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 July 2, 2000
                         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
                                ------------              -------------

On July 2, 2000,  66,772,819 shares of the Registrant's  common stock, $0.01 par
value, were issued and outstanding.


<PAGE>


                                      INDEX

                               KOMAG, INCORPORATED


                                                                        Page No.

PART I.     FINANCIAL INFORMATION

Item 1.     Consolidated Financial Statements (Unaudited)

            Consolidated statements of operations--Three- and six-
            months ended July 2, 2000 and July 4, 1999 ....................... 3

            Consolidated balance sheets--July 2, 2000
            and January 2, 2000 .............................................. 4

            Consolidated statements of cash flows--Six-months
            ended July 2, 2000 and July 4, 1999 .............................. 5

            Notes to consolidated financial statements--
            July 2, 2000 .................................................. 6-15

Item 2.     Management's Discussion and Analysis of
            Financial Condition and Results of Operations ................ 16-24

PART II.    OTHER INFORMATION

Item 1.     Legal Proceedings ............................................... 25

Item 2.     Changes in Securities ........................................... 25

Item 3.     Defaults Upon Senior Securities ................................. 25

Item 4.     Submission of Matters to a Vote of Security Holders .......... 25-26

Item 5.     Other Information ............................................... 26

Item 6.     Exhibits and Reports on Form 8-K ............................. 26-27

SIGNATURES .................................................................. 28


                                      -2-

<PAGE>

PART I.   FINANCIAL INFORMATION

<TABLE>


                                                         KOMAG, INCORPORATED
                                                CONSOLIDATED STATEMENTS OF OPERATIONS
                                                (In thousands, except per share data)
                                                             (Unaudited)
<CAPTION>


                                                                          Three Months Ended              Six Months Ended
                                                                          ------------------              ----------------
                                                                         Jul 2          Jul 4          Jul 2         Jul 4
                                                                          2000           1999           2000          1999
                                                                       ---------      ---------      ---------      ---------
<S>                                                                    <C>            <C>            <C>            <C>
Net sales to unrelated parties                                         $  38,305      $  23,913      $  65,712      $ 113,926
Net sales to related parties                                              45,163         69,313         97,389         69,313
                                                                       ---------      ---------      ---------      ---------
          NET SALES                                                       83,468         93,226        163,101        183,239


Cost of sales                                                             73,534         97,857        140,329        187,123
                                                                       ---------      ---------      ---------      ---------
          GROSS PROFIT (LOSS)                                              9,934         (4,631)        22,772         (3,884)

Operating expenses:
     Research, development and engineering                                 8,343         12,151         16,892         24,166
     Selling, general and administrative                                   3,769          5,612          7,414         11,090
     Amortization of intangibles                                           2,555          7,359          5,110          7,359
     Restructuring charges                                                  (711)         4,321         (2,661)         4,321
                                                                       ---------      ---------      ---------      ---------
                                                                          13,956         29,443         26,755         46,936
                                                                       ---------      ---------      ---------      ---------
          OPERATING LOSS                                                  (4,022)       (34,074)        (3,983)       (50,820)

Other income (expense):
     Interest income                                                       1,168          1,345          2,150          2,961
     Interest expense                                                     (7,457)        (5,935)       (13,908)       (10,939)
     Other, net                                                              196            869            571          1,530
                                                                       ---------      ---------      ---------      ---------
                                                                          (6,093)        (3,721)       (11,187)        (6,448)

                                                                       ---------      ---------      ---------      ---------
Loss before income taxes, minority interest,
   equity in joint venture loss and extraordinary gain                   (10,115)       (37,795)       (15,170)       (57,268)
Provision for income taxes                                                   450            350            826            750
                                                                       ---------      ---------      ---------      ---------
Loss before minority interest, equity in
   joint venture loss and extraordinary gain                             (10,565)       (38,145)       (15,996)       (58,018)
Minority interest in net income (loss) of consolidated subsidiary           (319)            89           (456)           340
Equity in net loss of unconsolidated joint venture                          --             --             --           (1,402)
                                                                       ---------      ---------      ---------      ---------
          LOSS BEFORE EXTRAORDINARY GAIN                               ($ 10,246)     ($ 38,234)       (15,540)       (59,760)
Extraordinary gain                                                         3,772           --            3,772           --
                                                                       ---------      ---------      ---------      ---------
          NET LOSS                                                     ($  6,474)     ($ 38,234)     ($ 11,768)     ($ 59,760)
                                                                       =========      =========      =========      =========

Basic and diluted loss before extraordinary gain per share             ($   0.16)     ($   0.60)     ($   0.24)     ($   1.01)
Basic and diluted extraordinary gain per share                         $    0.06      $    --        $    0.06      $    --
                                                                       ---------      ---------      ---------      ---------
Basic and diluted net loss per share                                   ($   0.10)     ($   0.60)     ($   0.18)     ($   1.01)
                                                                       =========      =========      =========      =========
Number of shares used in basic and diluted computations                   66,039         64,246         65,958         59,080
                                                                       =========      =========      =========      =========


<FN>
                                           See notes to consolidated financial statements.
</FN>
</TABLE>

                                                                -3-

<PAGE>




<TABLE>

                                          KOMAG, INCORPORATED
                                      CONSOLIDATED BALANCE SHEETS
                                             (In thousands)
<CAPTION>


                                                                        Jul 2                  Jan 2
                                                                         2000                   2000
                                                                      ---------              ---------
<S>                                                                   <C>                    <C>
ASSETS                                                                (unaudited)              (note)
Current Assets
       Cash and cash equivalents                                      $  27,848              $  25,916
       Short-term investments                                            27,281                 43,610
       Accounts receivable (including $24,931 and
         $25,971 due from related parties in 2000
         and 1999, respectively) less allowances
         of $2,554 in 2000 and $2,180 in 1999                            41,436                 36,494
       Inventories:
            Raw materials                                                10,734                  7,695
            Work-in-process                                               6,731                  4,820
            Finished goods                                                8,432                 10,503
                                                                      ---------              ---------
                 Total inventories                                       25,897                 23,018
       Prepaid expenses and deposits                                      8,102                  3,254
       Income taxes receivable                                               87                    815
       Deferred income taxes                                              3,767                  3,767
                                                                      ---------              ---------
                 Total current assets                                   134,418                136,874
Property, Plant and Equipment
       Land                                                               7,785                  7,785
       Buildings                                                        134,805                134,471
       Equipment                                                        493,617                630,221
       Furniture                                                          7,573                 10,980
       Leasehold improvements                                            31,714                 36,656
                                                                      ---------              ---------
                                                                        675,494                820,113
       Less allowances for depreciation and amortization               (398,626)              (506,658)
                                                                      ---------              ---------
                 Net property, plant and equipment                      276,868                313,455
Net Intangible Assets                                                    17,886                 22,996
Deposits and Other Assets                                                   915                  2,546
                                                                      ---------              ---------
                                                                      $ 430,087              $ 475,871
                                                                      =========              =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
       Current portion of long-term debt                              $ 231,740              $ 260,000
       Trade accounts payable                                            23,176                 21,474
       Accounts payable to related parties                                3,503                  2,019
       Accrued compensation and benefits                                 10,480                 10,048
       Other liabilities                                                 16,223                 19,615
       Income taxes payable                                                  58                    109
       Restructuring Liability                                            9,772                 25,490
                                                                      ---------              ---------
                 Total current liabilities                              294,952                338,755
Note Payable to Related Party                                            21,186                 21,186
8% Convertible Subordinated Debt                                          9,281                   --
Deferred Income Taxes                                                    20,045                 20,045
Other Long-term Liabilities                                               9,749                 13,245
Minority Interest in Consolidated Subsidiary                              3,471                  3,927
Stockholders' Equity
       Preferred stock                                                     --                     --
       Common stock                                                         668                    659
       Additional paid-in capital                                       449,833                445,384
       Accumulated deficit                                             (379,677)              (367,909)
       Accumulated other comprehensive income                               579                    579
                                                                      ---------              ---------
                 Total stockholders' equity                              71,403                 78,713
                                                                      ---------              ---------
                                                                      $ 430,087              $ 475,871
                                                                      =========              =========

<FN>
              Note: The balance sheet at January 2, 2000 has been derived from the audited
                                   financial statements at that date.

                            See notes to consolidated financial statements.
</FN>


                                                  -4-

<PAGE>



                                             KOMAG, INCORPORATED
                                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                               (In thousands)
                                                 (Unaudited)

                                                                                      Six Months Ended
                                                                                 --------------------------
                                                                                  Jul 2             Jul 4
                                                                                   2000              1999
                                                                                 --------          --------
<S>                                                                              <C>               <C>
OPERATING ACTIVITIES
  Net loss                                                                       ($11,768)         ($59,760)
  Adjustments to reconcile net loss to net cash
      provided by operating activities:
        Depreciation and amortization                                              39,115            48,608
        Amortization of intangibles                                                 5,110             7,359
        Extraordinary gain                                                         (3,772)               --
        Provision for losses on accounts receivable                                   309               225
        Interest expense on note payable to related party                           2,070                --
        Amortized interest expense related to debt restructure                       (289)               --
        Amortization of warrants                                                     (248)               --
        Equity in net loss of unconsolidated joint venture                             --             1,402
       (Gain) loss on disposal of property, plant and equipment                      (113)              229
        Deferred rent                                                                 126             1,095
        Minority interest in net income (loss) of consolidated subsidiary            (456)              340
        Changes in operating assets and liabilities:
              Accounts receivable                                                  (6,291)           31,310
              Accounts receivable from related parties                              1,040           (39,783)
              Inventories                                                          (2,879)           (8,477)
              Prepaid expenses and deposits                                        (1,557)              131
              Trade accounts payable                                                1,702               191
              Accounts payable to related parties                                   1,484                 6
              Accrued compensation and benefits                                       432               902
              Other liabilities                                                    (8,246)           (1,482)
              Income taxes receivable/payable                                         677                29
              Restructuring liability                                             (15,390)             (367)
                                                                                 --------          --------
                       Net cash provided by (used in) operating activities          1,056           (18,042)

INVESTING ACTIVITIES
  Acquisition of property, plant and equipment                                     (4,927)          (17,564)
  Purchases of short-term investments                                              (2,681)           (1,965)
  Proceeds from short-term investments at maturity                                 19,010             1,350
  Proceeds from disposal of property, plant and equipment                           1,139                30
  Deposits and other assets                                                         1,631               (25)
                                                                                 --------          --------
                       Net cash provided by (used in) investing activities         14,172           (18,174)

FINANCING ACTIVITIES
  Payment of debt                                                                 (15,000)               --
  Sale of Common Stock, net of issuance costs                                       1,704             2,255
                                                                                 --------          --------
                     Net cash provided by (used in) financing activities          (13,296)            2,255

                  Increase (decrease) in cash and cash equivalents                  1,932           (33,961)

  Cash and cash equivalents at beginning of year                                   25,916            64,467
                                                                                 --------          --------

                  Cash and cash equivalents at end of period                     $ 27,848          $ 30,506
                                                                                 ========          ========
<FN>
                            See notes to consolidated financial statements.
</FN>
</TABLE>


                                                    -5-
<PAGE>



                               KOMAG, INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JULY 2, 2000


NOTE 1 - BASIS OF PRESENTATION

       The accompanying  unaudited  consolidated  financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial  statements.  In the  opinion  of  management,  all  normal  recurring
adjustments,  and the recognition of an extraordinary  gain as discussed in Note
9,  considered  necessary for a fair  presentation  of the  financial  position,
operating  results and cash flows for the periods  presented have been included.
Operating  results for the three- and  six-month  periods ended July 2, 2000 are
not  necessarily  indicative  of the results  that may be expected  for the year
ending December 31, 2000.

       The financial statements have been prepared on a going concern basis. The
Report of  Independent  Auditors on the Company's  financial  statements for the
year ended January 2, 2000 included in the Company's  Annual Report on Form 10-K
contained an explanatory  paragraph which indicated  substantial doubt about the
Company's ability to continue as a going concern because of cumulative operating
losses and lack of compliance with certain financial  covenants contained in its
then-existing  senior  unsecured  bank  credit  facilities.  At the  time of the
covenant  defaults  the Company had $260  million of debt  outstanding.  In June
2000, the Company replaced these credit  facilities with a senior unsecured loan
restructure  agreement  with its lenders and a separate  subordinated  unsecured
convertible  debt  agreement  with other  creditors.  As a result,  the  Company
currently has $231.7 million in bank debt  outstanding that matures in June 2001
and approximately $9.3 million of 8% convertible  subordinated debt that matures
in 2005.  As of July 2, 2000,  the Company is in  compliance  with the financial
covenants of such agreements.  In the long-term, the Company will likely need to
further  restructure its debt  obligations and raise additional funds to operate
its  business.  Inability  to raise  additional  funds may force the  Company to
reduce or possibly suspend its operations,  and/or sell additional securities on
terms that would be highly dilutive to current  stockholders of the Company. The
financial  statements  do not include any  adjustments  to reflect the  possible
future effects on the recoverability and classification of assets or the amounts
and classification of assets and liabilities that may result from the outcome of
this uncertainty.


                                      -6-

<PAGE>


       For further information,  refer to the consolidated  financial statements
and footnotes  thereto  included in the Company's Annual Report on Form 10-K for
the year ended January 2, 2000.

       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 are
comprised of thirteen weeks.


NOTE 2 - INVESTMENT IN DEBT SECURITIES

       The Company invests its excess cash in high-quality,  short-term debt and
equity  instruments.  None of the Company's  investments in debt securities have
maturities  greater than one year.  The  following is a summary of the Company's
investments by major security type at amortized cost,  which  approximates  fair
value:



                                                             Jul 2        Jan 2
(in thousands)                                               2000          2000
                                                            -------      -------
Municipal auction rate preferred stock                      $24,600      $39,200
Corporate debt securities                                     5,404        7,339
Mortgage-backed securities                                   17,550       24,650
                                                            -------      -------
                                                            $47,554      $71,189
                                                            =======      =======

Amounts included in cash and cash equivalents               $20,273      $27,579
Amounts included in short-term investments                   27,281       43,610
                                                            -------      -------
                                                            $47,554      $71,189
                                                            =======      =======


       The Company  utilizes  zero-balance  accounts  and other cash  management
tools to invest all available  funds  including  bank balances in excess of book
balances.


NOTE 3 - INCOME TAXES

       The  Company's  income  tax  provisions  of  approximately  $0.5 and $0.8
million for the three-and  six-month  periods ended July 2, 2000,  respectively,
and $0.4 and $0.8 for the  three-  and  six-month  periods  ended  July 4, 1999,
respectively,  represent  foreign  withholding  taxes on  royalty  and  interest
payments.  The  Company's  wholly-owned  thin-film  media  operation,  Komag USA
(Malaysia)  Sdn.  ("KMS")  received a  five-year  extension  of its  initial tax
holiday through June 2003 for its first plant site. KMS has also been granted an
additional  ten-year  tax  holiday  for its  second  and  third  plant  sites in
Malaysia.  The government  determined in the third quarter of 1999 that earnings
from the


                                      -7-


<PAGE>

second and third plant sites will be tax free through 2001. The remaining period
of the  ten-year  tax  holiday  will be  reassessed  in 2001 based on  achieving
certain investment criteria.


NOTE 4 - COMPREHENSIVE LOSS

       Comprehensive  loss for the three- and  six-month  periods  ended July 2,
2000 and July 4, 1999 in the accompanying  Consolidated Statements of Operations
is the same as the Company's net loss.

       Accumulated  other  comprehensive  income at July 2, 2000 and  January 2,
2000 in the  accompanying  Consolidated  Balance  Sheets  consists  entirely  of
accumulated foreign currency translation adjustments.


NOTE 5 - RESTRUCTURING CHARGES

       During the third quarter of 1997,  the Company  evaluated the size of its
production  capacity  relative to market demand and  implemented a restructuring
plan to close two older Milpitas,  California facilities. The Company recorded a
$52.2  million  restructuring  charge which  included $3.9 million for severance
costs associated with  approximately  330 terminated  employees (all in the U.S.
and  predominately  all from the  manufacturing  area),  $33.0  million  for the
write-down  of the net book  value of excess  equipment  that was  scrapped  and
disposed of leasehold  improvements,  $10.1 million  related to equipment  order
cancellations and other  equipment-related  costs, and $5.2 million for facility
closure  costs.  Non-cash  items  included in the  restructuring  charge totaled
approximately $33.0 million.

       In the second  quarter of 1998 several  customers  reduced orders for the
Company's  products  in response  to  downward  adjustments  in their disk drive
production  build  schedules.  Due to the expectation  that the media industry's
supply/demand  imbalance  would  extend  into 1999,  the  Company  adjusted  its
expectations for the utilization of its installed production capacity.  Based on
this analysis of the Company's  production  capacity and its expectations of the
media market over the remaining life of the Company's fixed assets,  the Company
concluded  that it would not be able to recover  the book value of those  assets
based on projected undiscounted cash flows. As a result, the Company implemented
a  restructuring  plan in June 1998 that  included a reduction in the  Company's
U.S. and  Malaysian  workforce and the cessation of operations at its oldest San
Jose,  California  plant. The Company recorded a restructuring  charge of $187.8
million  which  included  $4.1 million for severance  costs  (approximately  170
employees,  predominately in the U.S. and approximately 69%, 27% and 4% from the
manufacturing area, engineering area and sales, general and administrative area,
respectively),  $5.9


                                      -8-


<PAGE>


million related to equipment  order  cancellations  and other equipment  related
costs,  and $2.8  million  for  facility  closure  costs.  The asset  impairment
component  of the  charge was  $175.0  million  and  effectively  reduced  asset
valuations to reflect the economic  effect of recent  industry price erosion for
disk  media and the  projected  under-utilization  of the  Company's  production
equipment and  facilities.  The fair value of these assets was determined  based
upon the estimated  future cash flows to be generated by the assets,  discounted
at a market rate of interest (15.8%). The cash component of the total charge was
$12.8  million.  Non-cash items in the  restructuring/impairment  charge totaled
$175.0 million.

       The Company incurred lower facility closure costs than anticipated in the
restructuring  charges.  The  oldest  Milpitas  plant  was  sublet  sooner  than
anticipated  and the  Company  reached a lease  termination  agreement  with its
landlord on the second  Milpitas plant in the third quarter of 1998. The Company
thereby  avoided  expected  future rent payments and the cost of renovating  the
facility to its original lease condition.  Additionally,  the Company determined
that it would  not  close  its  oldest  San  Jose,  California  facility  at the
expiration of its lease.  As a result the Company did not incur costs to restore
the  facility  to  its  original  lease   condition  as   contemplated   in  the
restructuring   charge.   Higher  than  expected   costs  for  equipment   order
cancellations  offset the lower facility closure costs. A total of 515 employees
were terminated in the restructuring activities.

The following tables summarize the activity in the restructuring reserves during
the first six-months of 2000:


     1997 Restructuring Reserve
                                          Equipment Order
                                         Cancellations And
                                              Other
     (in millions)                         Related Costs
                                         ----------------
     Balance at January 2, 2000               $1.8

     Adjustment to Reserve                    (0.2)
     Charged to Reserve                       (1.6)
                                            -------
     Balance at July 2, 2000                  $0.0
                                            =======



                                      -9-

<PAGE>


     1998 Restructuring Reserve

                                          Equipment Order
                                         Cancellations And
                                              Other
     (in millions)                         Related Costs
                                         ----------------
     Balance at January 2, 2000               $0.6

     Adjustment to Reserve                    (0.6)
     Charged to Reserve                         --
                                            -------
     Balance at July 2, 2000                  $0.0
                                            =======


       The Company has made cash payments totaling  approximately  $31.0 million
primarily for severance,  equipment  order  cancellations  and facility  closure
costs under the 1997 and 1998 restructuring activities.

All restructuring  activity related to the 1997 and 1998 restructuring  reserves
have been completed as of July 2, 2000.

       The Company recorded  restructuring charges of $4.3 million in the second
quarter of 1999. This restructuring charge related to severance costs associated
with 400  terminated  employees all in the U.S. and  predominately  all from the
manufacturing area. The entire $4.3 million was paid out to the employees during
the second and third quarter of 1999.

       During the third quarter of 1999, the Company implemented a restructuring
plan based on an evaluation of the size and location of its existing  production
capacity  relative to the short-term and long-term market demand outlook.  Under
the 1999 restructuring plan, the Company decided to close its U.S. manufacturing
operations in San Jose,  California.  The  restructuring  actions  resulted in a
charge of $139.3 million and included  $98.5 million for leasehold  improvements
and  equipment   write-offs,   $17.7  million  for  future   liabilities   under
non-cancelable  equipment leases associated with equipment no longer being used,
$15.6 million for severance pay  associated  with  approximately  980 terminated
employees (all in the U.S. and predominately  all from the manufacturing  area),
and  $7.5  million  in plant  closure  costs.  Non-cash  items  included  in the
restructuring charge totaled approximately $98.5 million.


                                      -10-


<PAGE>

<TABLE>

1999 Restructuring Reserve - Changes During First Half of 2000
<CAPTION>

                                   Writedown Net Book      Liabilities Under
                                   Value of Equipment       Non-Cancelable     Facility
                                     and Leasehold             Equipment        Closure     Severance
(in millions)                         Improvements              Leases           Costs        Costs      Total
                                      ------------              ------           -----        -----      -----
<S>                                    <C>                  <C>               <C>           <C>          <C>
Balance at January 2, 2000                $--                  $13.8             $4.5         $4.8       $23.1

Adjustment to Reserve                     2.4                     --             (3.7)        (0.7)       (2.0)
Charged to Reserve                       (2.4)                  (4.5)            (0.4)        (4.0)      (11.3)
                                     -----------          ------------     ------------   ---------    --------
Balance at July 2, 2000                   $--                   $9.3             $0.4         $0.1        $9.8
                                     -----------          ------------     ------------   ---------    --------

</TABLE>


       At  July  2,  2000,  $9.8  million  related  to  the  1999  restructuring
activities remained in current liabilities. During 1999 and the first six-months
of 2000, the Company made cash payments  totaling  $30.9 million,  primarily for
severance costs, payments for liabilities under non-cancelable  equipment leases
and  facility  closure  costs.  Cash  outflows  of  approximately  $0.5  million
associated with severance pay and closure costs will occur primarily  during the
third  quarter of 2000.  Cash payments of  approximately  $9.3 million under the
equipment  leases will be made in monthly  installments  through  mid-2002.  The
facility  closure  liability  was reduced by  approximately  $3.7 million in the
first half of 2000 due to successfully  terminating the leases on  manufacturing
facilities and subleasing the  administrative  facility  earlier than originally
expected.   The   writedown  of  net  book  value  of  equipment  and  leasehold
improvements  was  increased by $2.4  million  during the first half of 2000 for
additional  equipment that was determined  unusable due to the restructure.  The
severance costs liability was reduced by $0.7 million due to lower than expected
payments.



                                      -11-


<PAGE>


NOTE 6 - LOSS PER SHARE

       The net loss per share  was  computed  using  only the  weighted  average
number of shares of common stock  outstanding  during the period.  The following
table sets forth the computation of net loss per share.
<TABLE>
<CAPTION>




                                                      Three Months Ended                 Six Months Ended
                                                      ------------------                 ----------------
                                                   Jul 2            Jul 4             Jul 2             Jul 4
                                                    2000             1999              2000              1999
                                                  --------          --------          --------          --------
<S>                                               <C>               <C>               <C>               <C>
(in thousands, except per share amounts)

Numerator:  Loss before extraordinary gain        ($10,246)         ($38,234)         ($15,540)         ($59,760)
                                                  --------          --------          --------          --------
Denominator for basic and diluted -
       weighted-average shares                      66,039            64,246            65,958            59,080
                                                  --------          --------          --------          --------
Basic and diluted loss before
       extraordinary gain per share               ($  0.16)         ($  0.60)         ($  0.24)         ($  1.01)
                                                  --------          --------          --------          --------
</TABLE>


       Incremental  common shares  attributable  to the exercise of  outstanding
options (assuming  proceeds would be used to purchase treasury stock) of 189,100
and 60,803  for the three  months  ended  July 2, 2000 and July 4, 1999,  and of
281,205 and  1,069,004 for the  six-months  ended July 2, 2000 and July 4, 1999,
respectively,  were not included in the net loss per share  computation  because
the effect would be antidilutive.

Incremental common shares  attributable to the exercise of outstanding  warrants
(assuming proceeds would be used to purchase treasury stock) of 144,417 and zero
for the three  months  ended July 2, 2000 and July 4, 1999,  and of 108,637  and
zero for the six-months ended July 2, 2000 and July 4, 1999, respectively,  were
not included in the net loss per share  computation  because the effect would be
antidilutive.

Incremental common shares attributable to convertible debt of 1,290,081 and zero
for the three  months  ended July 2, 2000 and July 4, 1999,  and of 645,041  and
zero for the six-months ended July 2, 2000 and July 4, 1999, respectively,  were
not included in the net loss per share  computation  because the effect would be
antidilutive.


                                      -12-


<PAGE>

NOTE 7 - USE OF ESTIMATES

       The  preparation  of financial  statements in conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.


NOTE 8 - LIABILITIES ASSOCIATED WITH PURCHASE

       In April  1999,  the  Company  purchased  the assets of  Western  Digital
Corporation's ("WDC") media operation.  In conjunction with the purchase,  under
purchase  accounting rules, the Company recorded  liabilities that increased the
amount of goodwill  recognized.  These liabilities  included  estimated costs of
$5.6 million for the closure of the former WDC media  operation as well as costs
of $26.5 million related to the remaining lease  obligations for equipment taken
out of service due to the closure and $4.7 million of costs for  purchase  order
cancellations and other costs.

       During 1999 and the first six-months of 2000, the Company paid a total of
approximately  $20.7 million against  liabilities  arising from this transaction
including  equipment lease  obligations  ($13.7  million),  rent ($1.6 million),
property taxes ($1.3 million) and other  liabilities  ($4.1 million).  Equipment
lease obligations are expected to be paid monthly through  mid-2002.  At July 2,
2000, the current portion of the equipment lease  obligations was  approximately
$8.8  million.  The  majority of the  facility  closure  costs,  purchase  order
cancellation costs and other liabilities associated with the WDC transaction are
expected to be paid by the end of fiscal 2000.


NOTE 9 - TERM DEBT AND 8% CONVERTIBLE SUBORDINATED DEBT


       The Company  previously  had borrowed  $260.0 million under its term debt
and line of credit  facilities.  In June 2000, the Company replaced these credit
facilities with a senior unsecured loan  restructure  agreement with its lenders
and a separate  subordinated  unsecured  convertible  debt  agreement with other
creditors.  As a result,  the Company  currently has $231.7 million in bank debt
outstanding,  which matures in June 2001 and bears interest at prime plus 1.25%.
The Company is required to make principal  payments under the agreement based on
specific  calculations  with a minimum  of $1.0  million  and a maximum  of $7.5
million due  quarterly.  The  agreement  requires  the  Company to meet  certain
financial covenants which the Company was in compliance with as of July 2, 2000.
In addition, under the loan agreement, Series A warrants were issued to purchase
1,651,349 shares of the Company's common stock and Series B warrants were issued
to purchase  660,539 shares of the Company's common stock. The Series A warrants
are currently  exercisable until June 2010 and


                                      -13-

<PAGE>

the Series B warrants only become exercisable in June 2001 for a ten year period
if the related debt balance  outstanding at that point exceeds  $160.0  million,
otherwise  these  warrants  become void.  The  exercise  price of both series of
warrants is $2.13. The Company valued the warrants using the Black-Scholes model
and  determined  the  value to be  approximately  $2.8  million,  which has been
capitalized and is being amortized to interest expense over the life of the loan
restructure agreement.  The following assumptions were used in the Black-Scholes
model:  risk-free  interest rate of 6.38%,  a volatility  factor of the expected
market  price of the  Company's  Common  Stock of 74.7% and a life of ten years.
There was no dividend yield included in the  calculation as the Company does not
pay dividends.


       The Company  currently  has  approximately  $9.3  million of  convertible
subordinated  debt that matures in 2005. At the time the debt was converted from
senior unsecured debt to convertible  subordinated  debt, the principal  balance
was $13.3 million.  The conversion from a principal  balance of $13.3 million to
$9.3 million resulted in an  extraordinary  gain to the Company of $3.8 million,
net of expenses.  The lenders have the right to purchase additional  convertible
notes in an aggregate principal amount of up to $35.7 million. The original $9.3
million in notes are convertible  into shares of the Company's common stock at a
conversion  price of $2.53.  The notes have an interest  rate of 8% payable upon
the maturity  date of the notes.  The notes are  convertible  into the Company's
common stock, at the lenders' option,  at any time on or after the issuance date
of the  notes.  At the  Company's  option,  the notes are  convertible  into the
Company's  common  stock,  on any date on which the  closing  sale  price of the
common stock has been greater than 200% of the conversion price in effect on the
issuance date of the applicable notes.


NOTE 10 - EQUITY


       In  March  2000,   the  Company   entered  into  an  agreement   with  an
institutional  investor to sell up to $20.0 million of common stock.  The shares
of common stock will be sold pursuant to a private equity line of credit,  under
which the Company may exercise "put options" to sell shares for a price equal to
90%,  92% or 94% of market  price  depending on the level of the market price at
the time of exercise of the "put option". The shares may be sold periodically in
maximum increments of $1.5 million to $3.5 million over a period of up to thirty
months. Upon signing the agreement,  the Company issued warrants to the investor
to acquire  80,000  shares of common  stock at an exercise  price of $4.6875 per
share.  The warrants are  exercisable  during a three-year  period  beginning in
September  2000. The Company valued the warrants using the  Black-Scholes  model
and determined  the value to be  immaterial.  As of July 2, 2000, no shares have
been sold under this agreement.


                                      -14-


<PAGE>

NOTE 11 - MERGER

       In April 2000,  the Company  entered into a definitive  merger  agreement
with HMT Technology Corporation (HMT). HMT designs,  develops,  manufactures and
markets  high-performance  thin-film  disks.  Under the terms of the  definitive
merger  agreement,  each  issued  and  outstanding  share of HMT  stock  will be
converted into 0.9094 shares of the Company's  common stock.  The merger will be
accounted  for under  purchase  accounting  and is subject to customary  closing
conditions,  including  regulatory  approvals,  the approval of both  companies'
shareholders and the Company's  lenders.  The merger is expected to close in the
third quarter of calendar 2000.


                                      -15-

<PAGE>


                               KOMAG, INCORPORATED

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Results of Operations:

        The  following  discussion  contains  predictions,  estimates  and other
forward-looking  statements  that  involve a number of risks and  uncertainties.
These  statements  may be  identified  by the use of  words  such as  "expects,"
"anticipates,"  "intends,"  "plans,"  and  similar  expressions.  The  Company's
business  is  subject  to a  number  of  risks  and  uncertainties.  While  this
discussion represents the Company's current judgment on the the future direction
of its  business,  such risks and  uncertainties  could cause actual  results to
differ materially from any future performance suggested herein.

        The Company sells a single product into a market  characterized by rapid
technological change and sudden shifts in the balance between supply and demand.
Further, the Company is dependent on a limited number of customers, some of whom
also manufacture some or most of their own disks  internally.  Due to the volume
purchase  agreement  with Western  Digital  Corporation  ("WDC"),  the Company's
results  continue to remain highly  dependent on the relative  success of WDC in
the data storage market.  Competition in the market,  defined by both technology
offerings  and  pricing,  can be  fierce,  especially  during  times  of  excess
available  capacity.  Such conditions have been prevalent since 1997.  There are
risks  relating  to  the  consummation  of  the  contemplated  merger  with  HMT
Technology (HMT),  including the risk that required regulatory  clearances,  the
bank consents or  stockholder  approval might not be obtained in a timely manner
or at all. In addition,  there are risks  relating to the timing and  successful
completion of technology  and product  development  efforts,  integration of the
technologies  and  businesses  of  Komag  and HMT,  unanticipated  expenditures,
changing relationships with customers,  suppliers and strategic partners.  Other
factors that could cause actual results to differ include the following: changes
in the industry  supply-demand  relationship  and related pricing for enterprise
and   desktop   disk   products;   timely  and   successful   qualification   of
next-generation products;  utilization of manufacturing  facilities;  changes in
manufacturing  efficiencies,  in particular  product  yields and material  input
costs;  extensibility of process equipment to meet more stringent future product
requirements;  structural  changes  within  the  disk  media  industry  such  as
combinations, failures, and joint venture arrangements; vertical integration and
consolidation  within the Company's  customer  base; its dependence on a limited
number of customers  for sales;  increased  competition;  timely and  successful
deployment of new process  technologies into manufacturing;  the availability of
certain sole-sourced raw material supplies and retention of key employees.


        In addition, the Company's business requires substantial investments for
research


                                      -16-


<PAGE>

and  development  activities  and for  physical  assets  such as  equipment  and
facilities that are dependent on its access to financial resources. Furthermore,
in June 2000, the Company replaced its credit facilities with a senior unsecured
loan  restructure  agreement  with its lenders  which matures in June 2001 and a
separate subordinated  unsecured convertible debt agreement with other creditors
which  matures in June 2005.  In the  long-term  the Company will likely need to
further  restructure its debt  obligations and raise additional funds to operate
it business.  The Company's  ability to restructure is debt and raise additional
funding will be dependent upon improving its financial  performance.  Other risk
factors that may affect the Company's  financial  performance  are listed in the
Company's various SEC filings, including its Form 10-K for the fiscal year ended
January 2, 2000 which was filed on March 31,  2000.  The Company  undertakes  no
obligation   to  publicly   release  the  result  of  any   revisions  to  these
forward-looking  statements which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.


Overview:
         Adverse market conditions, which began in mid-1997, continued to impact
the  thin-film  media market  throughout  1998,  1999 and 2000.  Demand for disk
drives  grew  rapidly  during the  mid-1990s  and  industry  forecasts  were for
continued  strong growth.  The Company and a majority of its  competitors  (both
independent  disk  manufacturers  and  captive  disk   manufacturers   owned  by
vertically  integrated disk drive customers)  committed to expansion programs in
1996 and substantially  increased their media manufacturing capacity in 1997. In
1997,  the  rate  of  growth  in  demand  for  disk  drives  fell.   Disk  drive
manufacturers  abruptly reduced orders for media from independent  suppliers and
relied more heavily on internal  capacity to supply a 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.

         In addition to adversities  caused by the excess supply of media,  1998
was a year of  transition  for  the  Company  and the  disk  drive  industry  to
advanced,  magnetoresistive  ("MR") media and recording heads. The transition to
MR disk drives led to unprecedented  increases in areal density and,  therefore,
the  amount  of data  that can be stored  on a single  disk  platter.  Increased
storage capacity per disk allows drive  manufacturers to offer lower-priced disk
drives through the incorporation of fewer components into their disk drives. The
rapid  advancement in storage  capacity per disk platter has further slowed disk
demand  throughout the industry.  According to industry  market  analysts,  this
resulting  reduction in the average number of disks per drive will likely result
in flat to  declining  disk demand in 2000.  The  significant  amount of captive
capacity employed by certain disk drive  manufacturers  also continues to reduce
the market  opportunities  for  independent  disk suppliers such as the Company.
Despite the difficult market conditions,  the Company believes that its recently
completed restructuring  activities and the resulting lower manufacturing costs,
and technological advances such as 50 Gigabits per square inch recording density
and  low-cost  glass


                                      -17-


<PAGE>

substrates, position the Company to be a successful competitor.

         In April  1999,  the  Company  purchased  the  assets  of  WDC's  media
operation.  Additionally, the Company and WDC signed a volume purchase agreement
under which the Company  agreed to supply a  substantial  portion of WDC's media
needs over the next three years.  Under the volume purchase  agreement WDC began
to purchase  most of its media  requirements  from the Company after the closing
date. Due to  assimilation  of the WDC media  operation,  the Company  initially
expected that second quarter 1999 unit sales from the combined  operations would
grow sequentially in the range of 20-35% compared to the Company's first quarter
of 1999 results.  However,  in response to  competitive  market  conditions  the
Company's  customers  reduced  the  number  of disks per  drive to  support  the
delivery of lower priced disk drives to the rapidly expanding,  low-cost segment
of the PC market. As a result, actual unit shipments for the second quarter fell
considerably short of these expectations as customer order reductions (including
those from WDC) and lower-than-expected  volumes on certain new product programs
restricted  sequential  unit sales growth to  approximately  10%. These customer
actions,  the  continuing  imbalance  between  the  supply  and  demand for disk
products,  and the lack of new data-intensive  applications  continue to depress
the Company's  financial  performance.  Due to this weak unit demand the Company
closed the former WDC media  operation at the end of June 1999,  nearly  fifteen
months ahead of the Company's original transition plan.

         Following  the closure of the former WDC media  operation at the end of
June 1999,  the Company  announced in July 1999 that it would reduce the size of
its U.S. operations further in response to the poor industry  conditions.  Later
in August 1999, the Company  indicated that it would cease volume  production of
finished  disks in the U.S.,  close two  manufacturing  facilities  in San Jose,
California,  and institute  staged work force  reductions  that would affect 980
people by the end of 1999.  These  reductions,  combined with the June 1999 work
force reduction of 400 people, lowered the employment base at the Company's U.S.
operations  from 1,950 people in April 1999  (subsequent  to the  acquisition of
WDC's media  operation) to 529 people by the end of the second  quarter of 2000.
As a result of these  actions the Company  expected to realize  cash  savings of
approximately  $20  million  per  quarter in U.S.  payroll  costs.  The  Company
recorded a  restructuring  charge of $139.3 million in the third quarter of 1999
for the write-off of equipment and leasehold improvements in the U.S. production
facilities   scheduled  for  closure  and  for  severance  pay  related  to  the
reorganization of its U.S. operations.

         After ceasing volume production,  the Company's San Jose site is solely
focused on  activities  related to research,  process  development,  and product
prototyping.  Selling,  general and administrative  functions also remain in San
Jose. The Company's highly automated substrate  manufacturing  facility in Santa
Rosa,  California  continues to produce low-cost aluminum substrates and perform
advanced development work for both aluminum and glass substrates.  The Company's
shift of high volume production to its


                                      -18-


<PAGE>

cost-advantaged  Malaysian  manufacturing  plants  has  improved  the  Company's
overall cost structure,  resulted in lower unit production  costs,  and improved
the Company's  ability to respond to the continuing  price pressures in the disk
industry.

 Revenue:

         Net sales  decreased  to $83.5  million in the second  quarter of 2000,
down  10.5%  compared  to $93.2  million  in the  second  quarter  of 1999.  The
year-over-year  decrease was primarily due to the net effect of a 16.2% decrease
in the overall  average  selling price and a 6.8% increase in unit sales volume.
Net sales in the second quarters of 2000 and 1999 included $6.3 million and $2.2
million of substrate and single sided disk sales,  respectively.  Second quarter
2000 unit sales of finished  media  increased  to 11.8  million  disks from 11.1
million  disks in the second  quarter  of 1999.  The  severe  pricing  pressures
generated by the continuing  imbalance in supply and demand for thin-film  media
in the first half of 2000 resulted in the year-over-year decrease in the overall
average  selling price.  The Company  expects the pricing  pressures to continue
through the  remainder  of 2000.  Net sales in the first half of 2000  decreased
11.0%  relative to the first half of 1999.  Net sales in the first six months of
2000 and 1999  included  $11.4  million and $6.1 million of substrate and single
sided disk sales, respectively.  The decrease in net sales for the first half of
2000 compared to the first half of 1999 was primarily due to the net effect of a
16.6% decrease in the overall  average selling price and a 6.7% increase in unit
sales volume.

        In addition to sales of internally  produced disk products,  the Company
has periodically  resold products  manufactured by its 50%-owned  Japanese joint
venture,  Asahi Komag Co., Ltd.  (AKCL).  Distribution  sales of thin-film media
manufactured  by AKCL were $2.1 million in the second  quarter and first half of
2000 and negligible in the second  quarter and first half of 1999.  Distribution
sales of AKCL product will be  dependent on market  demand for the  remainder of
2000.


        During the second quarter of 2000, sales to WDC, Maxtor  Corporation and
Seagate  Technology,   Inc.  accounted  for  approximately  52%,  25%  and  17%,
respectively,  of  consolidated  net sales.  Net sales to each of the  Company's
other  customers  were less than 10%  during the  second  quarter  of 2000.  The
Company  expects that it will  continue to derive a  substantial  portion of its
sales from WDC and from a small number of other  customers.  The distribution of
sales among customers may vary from quarter to quarter based on the match of the
Company's  product  capabilities with specific disk drive programs of customers.
However,  as a result of the April 1999 acquisition of WDC's media operation and
related volume  purchase  agreement,  the Company  expects WDC to consume a high
percentage of its total net sales.


Gross Margin:

        The Company  recorded a gross  margin of 11.9% in the second  quarter of
2000

                                      -19-



<PAGE>


compared to a gross loss of 5.0% in the second quarter of 1999. The  improvement
in the gross margin percentage was primarily due to a reduction of $28.3 million
in fixed manufacturing costs. Depreciation charges in the second quarter of 2000
were approximately  26.5% lower than in the second quarter of 1999 primarily due
to the  restructuring  charge recorded in September  1999. The Company  produced
11.9 million units in the second  quarter of 2000 compared to 11.3 million units
in the second quarter of 1999. The positive effects were more than offset by the
effect of the 16.2% decline in the overall average selling price.

        The gross  margin  improved  to 14.0% for the first  half of 2000 from a
negative  2.1% for the first half of 1999.  Unit  production  increased  to 22.3
million  disks in the first half of 2000  compared to 21.4 million  disks in the
first half of 1999.  Reductions  in fixed  manufacturing  costs and higher  unit
production  volumes  favorably  impacted  the  Company's  gross  margin in 2000.
Depreciation  charges in the first half of 2000 were  approximately  58.2% lower
than in the  first  half  of  1999  primarily  due to the  restructuring  charge
recorded in September  1999. The effect of these  manufacturing  cost reductions
more than offset the effect of the decline in the overall  average selling price
on the Company's gross margin.


Operating Expenses:

        Research and development  ("R&D") expenses  decreased to $8.3 million in
the second quarter of 2000 from $12.2 million in the second quarter of 1999. R&D
expenses decreased to $16.9 million in the first half of 2000 from $24.2 million
in the  first  half of 1999.  Decreased  R&D  staffing  and lower  facility  and
equipment costs (primarily due to the 1999 restructuring  activities)  accounted
for most of the  decrease  in R&D  expenses  in both the  three-  and  six-month
periods of 2000  compared  to the same  periods in 1999.  Selling,  general  and
administrative ("SG&A") expenses decreased to $3.8 million in the second quarter
of 2000 from $5.6 million in the second quarter of 1999. SG&A expenses decreased
to $7.4  million in the first half of 2000 from $11.1  million in the first half
of 1999.  The decrease for the three- and six-month  periods of 2000 relative to
the  comparable  periods of 1999 was  primarily due to lower payroll and related
employee costs (primarily due to the 1999 restructuring  activities),  partially
offset by an increase in bonus expense.

Restructuring Activities:

        The Company recorded restructuring charges of $4.3 million in the second
quarter of 1999. This  restructuring  charge primarily  related to severance pay
associated with 400 terminated  employees (all in the U.S. and predominately all
from the  manufacturing  area).  The  entire  $4.3  million  was paid out to the
employees during the second and third quarters of 1999.

        During  the  third   quarter  of  1999,   the  Company   implemented   a
restructuring  plan


                                      -20-

<PAGE>

based on an  evaluation  of the size and  location  of its  existing  production
capacity  relative to the short-term and long-term market demand outlook.  Under
the 1999 restructuring plan, the Company decided to close its U.S. manufacturing
operations in San Jose,  California.  The  restructuring  actions  resulted in a
charge of $139.3 million and included  $98.5 million for leasehold  improvements
and  equipment   write-offs,   $17.7  million  for  future   liabilities   under
non-cancelable  equipment leases associated with equipment no longer being used,
$15.6 million for severance pay  associated  with  approximately  980 terminated
employees (all in the U.S. and predominately  all from the manufacturing  area),
and  $7.5  million  in plant  closure  costs.  Non-cash  items  included  in the
restructuring charge totaled approximately $98.5 million.

<TABLE>

1999 Restructuring Reserve - Changes During First Half of 2000
<CAPTION>


                                    Writedown Net Book    Liabilities Under
                                    Value of Equipment     Non-Cancelable     Facility
                                      and Leasehold           Equipment        Closure     Severance
(in millions)                          Improvements            Leases           Costs        Costs      Total
-------------                          ------------            ------           -----        -----      -----
<S>                                    <C>                    <C>              <C>          <C>        <C>
Balance at January 2, 2000                 $--                 $13.8            $4.5         $4.8       $23.1

Adjustment to Reserve                      2.4                    --            (3.7)        (0.7)       (2.0)
Charged to Reserve                        (2.4)                 (4.5)           (0.4)        (4.0)      (11.3)
                                        --------              --------        --------    --------     --------
Balance at July 2, 2000                    $--                  $9.3            $0.4         $0.1        $9.8
                                        --------              --------        --------    --------     --------
</TABLE>


        At  July  2,  2000,  $9.8  million  related  to the  1999  restructuring
activities remained in current liabilities. During 1999 and the first six-months
of 2000, the Company made cash payments  totaling  $30.9 million,  primarily for
severance costs, payments for liabilities under non-cancelable  equipment leases
and  facility  closure  costs.  Cash  outflows  of  approximately  $0.5  million
associated with severance pay and closure costs will occur primarily  during the
third  quarter of 2000.  Cash payments of  approximately  $9.3 million under the
equipment  leases will be made in monthly  installments  through  mid-2002.  The
facility  closure  liability  was reduced by  approximately  $3.7 million in the
first half of 2000 due to successfully  terminating the leases on  manufacturing
facilities and subleasing the  administrative  facility  earlier than originally
expected.   The   writedown  of  net  book  value  of  equipment  and  leasehold
improvements  was  increased by $2.4  million  during the first half of 2000 for
additional  equipment that was determined  unusable due to the restructure.  The
severance costs liability was reduced by $0.7 million due to lower than expected
payments.


Interest and Other Income/Expense:

        Interest  income  decreased  $200,000  and  $800,000  in the  three- and
six-month


                                      -21-

<PAGE>

periods  ended July 2, 2000  relative to the same periods ended July 4, 1999 due
to lower  average cash and  short-term  investment  balances in the current year
period.  Interest  expense  increased $1.5 million and $3.0 million in the first
three- and  six-months  of 2000,  respectively,  compared to the same periods in
1999.  The increase in interest  expense for the second quarter of 2000 compared
to the same quarter in 1999 was due to higher bank prime rates and the effect of
completing the loan restructure agreement with the Company's senior lenders. The
increase  in interest  expense for the first half of 2000  compared to the first
half of 1999 was due higher bank prime rates,  the effect of completing the loan
restructure  agreement with the Company's senior lenders and approximately  $1.0
million of interest  expense on the Company's $21.2 million note payable to WDC.
Other income  decreased  $0.7 million and $1.0 million in the second quarter and
first  six-months of 2000 compared to the same periods of 1999. The decrease was
primarily due to a reduction in royalty income.

Income Taxes:

    The  Company's  income tax  provision  was  approximately  $500,000  and
$800,000 for the three- and six-month periods of 2000, respectively, compared to
$400,000  and  $800,000   for  the  three-  and   six-month   periods  of  1999,
respectively.  The  income  tax  provisions  for both the 2000 and 1999  periods
represent  foreign  withholding  taxes on royalty  and  interest  payments.  The
Company's  wholly-owned  thin-film  media  operation,  Komag USA (Malaysia) Sdn.
("KMS"),  received a five-year extension of its initial tax holiday through June
2003 for its first  plant  site.  KMS was  granted an  additional  ten-year  tax
holiday for its second and third plant sites in  Malaysia.  The  government  has
determined  that earnings from the second and third plant sites will be tax free
through  2001.  The  remaining  period  of the  ten-year  tax  holiday  will  be
reassessed in 2001 based on achieving certain investment criteria.

Minority Interest in KMT/Equity in Net Income (Loss) of AKCL:

        The  minority   interest  in  the  net  income  (loss)  of  consolidated
subsidiary  represented Kobe Steel USA Holdings Inc.'s ("Kobe USA") 20% share of
Komag Material Technology,  Inc.'s ("KMT") net income (loss). KMT recorded a net
loss of $1.6  million and $2.3  million in the second  quarter and first half of
2000,  respectively,  compared to net income of $400,000 and $1.7 million in the
second quarter and first half of 1999, respectively.

        The Company  owns a 50% interest in Asahi Komag Co.,  Ltd.  ("AKCL") and
records its share of AKCL's net income  (loss) as equity in net income (loss) of
unconsolidated joint venture. The Company recorded a loss of $1.4 million as its
equity in AKCL's  net loss in the  first  quarter  of 1999,  which  reduced  the
Company's  investment  in AKCL down to zero.  During  1999 and the first half of
2000,  the  Company did not record  $2.6  million  and $10.4  million in losses,
respectively,  as it would have reduced the net book value of its  investment in
AKCL below zero. Assuming AKCL reports net income in future periods, the Company
will  record  its share of such  income  only to the


                                      -22-

<PAGE>


extent by which the income exceeds the losses incurred subsequent to the date on
which the investment balance became zero.

Extraordinary Gain:

         The Company  previously had borrowed $260.0 million under its term debt
and line of credit  facilities.  In June 2000, the Company replaced these credit
facilities with a senior unsecured loan  restructure  agreement with its lenders
and a separate  subordinated  unsecured  convertible  debt  agreement with other
creditors.  As a result,  the Company  currently has $231.7 million in bank debt
and $9.3 million of convertible  subordinated  debt. At the time the convertible
subordinated  debt was  converted  from senior  unsecured  debt,  the  principal
balance was $13.3  million.  The  conversion  from a principal  balance of $13.3
million to $9.3 million resulted in an extraordinary gain to the Company of $3.8
million, net of expenses.


Merger:

         In April 2000, the Company entered into a definitive  merger  agreement
with HMT Technology Corporation (HMT). HMT designs,  develops,  manufactures and
markets  high-performance  thin-film  disks.  Under the terms of the  definitive
merger  agreement,  each  issued  and  outstanding  share of HMT  stock  will be
converted into 0.9094 shares of the Company's  common stock.  The merger will be
accounted  for under  purchase  accounting  and is subject to customary  closing
conditions,  including  regulatory  approvals,  the approval of both  companies'
shareholders and the Company's  lenders.  The merger is expected to close in the
third quarter of calendar 2000.

Liquidity and Capital Resources:


        Cash  and  short-term  investments  of $55.1  million  at the end of the
second quarter of 2000 decreased  $14.4 million from the end of the prior fiscal
year.  Working  capital  remained  flat with the end of the prior  fiscal  year.
Consolidated operating activities provided $1.1 million in cash during the first
six months of 2000. The $11.8 million net loss for the first six months of 2000,
net of the non-cash  depreciation and amortization charges of $44.2 million, and
other non-cash  charges  totaling $2.4 million,  provided $30.0 million of cash.
Changes in operating assets and liabilities used $29.0 million of cash. Accounts
receivable increased $5.3 million (due to an increase in sales and the timing of
sales in the first  half of 2000  compared  to the  fourth  quarter of 1999) and
other  liabilities  decreased  $8.2 million  (primarily due to cash payments for
liabilities   associated  with  the  purchase  of  the  assets  of  WDC's  media
operation),  consuming cash. The net change in the  restructuring  liability for
the first six months of 2000 used $15.4  million of cash.  In addition,  the net
change in the other operating assets and liabilities  consumed $100,000 of cash.
The  Company  spent $4.9  million on capital  requirements  during the first six
months of 2000 and other  investing  activities  provided  $2.8 million in cash.


                                      -23-

<PAGE>


Repayment  of debt  consumed  $15.0  million and sales of Common Stock under the
Company's stock programs generated $1.7 million.


        Current  noncancellable  capital  commitments  as of July 2, 2000  total
approximately  $2.2 million.  Total capital  expenditures for 2000 are currently
planned at approximately $20.0 million. The 2000 capital spending plan primarily
includes costs for projects  designed to improve yield and  productivity as well
as costs for the installation of certain production  equipment  transferred from
the closed U.S. manufacturing plant to Malaysia.


        In June 2000, the Company  replaced its credit  facilities with a senior
unsecured   loan   restructure   agreement  with  its  lenders  and  a  separate
subordinated  unsecured  convertible debt agreement with other  creditors.  As a
result,  the Company  currently has $231.7 million in senior unsecured bank debt
outstanding  that  matures  in June  2001,  and  approximately  $9.3  million of
convertible  debt that  matures in 2005.  In  addition,  the  Company has a note
payable  outstanding with WDC with a principal balance of $30.1 million which is
due in April 2002,  unless WDC realizes a return on its Komag equity holdings in
excess of a targeted  amount by April 2002.  In the event the excess is realized
then the excess  amount  will  reduce  the  balance  due under the note.  In the
long-term,  the  Company  will  likely  need to  further  restructure  its  debt
obligations and raise additional funds to operate its business.


        In  March  2000,   the  Company   entered  into  an  agreement  with  an
institutional  investor to sell up to $20.0 million of common stock.  The shares
of common stock may be sold pursuant to a private  equity line of credit,  under
which the Company may exercise "put options" to sell shares for a price equal to
90%, 92% or 94% of market  depending on the level of the actual  market price at
the time of exercise of the "put option". The shares may be sold periodically in
maximum increments of $1.5 million to $3.5 million over a period of up to thirty
months. Upon signing the agreement,  the Company issued warrants to the investor
to acquire  80,000  shares of common  stock at an exercise  price of $4.6875 per
share.  The warrants are  exercisable  during a three-year  period  beginning in
September  2000. The Company valued the warrants using the  Black-Scholes  model
and determined the value to be immaterial.


        Over the next several  years the Company will need  financial  resources
for capital  expenditures,  working  capital and  research and  development.  In
fiscal 2000, the Company plans to spend approximately $20.0 million on property,
plant and equipment. The Company believes that in order to achieve its long-term
growth  objectives  and  maintain  and enhance its  competitive  position,  such
additional financial resources will be required.  There can be no assurance that
the Company  will be able to secure such  financial  resources  on  commercially
reasonable  terms.  If the Company is unable to obtain  adequate  financing,  it
could be required to  significantly  reduce or possibly  suspend its operations,
and/or to sell  additional  securities on terms that would be highly dilutive to
current stockholders.


                                      -24-

<PAGE>

PART II. OTHER INFORMATION

         ITEM 1. Legal Proceedings


               Asahi  Glass  Company,  Ltd.  (Asahi)  has  asserted  that  an
      agreement between Komag and Asahi gives Asahi exclusive rights, even as
      to Komag,  to certain glass  substrate  related  intellectual  property
      developed by Komag. Komag has sent Asahi a notice of termination of the
      agreement and has filed a lawsuit in the Superior Court of Santa Clara,
      California,  for, among other things,  a declaration that the agreement
      has been terminated and that Asahi has no rights to the glass substrate
      technology  developed  by  Komag.  Asahi  has  removed  the case to the
      Federal  District Court for the District Court of Northern  California.
      Asahi's motion to stay pending  arbitration is currently pending before
      the District Court.


      ITEM 2. Changes in Securities-Not Applicable.

      ITEM 3. Defaults Upon Senior Securities


               Cumulative losses incurred by the Company previously  resulted in
      a default under  certain  financial  covenants  contained in the Company's
      various bank credit  facilities.  In June 2000, the Company replaced these
      credit facilities with a senior unsecured loan restructure  agreement with
      its  lenders  and  a  separate  subordinated  unsecured  convertible  debt
      agreement  with other  creditors.  As of July 2, 2000,  the  Company is in
      compliance with the financial covenants of such agreements.


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

         (a) The Annual Meeting of Stockholders was held May 10, 2000.

         (b) The  meeting  included  the  election  of the  Board of  Directors,
             submitted as Item No. 1, whose names are as follows:

             Thian Hoo Tan
             Chris A. Eyre
             Irwin Federman
             George A. Neil
             Michael R. Splinter
             Anthony Sun
             Masayoshi Takebayashi

             Each of the  individuals  elected  is a  continuing  member  of the
             Board.

         (c) Other matters voted upon at the stockholders meeting were:

             Item No. 2 - Renew the  approval  of the sale and  issuance  by the
             Company  of up to  $250  million  of  Common  Stock  or  securities
             convertible into Common Stock in private  transactions from time to
             time  until June 30,  2001 at a price not less than the  greater of
             book value and 90% of the then  current  market value of the Common
             Stock.

             Item  No.  3 -  Ratify  the  appointment  of  Ernst & Young  LLP as
             independent  auditors  of the  Company  for the fiscal  year ending
             December 31, 2000.


                                      -25-

<PAGE>


                  Shares of Common Stock voted were as follows:

      Item No. 1
      (Election of Board of Directors)

                                    Total Vote For       Total Vote Withheld
                                     Each Director        From Each Director
                                     -------------        ------------------

      Thian Hoo Tan                     60,373,545                   363,096
      Chris A. Eyre                     60,378,198                   358,443
      Irwin Federman                    60,375,794                   360,847
      George A. Neil                    60,374,395                   362,246
      Michael R. Splinter               60,369,201                   367,440
      Anthony Sun                       60,383,948                   352,693
      Masayoshi Takebayashi             60,379,305                   357,336

<TABLE>
<CAPTION>


                                                                                  Broker
                                      For            Against       Abstain       Non-Vote
                                      ---            -------       -------       --------
<S>                                 <C>              <C>            <C>         <C>
Item No. 2
(Renew authorization
to sell up to $250 million
of equity below book
value)                              32,985,461       711,568        576,372     26,463,240

Item No. 5
(Selection of
Independent Auditors)               60,475,705       179,202         81,734            --
</TABLE>


      ITEM 5. Other Information-Not Applicable.

      ITEM 6. Exhibits and Reports on Form 8-K

         a) Exhibits

         Exhibit 4.3-- Loan  Restructure  Agreement  by and among  Komag and the
                       Restructure  Lenders named  therein,  dated as of June 1,
                       2000  (incorporated  by reference  from Exhibit 4.1 filed
                       with the Company's report on Form 8-K filed June 2, 2000)

         Exhibit 4.4-- Warrant  Agreement  by and  between  Komag  and the Banks
                       named  therein,  dated as of June 1, 2000,  with attached
                       form of Warrant  (incorporated  by reference from Exhibit
                       4.2  filed  with the  Company's  report on Form 8-K filed
                       June 2, 2000)

         Exhibit 4.5-- Registration  Rights  Agreement by and between  Komag and
                       the  Banks  named  therein,  dated  as of  June  1,  2000
                       (incorporated  by  reference  from Exhibit 4.3 filed with
                       the Company's report on Form 8-K filed June 2, 2000)

         Exhibit 4.6-- Securities  Purchase  Agreement  by and  among  Komag and
                       certain  buyers  listed  therein,   dated  June  1,  2000
                       (incorporated


                                      -26-

<PAGE>


                       by reference  from  Exhibit 4.1 filed with the  Company's
                       report on Form 8-K filed June 2, 2000)

         Exhibit 4.7-- Registration  Rights  Agreement  by and  among  Komag and
                       certain  buyers  listed  therein,   dated  June  1,  2000
                       (incorporated  by  reference  from Exhibit 4.2 filed with
                       the Company's report on Form 8-K filed June 2, 2000)

         Exhibit 4.8-- Form of  Convertible  Note issued by Komag to buyer named
                       therein  dated June 2, 2000  (incorporated  by  reference
                       from Exhibit 4.3 filed with the Company's  report on Form
                       8-K filed June 2, 2000)

         Exhibit  27--Financial Data Schedule.

         b) Reports on Form 8-K


         On May 1, 2000 the Company  filed Form 8-K  containing  the contents of
         its press release  dated April 26, 2000 entitled  "Komag & HMT Agree to
         Merge to Create the Pre-eminent Independent Thin-Film Media Company".

         On June 2, 2000 the Company filed Form 8-K  containing  the contents of
         its press release dated June 1, 2000 entitled "Komag Announces  signing
         of Restructured Loan Agreement".

         On June 2, 2000 the Company filed Form 8-K  announcing  that on June 2,
         2000  it  had  entered  into  a  Securities  Purchase  Agreement  and a
         Registration   Rights  Agreement  with  certain  buyers,  and  executed
         convertible notes in the name of such buyers.


                                      -27-


<PAGE>


                                   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:  August 9, 2000               BY: /s/ Thian Hoo Tan
     ------------------                ---------------------

                                    Thian Hoo Tan
                                    President and
                                    Chief Executive Officer

DATE:  August 9, 2000               BY: /s/ Edward H. Siegler
       ----------------                ----------------------
                                    Edward H. Siegler
                                    Vice President,
                                    Chief Financial Officer

DATE:  August 9, 2000               BY: /s/ Kathleen A. Bayless
       ----------------                ------------------------
                                    Kathleen A. Bayless
                                    Vice President,
                                    Corporate Controller


                                      -28-