exhibit 10.7 filed with the
    Companys
    Form S-3/A
    filed on December 9, 2003).*10
.5.1

Addendum to Business Agreement
    between Maxtor, Inc. and Komag, Incorporated dated
    October 6, 2003, as amended on July 8, 2005
    (incorporated by reference from Exhibit 10.2 filed with the
    Companys report on
    Form 10-Q
    for the quarter ended October 2, 2005).*10
.6

Discretionary Bonus Plan
    (incorporated by reference from Exhibit 10.7 filed with the
    Companys
    Form 10-K
    for the year ended January 2, 2005).10
.7

Bonus Plan (incorporated by
    reference from Exhibit 10.7 filed with the Companys
    Form 10-K
    for the year ended January 1, 2006).10
.7.1

Target Incentive Plan
    (incorporated by reference from Exhibit 10.7.1 filed with
    the Companys
    Form 10-K
    for the year ended January 1, 2006).10
.8

Form of Notice of Grant of Stock
    Purchase Right   Employees (incorporated by reference
    from Exhibit 10.9 filed with the Companys
    Form 10-K
    for the year ended January 2, 2005).10
.8.1

Form of Notice of Grant of Stock
    Purchase Right   Officers and Directors (incorporated
    by reference from Exhibit 10.9.1 filed with the
    Companys
    Form 10-K
    for the year ended January 2, 2005).10
.9

Form of Stock Option Agreement
    (incorporated by reference from Exhibit 10.10 filed with
    the Companys
    Form 10-K
    for the year ended January 2, 2005).




---



##### Table of Contents



ExhibitNumber

Description10
.10

Volume Purchase Agreement dated
    June 6, 2005 between the Company, Komag USA (Malaysia) Sdn,
    and Western Digital Technologies, Inc. as amended by Amendment
    No. 1 thereto dated July 22, 2005 (incorporated by
    reference from Exhibit 10.1 filed with the Companys
    report on
    Form 10-Q
    for the quarter ended July 3, 2005).*10
.10.1

Amendment No. 2 to Volume
    Purchase Agreement, dated November 29, 2005, and Amendment
    No. 3 to Volume Purchase Agreement, dated January 31,
    2006, between the Company, Komag USA (Malaysia) Sdn., and
    Western Digital Technologies, Incorporated (incorporated by
    reference from Exhibit 10.10.1 filed with the
    Companys
    Form 10-K
    for the year ended January 1, 2006).*10
.11

Media Supply Agreement dated
    July 4, 2005 between the Company, Komag USA (Malaysia) Sdn,
    and Seagate Technology International. (incorporated by reference
    from Exhibit 10.1 filed with the Companys report on
    Form 10-Q
    for the quarter ended October 2, 2005).*10
.12

Form of Officer Employment
    Agreements (incorporated by reference from Exhibit 10.3
    filed with the Companys report on
    Form 10-Q
    for the quarter ended October 2, 2005).10
.13

Amendment to Stock Option
    Agreements, Amendment to Stock Purchase Agreements, Amended and
    Restated Notice of Grant of Stock Purchase Right, and Consulting
    Services Agreement, each dated February 15, 2006, between
    the company and Thian H. Tan (incorporated by reference from
    Exhibit 10.13 filed with the Companys
    Form 10-K
    for the year ended January 1, 2006).10
.14

Volume Purchase Agreement dated
    March 31, 2006 between Hitachi Global Storage Technologies
    Singapore Pte., Ltd. And Komag USA (Malaysia) Sdn., and Komag,
    Incorporated (incorporated by reference from Exhibit 10.1
    filed with the Companys report on
    Form 10-Q
    for the quarter ended April 2, 2006).*10
.15

Executive Employment Agreement,
    dated August 1, 2006, between the Company and Timothy
    Harris (incorporated by reference from Exhibit 10.1 filed
    with the Companys report on
    Form 10-Q
    for the quarter ended October 1, 2006).10
.16

Separation Agreement and Release
    dated October 3, 2006, between the Company and Michael
    Russak (incorporated by reference from Exhibit 10.2 filed
    with the Companys report on
    Form 10-Q
    for the quarter ended October 1, 2006).10
.17

Consulting Agreement, dated
    October 3, 2006, between the Company and Michael Russak
    (incorporated by reference from Exhibit 10.3 filed with the
    Companys report on
    Form 10-Q
    for the quarter ended October 1, 2006).10
.18

Second Amendment to Stock Option
    Agreements, dated October 3, 2006, between the Company and
    Thian H. Tan (incorporated by reference from Exhibit 10.4
    filed with the Companys report on
    Form 10-Q
    for the quarter ended October 1, 2006).21


Subsidiaries of Komag,
    Incorporated.23
.1

Consent of KPMG LLP, Independent
    Registered Public Accounting Firm.24


Power of Attorney. Reference is
    hereby made to the signature pages of this report.31
.1

Rule 13a-14(a)
    Certification of Chief Executive Officer.31
.2

Rule 13a-14(a)
    Certification of Chief Financial Officer.32


Section 1350 Certifications
    of Chief Executive Officer and Chief Financial Officer.     *
    
    Confidential treatment has been requested with respect to
    certain portions of this exhibit. Omitted portions have been
    filed separately with the SEC.