<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                                       OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                       For the Quarter Ended April 1, 2001
                         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 April 1, 2001, 111,667,678 shares of the Registrant's common stock, $0.01 par
value, were issued and outstanding.

<PAGE>   2

                                      INDEX

                               KOMAG, INCORPORATED


<TABLE>
<CAPTION>
                                                                                Page No.
                                                                                --------
<S>          <C>                                                                <C>
PART I.      FINANCIAL INFORMATION

Item 1.      Consolidated Financial Statements (Unaudited)

             Consolidated statements of operations--Three
             months ended April 1, 2001 and April 2, 2000 ..................        3

             Consolidated balance sheets--April 1, 2001
             and December 31, 2000 .........................................        4

             Consolidated statements of cash flows--Three
             months ended April 1, 2001 and April 2, 2000 ..................        5

             Notes to consolidated financial statements--
             April 1, 2001 .................................................     6-12

Item 2.      Management's Discussion and Analysis of
             Financial Condition and Results of Operations .................    13-33

PART II.     OTHER INFORMATION

Item 1.      Legal Proceedings .............................................       34

Item 2.      Changes in Securities .........................................       34

Item 3.      Defaults Upon Senior Securities ...............................       34

Item 4.      Submission of Matters to a Vote of Security Holders ...........       34

Item 5.      Other Information .............................................       34

Item 6.      Exhibits and Reports on Form 8-K ..............................       34

SIGNATURES .................................................................       35
</TABLE>



                                      -2-
<PAGE>   3

PART I.   FINANCIAL INFORMATION

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


<TABLE>
<CAPTION>
                                                     Three Months Ended
                                                  -------------------------
                                                      APR 1           Apr 2
                                                       2001            2000
                                                  ---------       ---------
<S>                                               <C>             <C>
Net sales to unrelated parties                    $  47,105       $  27,407
Net sales to related parties                         40,751          52,226
                                                  ---------       ---------
          NET SALES                                  87,856          79,633

Cost of sales                                        93,430          66,795
                                                  ---------       ---------
          GROSS PROFIT (LOSS)                        (5,574)         12,838

Operating expenses:
     Research, development and engineering           10,669           8,549
     Selling, general and administrative              5,711           3,645
     Amortization of intangibles                      7,565           2,555
     Restructuring charges                               --          (1,950)
                                                  ---------       ---------
                                                     23,945          12,799
                                                  ---------       ---------
          OPERATING INCOME (LOSS)                   (29,519)             39

Other income (expense):
     Interest income                                    852             982
     Interest expense                               (22,163)         (6,451)
     Other, net                                       1,025             375
                                                  ---------       ---------
                                                    (20,286)         (5,094)

                                                  ---------       ---------
Loss before income taxes, minority interest,
   and equity in unconsolidated company loss        (49,805)         (5,055)
Provision for income taxes                              460             376
                                                  ---------       ---------
Loss before minority interest and equity in
   unconsolidated company loss                      (50,265)         (5,431)
Minority interest in net income (loss) of
   consolidated subsidiary                               12            (137)
Equity in net loss of unconsolidated company            737              --
                                                  ---------       ---------
          NET LOSS                                ($ 51,014)      ($  5,294)
                                                  =========       =========

Basic and diluted net loss per share              ($   0.46)      ($   0.08)
                                                  =========       =========

Number of shares used in basic and
   diluted computation                              111,645          65,902
                                                  =========       =========
</TABLE>


                See notes to consolidated financial statements.



                                      -3-
<PAGE>   4

                               KOMAG, INCORPORATED
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                 APR 1          Dec 31
                                                                  2001            2000
                                                           -----------       ---------
ASSETS                                                     (UNAUDITED)          (note)
<S>                                                        <C>               <C>
Current assets
      Cash and cash equivalents                              $  50,129       $  71,067
      Short-term investments                                     1,450           9,597
      Accounts receivable (including $17,038 and
        $19,498 due from related parties in 2001
        and 2000, respectively) less allowances
        of $2,865 in 2001 and $5,348 in 2000                    28,886          40,243
      Inventories:
          Raw materials                                         13,099           8,883
          Work-in-process                                        7,864           5,778
          Finished goods                                         9,082           6,781
                                                             ---------       ---------
               Total inventories                                30,045          21,442
      Prepaid expenses and deposits                              3,883           6,299
                                                             ---------       ---------
               Total current assets                            114,393         148,648

Investment in unconsolidated company                            11,263          12,000

Property, plant and equipment
      Land                                                       7,785           7,785
      Buildings                                                158,645         136,149
      Equipment                                                488,051         497,233
      Furniture                                                  7,521           7,517
      Leasehold improvements                                    32,371          31,931
                                                             ---------       ---------
                                                               694,373         680,615
      Less allowances for depreciation and amortization       (412,112)       (396,097)
                                                             ---------       ---------
               Net property, plant and equipment               282,261         284,518
      Land and buildings held for sale                          70,355          70,355

Goodwill and other net intangible assets (see Note 3)          108,566         116,131
Deposits and other assets                                        1,390           1,409
                                                             ---------       ---------
                                                             $ 588,228       $ 633,061
                                                             =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
      Current portion of long-term debt                      $ 209,240       $ 216,740
      Trade accounts payable                                    37,790          29,014
      Accounts payable to related parties                        2,209           2,487
      Accrued compensation and benefits                         11,884          13,866
      Other liabilities                                         14,341          18,704
      Other liabilities to related parties                      14,211          12,000
      Costs to exit certain business activities                 17,781          17,927
      Income taxes payable                                          15               6
      Restructuring liabilities                                 12,644          14,277
                                                             ---------       ---------
               Total current liabilities                       320,115         325,021
Note payable to related party                                   26,369          25,649
Convertible subordinated debt                                  122,794         111,896
Deferred income taxes                                           11,783          11,813
Other long-term liabilities                                      5,506           5,441
Minority interest in consolidated subsidiary                     1,392           1,380

Stockholders' equity
      Preferred stock                                               --              --
      Common stock                                               1,117           1,116
      Additional paid-in capital                               586,133         586,133
      Accumulated deficit                                     (486,981)       (435,967)
      Accumulated other comprehensive income                        --             579
                                                             ---------       ---------
               Total stockholders' equity                      100,269         151,861
                                                             ---------       ---------
                                                             $ 588,228       $ 633,061
                                                             =========       =========
</TABLE>

      Note:  The balance sheet at December 31, 2000 has been derived from the
             audited financial statements at that date.


                 See notes to consolidated financial statements.



                                      -4-
<PAGE>   5

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


<TABLE>
<CAPTION>
                                                                                      Three Months Ended
                                                                                    -----------------------
                                                                                     APR 1          Apr 2
                                                                                      2001           2000
                                                                                    --------       --------
<S>                                                                                 <C>            <C>
OPERATING ACTIVITIES
      Net loss                                                                      ($51,014)      ($ 5,294)
      Adjustments to reconcile net loss to net cash
          provided by operating activities:
            Depreciation and amortization                                             18,636         20,597
            Amortization of intangibles                                                7,565          2,555
            Provision for losses on accounts receivable                                  (95)           317
            Interest accrual on note payable to related party                          1,120            950
            Accretion and amortization of interest on debt                            12,580             --
            Equity in net loss of unconsolidated company                                 737             --
            Realized gain on cumulative translation adjustment                          (579)            --
            Gain on disposal of property, plant and equipment                            (14)           (96)
            Deferred income taxes                                                        (30)            --
            Deferred rent                                                                 --             63
            Minority interest in net income (loss) of consolidated subsidiary             12           (137)
            Changes in operating assets and liabilities:
                  Accounts receivable                                                  8,992         (3,998)
                  Accounts receivable from related parties                             2,460           (506)
                  Inventories                                                         (8,603)         1,156
                  Prepaid expenses and deposits                                          919          2,119
                  Trade accounts payable                                               8,776          1,376
                  Accounts payable to related parties                                   (278)           238
                  Accrued compensation and benefits                                   (1,982)           (55)
                  Other liabilities                                                   (4,883)        (4,664)
                  Other liabilities to related party                                   2,211             --
                  Income taxes (payable) refundable                                        9            (14)
                  Costs to exit certain business activities                             (146)            --
                  Restructuring liabilities                                           (1,633)       (10,867)
                                                                                    --------       --------
                         Net cash provided by (used in) operating activities          (5,240)         3,740

INVESTING ACTIVITIES
      Acquisition of property, plant and equipment                                   (16,523)        (2,452)
      Purchases of short-term investments                                             (1,450)            --
      Proceeds from short-term investments at maturity                                 9,597          4,410
      Proceeds from disposal of property, plant and equipment                            158            846
      Deposits and other assets                                                           19             80
                                                                                    --------       --------
                         Net cash provided by (used in) investing activities          (8,199)         2,884

FINANCING ACTIVITIES
      Repayment of debt                                                               (7,500)            --
      Sale of common stock, net of issuance costs                                          1             86
                                                                                    --------       --------
                         Net cash provided by (used in) financing activities          (7,499)            86

                      Increase (decrease) in cash and cash equivalents               (20,938)         6,710

      Cash and cash equivalents at beginning of year                                  71,067         65,116
                                                                                    --------       --------

                      Cash and cash equivalents at end of period                    $ 50,129       $ 71,826
                                                                                    ========       ========
</TABLE>


                See notes to consolidated financial statements.



                                      -5-
<PAGE>   6

                               KOMAG, INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  APRIL 1, 2001


NOTE 1 - BASIS OF PRESENTATION AND POLICY

      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 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-month period ended April 1, 2001, are
not necessarily indicative of the results that may be expected for the year
ending December 30, 2001.

      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 December 31, 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 recent operating
losses, as well as significant debt which is maturing in the short-term.

      As of April 1, 2001, the Company has $209.2 million in senior debt
outstanding which matures on June 30, 2001, and $30.1 million (principal value)
of notes payable to a related party which mature in 2002. Additionally, the
Company has $230.0 million (principal value) of convertible subordinated notes
outstanding which are due in January 2004, and $9.3 million of convertible
subordinated debt which matures in 2005.

      The Company will need to restructure its debt obligations, as well as
raise additional funds, to operate its business. If the Company cannot refinance
its debt and raise additional funds, it may be forced to reduce, or possibly
suspend, its operations, and/or sell additional securities on terms that would
be highly dilutive to the Company's current stockholders. 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.

      For further information, refer to the consolidated financial statements
and related footnotes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 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.

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



                                      -6-
<PAGE>   7

      Long-lived assets and certain identifiable intangible assets are generally
evaluated on an individual acquisition, market, or product basis whenever events
or changes in circumstances indicate that such assets are impaired or the
estimated useful lives are no longer appropriate. The Company considers the
primary indicators of impairment to include significant decreases in unit
volumes, unit prices or significant increases in production costs. Periodically,
the Company reviews its long-lived assets and certain identifiable intangible
assets for impairment based on estimated future discounted cash flows
attributable to the assets. In the event such cash flows are not expected to be
sufficient to recover the recorded value of the assets, the assets are written
down to their estimated fair values. The discount rate that will be used will be
based on the estimated incremental borrowing rate at the date of the event that
triggered the impairment.

NOTE 2 - INVESTMENT IN DEBT SECURITIES

      The Company invests its excess cash in high-quality, short-term debt
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:

<TABLE>
<CAPTION>
                                                           (in thousands)
                                                         APR 1       Dec 31
                                                          2001         2000
                                                       -------      -------
    <S>                                                <C>          <C>
    Municipal auction rate certificates                $17,500      $28,500
    Corporate debt securities                            7,409       17,153
    Mortgage-backed securities                              --       13,991
    Government-backed securities                        10,521        8,045
                                                       -------      -------
                                                       $35,430      $67,689
                                                       =======      =======

    Amounts included in cash and cash equivalents      $33,980      $58,092
    Amounts included in short-term investments           1,450        9,597
                                                       -------      -------
                                                       $35,430      $67,689
                                                       =======      =======
</TABLE>

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 - GOODWILL AND OTHER NET INTANGIBLE ASSETS

      The following table presents the details of the goodwill and other net
intangible assets:

<TABLE>
<CAPTION>
                                                          (in thousands)
                                                        APR 1        Dec 31
                                                         2001          2000
                                                     --------      --------
    <S>                                              <C>           <C>
    Goodwill associated with purchase of assets
          and volume purchase agreement from
          Western Digital, net                       $ 10,221      $ 12,776

    Goodwill associated with HMT merger, net           91,993        95,532
    Other intangibles associated with HMT
          merger, net:
          Current technology                            3,730         3,996
          Patents                                       2,622         2,768
          Other                                            --         1,059
                                                     --------      --------
                                                       98,345       103,355
                                                     --------      --------
    Net goodwill and other intangible assets         $108,566      $116,131
                                                     ========      ========
</TABLE>



                                      -7-
<PAGE>   8

      The remaining goodwill and volume purchase agreement associated with the
purchase of assets from Western Digital as of April 1, 2001, will be amortized
over a remaining useful life of fifteen months using the straight-line method.
The goodwill and other intangibles associated with the HMT merger are being
amortized using the straight-line method. The remaining useful lives as of April
1, 2001, of goodwill, current technology, and patents are six and one-half,
three and one-half, and four and one-half years, respectively.

NOTE 4 - INCOME TAXES

      The Company's income tax provisions of $0.5 million and $0.4 million for
the three-month periods ended April 1, 2001, and April 2, 2000, respectively,
represent foreign withholding taxes on royalty and interest payments. The
Company's wholly-owned thin-film media operation, Komag USA (Malaysia) Sdn., or
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
will reassess the tax holiday start date for the second and third plant sites by
the end of the year 2001, based on achieving certain investment criteria.

NOTE 5 - COMPREHENSIVE LOSS

      Comprehensive loss for the three-month periods ended April 1, 2001, and
April 2, 2000, in the accompanying Consolidated Statements of Operations is the
same as the Company's net loss.

      Accumulated other comprehensive income at December 31, 2000, in the
accompanying Consolidated Balance Sheets consists entirely of accumulated
foreign currency translation adjustments. The balance was realized as a gain in
the three-month period ended April 1, 2001, resulting in a zero balance in
accumulated other comprehensive income at April 1, 2001.

NOTE 6 - RESTRUCTURING CHARGES

      In 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 $98.5 million for the write-off of leasehold
improvements and equipment.



                                      -8-
<PAGE>   9

      The following table summarizes these 1999 restructuring activities during
the first three months of 2001:

<TABLE>
<CAPTION>
                                           Liabilities
                                              Under
                                          Non-Cancelable
                                            Equipment
           (in millions)                      Leases         Total
                                          --------------    --------
           <S>                            <C>               <C>
           Balance at December 31, 2000      $    6.3       $    6.3
           Charged to Reserve                    (1.6)          (1.6)
                                             --------       --------
           Balance at April 1, 2001          $    4.7       $    4.7
                                             ========       ========
</TABLE>


      At April 1, 2001, $4.7 million related to the 1999 restructuring
activities remained in current liabilities. In 2001, 2000, and 1999, the Company
made cash payments totaling $38.4 million. Cash payments of $4.7 million under
the equipment leases will be made monthly through June 2002.

      In the first quarter of 2000, the 1999 restructuring reserves were reduced
by a total of $2.0 million. The writedown of net book value of equipment and
leasehold improvements was increased by $2.4 million during the first quarter of
2000 for additional equipment that was determined unusable due to the
restructure. The facility closure liability was reduced by $3.7 million in the
first quarter of 2000 due to successfully terminating the leases on
manufacturing facilities and subleasing the administrative facility earlier than
originally expected. The severance costs liability was reduced by $0.7 million
due to lower than expected payments in the first quarter of 2000.

      In December 2000, the Company implemented a restructuring plan to cease
Komag Material Technology Inc.'s (KMT) U.S. manufacturing operations in May
2001. This restructuring action resulted in a charge of $8.0 million, and
included $2.6 million of severance pay associated with eliminating approximately
160 positions, primarily in manufacturing, $4.5 million associated with the
write-down of equipment and leasehold improvements, and $0.9 million associated
with related facility closing costs. Through the first quarter of 2001, no cash
payments had been made. The majority of severance pay and the facilities closing
costs are expected to be paid by June 2001.

      The following table summarizes these 2000 restructuring activities:

<TABLE>
<CAPTION>
                                Writedown
                                Net Book
                                Value of
                                Equipment       Facility
                              and Leasehold     Closure      Severance
(in millions)                  Improvements      Costs          Costs         Total
                              --------------    --------     ---------      --------
<S>                           <C>               <C>          <C>            <C>
Balance at December 31, 2000
    and April 1, 2001             $    4.5      $    0.9      $    2.6      $    8.0
</TABLE>

NOTE 7 - 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.

      Incremental common shares attributable to the exercise of outstanding
options (assuming proceeds would be used to purchase treasury stock) of 187,219
and 461,954 for the three months ended April 1, 2001, and April 2, 2000,
respectively, were not included in the net loss per share computation because
the effect would be antidilutive.



                                      -9-
<PAGE>   10

      Incremental common shares attributable to the exercise of outstanding
warrants (assuming proceeds would be used to purchase treasury stock) were zero
for both of the three-month periods ended April 1, 2001, and April 2, 2000.

      Incremental common shares attributable to convertible debt of 12,474,181
and zero for the three months ended April 1, 2001, and April 2, 2000,
respectively, were not included in the net loss per share computation because
the effect would be antidilutive.

NOTE 8 - 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 9 - LIABILITIES ASSOCIATED WITH PURCHASE OF ASSETS

      In April 1999, the Company purchased the assets of Western Digital
Corporation's, or Western Digital, 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 Western Digital
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, 2000 and the first three months of 2001, liabilities arising
from this transaction were reduced by $29.3 million, including equipment lease
obligations ($20.6 million), rent ($1.9 million) and other liabilities ($6.8
million). Equipment lease obligations are expected to be paid monthly through
mid-2002. At April 1, 2001, the current and long-term portions of the equipment
lease obligations were $5.6 million and $0.2 million, respectively. The balance
of $1.7 million for the purchase order cancellations and other costs are
expected to be paid by June 2002.

NOTE 10 -- LIABILITIES ASSOCIATED WITH MERGER

      On October 2, 2000, the Company merged with HMT Technology Corporation, or
HMT. HMT was headquartered in Fremont, California, and designed, developed,
manufactured, and marketed high-performance thin-film disks. In connection with
the merger, in the fourth quarter of 2000, the Company implemented a
reorganization plan which included a reduction in the Company's U.S. workforce
and the cessation of manufacturing operations in the U.S. This transition was
expected to be completed by the end of the second quarter of 2001. U.S.
production ended at all U.S. facilities by the end of April 2001.

      Under purchase accounting rules, the Company recorded liabilities that
include $12.2 million for estimated severance pay associated with termination of
approximately 980 employees and $5.7 million for estimated facility closure
costs for the closure of certain former HMT U.S. manufacturing operations.
Payments against these liabilities are expected to be paid by the fourth quarter
of 2001. In 2000 and the first quarter of 2001, $1.4 million of payments were
made against these liabilities.



                                      -10-
<PAGE>   11

NOTE 11 - TERM DEBT, CONVERTIBLE SUBORDINATED DEBT, AND NOTE PAYABLE TO RELATED
PARTY

      In June 2000, the Company entered into a senior unsecured loan restructure
agreement with its lenders and a separate subordinated unsecured convertible
debt agreement with other creditors. The remaining restructured bank debt of
$209.2 million as of April 1, 2001, matures on June 30, 2001, and bears interest
at Fleet Bank's base rate plus 1.25%. The Company is required to make principal
payments under the agreement of $7.5 million each quarter. The agreement
requires the Company to meet certain financial covenants, with which the Company
was in compliance as of April 1, 2001.

      The Company is currently negotiating with the holders of the senior bank
debt. If it does not reach an agreement with all of its senior bank debt
holders, the Company will not be able to implement its plan to refinance the
debt. If the senior bank debt holders do not agree to accept a partial repayment
and exchange notes as full payment for the senior bank debt, the principal
amount of the senior bank debt will become due on June 30, 2001, and the Company
will not have sufficient funds to repay it. As a result, under the terms of the
loan restructure agreement for the senior bank debt and the subordination
provisions of the HMT debt (which is described below), the Company would not be
able to pay interest on the HMT debt when it becomes due on July 15, 2001. The
Company would then be in default under the HMT debt, and the holders could
accelerate the outstanding principal on the notes. In addition, the Company
would then be in default under its other existing debt. If this were to occur,
the Company would be further unable to meet its obligations as they become due.

      The Company currently has $9.3 million of convertible subordinated debt
that matures in 2005. 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 the lenders' option, at any time on or after the issuance date
of the notes, at a conversion price of $2.53. The notes have an interest rate of
8%, payable on the maturity date of the notes. At the Company's option, the
notes are convertible into the Company's common stock, with no forced conversion
for two years, on any date on which the closing sale price of the common stock
has been, for seven of ten consecutive trading days, greater than 200% of the
conversion price in effect on the issuance date of the applicable notes.

      On October 2, 2000, in connection with the HMT merger, the Company
assumed $230.0 million in subordinated convertible notes. The notes bear
interest at 5 3/4% payable semiannually on January 15 and July 15, are
convertible into shares of common stock of the Company at a conversion price of
$26.12, and mature in January, 2004. The Company may redeem the convertible
notes initially at 103.286%, and at decreasing prices thereafter to 100% at
maturity. Under accounting rules for business combinations accounted for under
the purchase method, these notes were valued at their fair market value of $92.0
million at October 2, 2000, and will be accreted back up to the face value of
$230.0 million through January 2004. At April 1, 2001, the carrying value of the
notes was $113.5 million.

      In April 1999, in connection with the purchase of the assets of Western
Digital's media operation, the Company issued a note in the principal amount of
$30.1 million. Principal and interest accrued on the note are due in three
years, and the note is subordinated to the Company's senior unsecured debt. The
Company discounted the principal amount of the subordinated note payable to
$21.2 million based on the Company's estimated incremental



                                      -11-
<PAGE>   12

borrowing rate at the time of the asset acquisition of 18% for this class of
financial instrument. As of April 1, 2001, the note has been accreted up to
$26.4 million.

NOTE 12 - LEGAL PROCEEDING

      Asahi Glass Company, Ltd., or Asahi, has asserted that a technology
cooperation agreement between the Company and Asahi gives Asahi exclusive
rights, even as to Komag, to certain glass substrate-related intellectual
property developed by the Company. The Company has sent Asahi a notice of
termination of the agreement and believes that Asahi has no rights to the glass
substrate technology developed by the Company. The Company believes that it has
full control of its glass-related intellectual property, and is proceeding to
commercialize the technology with the support of other glass makers.

      The Company has discontinued its litigation against Asahi, and is
currently engaged in discussions with Asahi to resolve the dispute. The Company
believes that the resolution of the dispute, whether favorable or unfavorable,
would not have a significant financial impact on the Company's financial
results.



                                      -12-
<PAGE>   13

                               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
about our business. These statements may be identified by the use of words such
as "expects," "anticipates," "intends," "plans," and similar expressions.
Komag's business is subject to a number of risks and uncertainties. While this
discussion represents our current judgment on the future direction of our
business, such risks and uncertainties could cause actual results to differ
materially from any future performance suggested herein.

OVERVIEW

      Our business is both capital-intensive and volume-sensitive, making it
imperative that we plan for the efficient use of capacity. The key factors in
determining our profitability are physical capacity, utilization of this
physical capacity, yields, input material costs, and average unit sales price.
If we fix capacity and product price at a given level, and demand is sufficient
to support a higher level of output, then the increased output achieved by
improved utilization rates and higher manufacturing yields will directly
increase sales and improve gross margins. Alternatively, if demand decreases,
falling average selling prices and lower capacity utilization will adversely
affect our operating results.

      Demand for disk drives grew rapidly during the mid-1990s, and industry
forecasts were for continued strong growth. Along with many of our competitors
(both independent disk manufacturers and captive disk manufacturers owned by
vertically-integrated disk drive customers), in 1996 we committed to expansion
programs and substantially increased media manufacturing capacity in 1997.

      In addition, the disk drive industry transitioned to and widely adopted
magneto-resistive, or MR, media and recording head technology. This transition
to MR components led to unprecedented increases in areal density and, therefore,
the amount of data that could be stored on a single disk platter. The rate of
increased storage per disk platter increased from 30% to 40% per year to over
100% per year. Increased storage capacity per disk allows drive manufacturers to
offer lower-priced disk drives by incorporating fewer disk and head components
into their disk drives. Because of this lower disk-per-drive ratio, demand for
disks was relatively flat during the period from 1997 to 2001, resulting in
substantial excess disk production capacity and sharp declines in average
selling prices. The significant amount of captive capacity employed by certain
disk drive manufacturers also continued to reduce the market opportunities for
independent disk suppliers such as our company.

      In response to continuing excess industry capacity and the sharp decline
in average selling prices, we ended volume production of finished disks in the
U.S. by the end of 1999, and consolidated finished disk production in our
low-cost plants in Malaysia.

      In October 2000, we merged with HMT. The merger was accounted for under
purchase accounting rules. The Company's consolidated financial statements
include the operating results of HMT since the fourth quarter of



                                      -13-
<PAGE>   14

2000. In the fourth quarter of 2000, in connection with the merger, we
implemented a reorganization plan to end volume production at the HMT U.S.
facilities, and cease substrate manufacturing operations in Santa Rosa,
California. Volume production ended at all of these U.S. site in April 2001.

      Our California sites in San Jose and Santa Rosa are now focused solely on
activities related to research, process development, and product prototyping.
Our selling, general, and administrative functions also remain in California. We
believe that completion of the shift of high-volume production to our
cost-advantaged Malaysian manufacturing plants will improve our overall cost
structure, result in lower unit production costs, and improve our ability to
respond to the continuing price pressures in the disk industry.

Net Sales

      Net sales increased to $87.9 million in the first quarter of 2001, up
10.3% compared to $79.6 million in the first quarter of 2000. The increase was
primarily due to the net effect of an 18.1% increase in unit sales volume (from
10.8 million disks in the first quarter of 2000 to 12.7 million disks in the
first quarter of 2001), partially offset by a 8.4% decline in the finished disk
average selling price.

      Net sales of substrate and single-sided disks were $7.8 million in the
first quarter of 2001, and $5.1 million in the first quarter of 2000.

      The severe pricing pressures generated by the continuing imbalance in
supply and demand for thin-film media resulted in the year-over-year decrease in
the overall average selling price. However, because industry capacity decreased
during the last year, pricing pressure is moderating, and we expect average
selling prices to remain flat during the remainder of 2001.

      During the first quarter of 2001, 46% of our consolidated net sales were
to Western Digital, 36% were to Maxtor Corporation, and 12% were to Seagate
Technology. Net sales to each of our other customers were less than 10% during
the first quarter of 2001. We expect that we will continue to derive more than
90% of our sales from Western Digital, Maxtor, and Seagate Technology. The
distribution of sales among customers may vary from quarter to quarter based on
the match of our product capabilities with specific disk drive programs of
customers. However, as a result of the April 1999, acquisition of Western
Digital's media operation and related volume purchase agreement, we expect our
sales to remain highly dependent on Western Digital's performance in the disk
drive industry.

Gross Margin

      Our overall gross loss percentage of 6.3% in the first quarter of 2001
declined from a gross margin percentage of 16.1% in the first quarter of 2000.
The reduction in the finished disk average selling price accounted for 7.7
percentage points of the decline. Increased payroll and equipment and
facilities-related costs associated with the underutilized capacity at the
former HMT U.S. facilities accounted for 14.7 percentage points of the gross
margin decline.

      We produced 13.7 million units in the first quarter of 2001 compared to
10.4 million units in the first quarter of 2000. The increase was the result of
increased sales volume compared to the year-ago quarter, and an increase in



                                      -14-
<PAGE>   15

finished unit inventory in anticipation of higher unit sales volume in the first
quarter of 2001 and in the second quarter of 2001.

Operating Expenses

      Research, development, and engineering (R&D) expenses increased to $10.7
million in the first quarter of 2001, from $8.5 million in the first quarter of
2000. The increase was the result of increased U.S. R&D headcount subsequent to
the HMT merger. The combined R&D team has increased its focus on advanced
technologies. Additional expenses were also incurred in Malaysia to qualify
customer programs on equipment relocated from the U.S. HMT operations

      Selling, general and administrative expenses increased to $5.7 million in
the first quarter of 2001, from $3.6 million in the first quarter of 2000. The
increase was primarily due to higher payroll and related expenses due to
increased U.S. headcount from the HMT merger, as well as higher discretionary
bonus expenses.

      Amortization of intangible assets increased by $5.0 million, from $2.6
million in the first quarter of 2000 to $7.6 million in the first quarter of
2001. The increase reflects amortization of goodwill associated with the HMT
merger.

Restructuring Activities

      In 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 $98.5 million for the write-off of leasehold
improvements and equipment.

      The following table summarizes these 1999 restructuring activities during
the first three months of 2001:

<TABLE>
<CAPTION>
                                           Liabilities
                                              Under
                                          Non-Cancelable
                                            Equipment
           (in millions)                      Leases         Total
                                          --------------    --------
           <S>                            <C>               <C>
           Balance at December 31, 2000      $    6.3       $    6.3
           Charged to Reserve                    (1.6)          (1.6)
                                             --------       --------
           Balance at April 1, 2001          $    4.7       $    4.7
                                             ========       ========
</TABLE>

      At April 1, 2001, $4.7 million related to the 1999 restructuring
activities remained in current liabilities. In 2001, 2000, and 1999, the Company
made cash payments totaling $38.4 million. Cash payments of $4.7 million under
the equipment leases will be made monthly through June 2002.



                                      -15-
<PAGE>   16

      In the first quarter of 2000, the 1999 restructuring reserves were reduced
by a total of $2.0 million. The writedown of net book value of equipment and
leasehold improvements was increased by $2.4 million during the first quarter of
2000 for additional equipment that was determined unusable due to the
restructure. The facility closure liability was reduced by $3.7 million in the
first quarter of 2000 due to successfully terminating the leases on
manufacturing facilities and subleasing the administrative facility earlier than
originally expected. The severance costs liability was reduced by $0.7 million
due to lower than expected payments in the first quarter of 2000.

      In December 2000, the Company implemented a restructuring plan to cease
KMT's U.S. manufacturing operations in May 2001. This restructuring action
resulted in a charge of $8.0 million, and included $2.6 million of severance pay
associated with eliminating approximately 160 positions, primarily in
manufacturing, $4.5 million associated with the write-down of equipment and
leasehold improvements, and $0.9 million associated with related facility
closing costs. Through the first quarter of 2001, no cash payments have been
made. The majority of severance pay and facilities closing costs are expected to
be paid by June 2001.

      The following table summarizes these 2000 restructuring activities:

<TABLE>
<CAPTION>
                                Writedown
                                Net Book
                                Value of
                                Equipment       Facility
                              and Leasehold     Closure      Severance
(in millions)                  Improvements      Costs          Costs         Total
                              --------------    --------     ---------      --------
<S>                           <C>               <C>          <C>            <C>
Balance at December 31, 2000
    and April 1, 2001             $    4.5      $    0.9      $    2.6      $    8.0
</TABLE>

Interest and Other Income/Expense

      Interest income decreased slightly during the quarter, to $0.9 million
versus $1.0 million in the first quarter of 2000. The decrease reflected lower
average cash and short-term investment balances.

      Interest expense increased to $22.2 million in the first quarter of 2001,
compared to $6.5 million in the first quarter of 2000. The $15.7 million
increase primarily reflects $10.9 million of accretion on the value of the HMT
convertible debt, a $3.3 million charge for interest on the HMT convertible
debt, and $1.7 million for amortization of loan fees and warrant expense
associated with the completion of the loan restructure agreement with our senior
lenders in the second quarter of 2000.

      Other income increased to $1.0 million in the first quarter of 2001,
compared to $0.4 million in the first quarter of 2000. The increase included
$0.6 million in realized gain on cumulative translation adjustments.

Income Taxes

      Our income tax provisions of $0.5 million and $0.4 million for the
three-month periods ended April 1, 2001, and April 2, 2000, respectively,
represent foreign withholding taxes on royalty and interest payments. Our
wholly-owned thin-film media operation, 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 will reassess the tax holiday start date
for the second and third plant sites by the



                                      -16-
<PAGE>   17

end of the year 2001, based on achieving certain investment criteria.

Minority Interest in KMT

      The minority interest in the net income (loss) of consolidated subsidiary
represented Kobe Steel USA Holdings Inc.'s (Kobe USA) 20% share of KMT's net
income (loss). KMT recorded net income of $0.06 million in the first quarter of
2001, compared to a net loss of $0.7 million in the first quarter of 2000.

Equity  in Unconsolidated Company

      In November 2000, we formed Chahaya Optronics, Inc., or Chahaya, with two
venture capital firms. We contributed key personnel, design and tooling,
manufacturing systems, equipment, facilities, and support services in exchange
for a 45% interest in Chahaya. Chahaya currently occupies facilities located in
Fremont, California, and was formed to provide manufacturing services, primarily
in the field of optical components and subsystems. We recorded an investment in
Chahaya for $12.0 million in the fourth quarter of 2000. The investment includes
$4.0 million for future cash payments and $8.0 million for facilities, facility
services, and equipment. As of April 1, 2001, we owed Chahaya $14.2 million,
including $11.9 million related to the original investment, and $2.3 million
primarily relating to contract payroll for media manufacturing.

      In the first quarter of 2001, we recorded a loss of $0.7 million as our
45% equity share of Chahaya's net loss for the quarter under the equity method
of accounting.

LIQUIDITY AND CAPITAL RESOURCES

      Cash and short-term investments of $51.6 million at the end of the first
quarter of 2001 decreased by $29.1 million from the end of the previous fiscal
year. Working capital declined by $29.3 million compared to the end of the
previous fiscal year.

      First quarter 2001 consolidated operating activities used $5.2 million in
cash. The primary components of this change include the following:

       -  The first quarter 2001 net loss of $51.0 million, net of non-cash
          depreciation and amortization of $26.2 million and other non-cash
          charges of $13.7 million, used $11.1 million in cash.

       -  Lower accounts receivable, reflecting the sales decline from the
          fourth quarter of 2000, generated $11.5 million in cash.

       -  Higher inventories, reflecting the quarter-end build-up in
          anticipation of higher second quarter sales, used $8.6 million in
          cash.

       -  Higher accounts payable, reflecting the increase in production and
          capital spending activity at the end of the first quarter of 2001,
          generated $8.5 million in cash.

       -  Lower accrued compensation and benefits, reflecting reduced headcount
          and lower salaries payable, used $2.0 million in cash.

       -  Lower other assets and liabilities, primarily reflecting continuing
          payments for equipment leases and lower interest payable, used $3.5
          million in cash.



                                      -17-
<PAGE>   18

      We spent $16.5 million on fixed assets during the first quarter of 2001.
Net short-term investment activity provided $8.1 million in cash, while other
net investing activities provided $0.2 million in cash. Repayment of debt used
$7.5 million in cash.

      Current noncancellable capital commitments as of April 1, 2001, totaled
$8.8 million. Year-to-date capital expenditures were $16.5 million, and
primarily included costs for facilities and installation costs for certain
production equipment transferred from the closed U.S. HMT manufacturing plants
to Malaysia. In 2000, we spent $29.3 million on property, plant, and equipment.
In 2001, we plan to spend approximately $30.0 million on property, plant, and
equipment.

      In March 2000, we 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 we 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. On signing the
agreement, we issued warrants to the investor to acquire 80,000 shares of common
stock at an exercise price of $4.6875 a share. The warrants are exercisable
during a three-year period beginning in September, 2000. We valued the warrants
using the Black-Scholes model and determined the value to be immaterial.

      In June 2000, we replaced our credit facilities with a senior unsecured
loan restructure agreement with our lenders, and a separate subordinated
unsecured convertible debt agreement with other creditors. As a result, as of
April 1, 2001, we have $209.2 million in senior unsecured bank debt outstanding
that matures in June 2001, and $9.3 million of convertible debt that matures in
2005. In addition, we have a note payable to Western Digital with a principal
balance of $30.1 million, and which is due in April, 2002, unless Western
Digital 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. Upon completion of the HMT
merger in the fourth quarter of 2000, our debt increased with HMT's convertible
debt due in January 2004. The principal amount of these notes is $230.0 million.

      Our independent auditors have included a going-concern explanatory
paragraph in our Form 10-K for our fiscal year ended December 31, 2000. This
emphasis paragraph represents our auditors' conclusion that there is substantial
doubt as to our ability to continue as a going-concern for a reasonable time. If
we are unable to restructure our debt and raise additional funds, our auditors
will not remove the explanatory paragraph from their opinion, and our operating
results and financial conditions would be detrimentally effected.

      As previously mentioned, we have $209.2 million in senior debt that
matures on June 30, 2001. We do not currently have the financial resources to
repay this debt; therefore, we will need to restructure our debt obligations
within the next few months and raise additional funds (see the first risk factor
under the "RISKS RELATED TO THE DEBT RESTRUCTURE AND OUR COMMON STOCK" section
below). We are currently engaged in negotiations with our senior lenders, and
are actively considering other financing options. We believe that in order to
achieve our long-term growth objectives and maintain and enhance our competitive
position, such additional financial resources will be required. We may not be
able to secure such financial resources on commercially reasonable terms. If we
are unable to obtain adequate financing, we will be required to significantly
reduce and/or



                                      -18-
<PAGE>   19

possibly suspend our operations, and/or sell additional securities on terms that
would be highly dilutive to current stockholders.

      In May 2000, at our annual meeting of stockholders, we received
authorization to sell and issue up to $250 million of common stock in equity or
equity-linked private transactions from time to time through June 30, 2001 at a
price below book value but at or above the then current market value of our
common stock. In September 2000, our stockholders approved at a Special Meeting
a proposal to increase the amount of common stock we are authorized to issue
from 150 million to 250 million shares.

OTHER FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

      You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below include all of
the risks and uncertainties which we believe to be material at this time, but
are not the only ones facing our company. Additional risks and uncertainties
that we do not presently know of, or we currently deem immaterial, may also
impair our business operations.

      If any of the following risks actually occur, they could materially
adversely affect our business, financial condition or operating results. In that
case, the trading price of our common stock could decline, and you may lose all
or part of your investment.

RISKS RELATED TO THE DEBT RESTRUCTURE AND OUR COMMON STOCK

IF WE DO NOT REFINANCE OUR EXISTING DEBT, WE MAY NOT BE ABLE TO SUCCESSFULLY
IMPLEMENT THE FINANCIAL STRATEGY NECESSARY TO RETURN US TO PROFITABLE
OPERATIONS.

      As of April 1, 2001, the outstanding principal amount of our debt
consisted of the following:

       -  $209.2 million of unsecured senior bank debt maturing on June 30, 2001
          (current outstanding amount is $201.7 million after a $7.5 million
          payment in April 2001);

       -  an unsecured $30.1 million promissory note due April 8, 2002, issued
          to Western Digital Corporation, and referred to as our "senior
          subordinated note;"

       -  $9.3 million in convertible subordinated debt maturing in February,
          2005; and

       -  $230.0 million principal amount of convertible subordinated notes that
          we assumed following our merger with HMT, which matures on January 15,
          2004, and referred to as the "existing notes."

      We may not be able to successfully refinance our existing debt. Our
ability to refinance our debt will depend substantially on our ability to
complete the following transactions, which are more fully described in the
S-3/S-4 filed with the SEC on April 5 and 6, 2001:

       -  completing the offering of Malaysian bonds, where, through our
          Malaysian subsidiary, we plan to issue bonds denominated in Malaysian
          ringitt in an amount equal to $100 million;

       -  obtaining the consent of the holders of our existing senior bank debt
          to accept a partial payment of cash and exchange notes as full payment
          for the senior bank debt;

       -  completing the restructuring of the senior subordinated note; and



                                      -19-
<PAGE>   20

       -  completing the exchange offer for the existing notes.

      If we are not successful in our offering of Malaysian bonds, we will not
be able to repay a portion of the senior bank debt. We are currently negotiating
with the holders of the senior bank debt. If we do not reach an agreement with
all of our senior bank debt holders, we will not be able to implement our plan
to refinance our existing senior bank debt. If our senior bank debt holders do
not agree to accept a partial repayment and exchange notes as full payment for
the senior bank debt, the $201.7 million principal amount of our senior bank
debt will become due on June 30, 2001, and we will not have sufficient funds to
repay it. As a result, under the terms of the loan restructure agreement for the
senior bank debt and the subordination provisions of the indenture for the
existing notes, we would not be able to pay interest on the existing notes when
it becomes due on July 15, 2001. We would then be in default under the existing
notes, and the holders could accelerate the outstanding principal on the
existing notes. In addition, we would then be in default under our other
existing debt. If this were to occur, we would be further unable to meet our
obligations as they become due. Our current strategy for a return to
profitability requires the refinancing of our debt, and, accordingly, if we are
unsuccessful in completing the transactions described above, our return to
profitability will be delayed or unachievable.

      Further, unless we have a sufficient percentage of participation in the
exchange offer, we will not be able to adequately reduce our level of
outstanding debt.

IF OUR FINANCIAL CONDITION DOES NOT IMPROVE SUBSTANTIALLY, WE MAY HAVE TO SEEK
RELIEF UNDER CHAPTER 11 OF THE BANKRUPTCY CODE OR MAY BE FORCED INTO BANKRUPTCY
PROCEEDINGS.

      If our financial condition continues to deteriorate and we are unable to
restructure our indebtedness, reduce our losses, and obtain additional
financing, we may be forced to seek relief under Chapter 11 of the Bankruptcy
Code, or may be forced into bankruptcy. Chapter 11 would permit us to remain in
control of our business, protected by a stay of all creditor action, while we
attempt to negotiate and confirm a plan of reorganization with our creditors. If
we commenced a case under Chapter 11, we would expect deterioration in our
customer relationships, a reduction in orders, the loss of suppliers, and an
erosion of employee morale. We may be unsuccessful in our attempts to confirm a
plan of reorganization with our creditors. Many Chapter 11 cases are
unsuccessful, and virtually all involve substantial expense and damage to the
business. If we sought relief under Chapter 11 and were unsuccessful in
obtaining confirmation of a plan of reorganization, our assets would be
liquidated. In addition, the fact that our assets are located in Malaysia may
make it more difficult to distribute our assets on liquidation. In a bankruptcy
case, all other creditors would be paid prior to our shareholders.

BECAUSE WE HAVE A LARGE AMOUNT OF DEBT, OUR FUTURE OPERATING PERFORMANCE MUST
GENERATE CASH FLOWS SUFFICIENT TO MEET OUR DEBT PAYMENT OBLIGATIONS AND, EVEN IF
WE COMPLETE THE PROPOSED DEBT RESTRUCTURING, OUR LARGE AMOUNT OF DEBT COULD
NEGATIVELY IMPACT HOLDERS OF EXCHANGE NOTES.

      We incurred a $51.0 million loss in the first quarter of fiscal year 2001,
and we incurred net losses of $68.1 million in fiscal 2000 and $283.0 million in
fiscal 1999. These losses could continue. If we are unable to refinance and
reduce the level of our existing debt, we may not be able to make payments on
our existing debt when the debt becomes due. As of May 10, 2001, we have
outstanding debt in the principal amount of $471.1 million, of which $241.1
million will be senior to the existing notes. Of this debt, $201.7 million will
mature on June 30, 2001. If we successfully complete the refinancing of our
senior bank debt and the senior subordinated note and the exchange



                                      -20-
<PAGE>   21

offer, $9.3 million in convertible subordinated debt will be senior to the
exchange notes, as will be the $100.0 million of Malaysian bonds.

      We may not be able to make payments on our debt even after the reduction
of our debt levels following the potential restructuring of our debt and the
exchange offer. Assuming the completion of our debt restructuring, our ability
to make scheduled debt payments even at the reduced levels will depend on our
future operating performance and cash flow. Our operating performance and cash
flow, in part, are subject to economic factors beyond our control, including
prevailing interest rates. We may not be able to generate enough cash flow to
meet our obligations and commitments even if we successfully refinance our
senior bank debt, and the senior subordinated note and the exchange offer,
including obligations to make payments on any existing notes not tendered during
the exchange offer. If we cannot generate sufficient cash flow from operations
to service our debt, we may need to further refinance our debt, dispose of
assets, or issue equity to obtain the necessary funds. We do not know whether we
will be able to refinance our debt, issue equity, or dispose of assets to raise
funds on a timely basis or on terms satisfactory to us. In addition, the terms
under our new Malaysian bonds may restrict our ability to transfer cash to the
United States. If our financial condition continues to deteriorate, if we are
unable to reduce our losses or obtain additional financing, or if we are unable
to further refinance our debt, raise funds through asset sales, sales of equity
or otherwise, our ability to pay principal and interest in cash on the exchange
notes would be harmed.

      Our large amount of debt could negatively impact our shareholders in many
ways, including:

       -  reducing funds available to support our business operations and for
          other corporate purposes because portions of our cash flow from
          operations must be dedicated to the payment of principal and interest
          on our debt;

       -  impairing our ability to obtain additional financing for working
          capital, capital expenditures, acquisitions or general corporate
          purposes;

       -  increasing vulnerability to increases in interest rates;

       -  reducing financial flexibility because our debt under the Malaysian
          bonds would be secured by certain assets of our Malaysian subsidiary.
          The assets of our Malaysian subsidiary constitute most of our tangible
          assets;

       -  placing us at a competitive disadvantage because we may be
          substantially more leveraged than certain of our competitors;

       -  hindering our ability to adjust rapidly to changing market conditions;
          and

       -  making us more vulnerable to a downturn in general economic conditions
          or in our business.

THE MARKET PRICE OF OUR COMMON STOCK HAS BEEN DEPRESSED, AND MAY DECLINE
FURTHER.

      The market price of our common stock has been depressed in response to
actual and anticipated quarterly variations in:

       -  our operating results;

       -  macroeconomic conditions;

       -  changes in demand for computers and data storage;

       -  our ability to integrate the business of the former HMT operations
          into Komag;

       -  perceptions of the disk drive industry's relative strength or
          weakness;



                                      -21-
<PAGE>   22

       -  developments in our relationships with our customers and/or suppliers;

       -  announcements of alliances, mergers or other relationships by or
          between our competitors and/or customers;

       -  announcements of technological innovations or new products by us or
          our competitors;

       -  the success or failure of new product qualifications in programs with
          certain manufacturers; and

       -  developments related to patents or other intellectual property rights.

      We expect this volatility to continue in the future. In addition, any
shortfall or changes in our revenue, gross margins, earnings, or other financial
results, could cause the price of our common stock to fluctuate significantly.
In recent years, the stock market in general has experienced extreme price and
volume fluctuations, which have particularly affected the market price of many
technology companies, and which may be unrelated to the operating performance of
those companies. These broad market fluctuations may adversely affect the market
price of our common stock. Volatility in the price of stocks of companies in the
hard disk drive industry has been particularly high. From the second quarter of
1997 through April 30, 2001, the price of our stock fell to a low of $0.563 from
a high of $35.13.

      The market price of our common stock may decline further if we are unable
to restructure our existing debt or pay principal and interest under our debt
when it becomes due.

      The recovery of our stock price depends on our ability to restructure our
debt, a correction in the industry supply and demand imbalance, and our ability
to achieve industry-mandated technology, costs, and yields.

IF WE DO NOT COMPLY WITH NASDAQ'S MINIMUM BID REQUIREMENT BY JULY 24, 2001, OUR
SECURITIES WILL BE DELISTED, AND THE TRADING MARKET AND PRICE OF OUR SECURITIES
WILL BE HARMED.

      The trading of our common stock on the Nasdaq National Market System
depends on our meeting certain asset, revenue, and stock price tests. Currently,
we are not in compliance with Nasdaq's minimum bid requirement because our stock
has traded below $1.00 per share for more than 30 consecutive trading days. On
April 25, 2001, we received a letter from the Office of Nasdaq Qualifications
indicating that if we do not comply with the minimum bid price rule by July 24,
2001, Nasdaq intends to delist our stock. In order to gain compliance, our
common stock must trade at or above $1.00 for a minimum of 10 consecutive
trading days. If our common stock is delisted from trading on the Nasdaq System,
the trading market and price for our common stock and the exchange notes would
be materially adversely affected. In addition, low-priced stocks are subject to
additional risks, including additional state regulatory requirements and the
potential loss of effective trading markets.

BECAUSE THE MALAYSIAN BONDS WILL BE PAYABLE IN MALAYSIAN RINGGIT, WE WILL BE
SUBJECT TO FOREIGN CURRENCY RISKS.

      If we restructure our existing debt, we expect that the Malaysian bonds
will comprise a substantial portion of our debt. Although the Malaysian bonds
will be payable in Malaysian ringgit, our revenues are generally denominated in
U.S. dollars and the U.S. dollar is our functional currency. If the value of the
Malaysian ringgit increases in relation to the U.S. dollar, the U.S. dollar
equivalent of the principal amount we would have to pay under the Malaysian
bonds would, in effect, increase.



                                      -22-
<PAGE>   23

      The Malaysian ringgit is not currently traded in the international
currency exchange markets, and is therefore considered an illiquid currency.
Hedging or other foreign exchange contracts that would ensure that we would be
able to lock in an exchange rate or to obtain the Malaysian ringgit necessary to
pay our obligations under the Malaysian bonds may be expensive or unavailable.

RISKS RELATED TO OUR BUSINESS

CONCERNS ABOUT THE GOING-CONCERN EXPLANATORY PARAGRAPH IN OUR AUDIT REPORT COULD
DETRIMENTALLY AFFECT OUR OPERATING RESULTS AND FINANCIAL CONDITION.

      Our independent auditors have included a going-concern explanatory
paragraph for our fiscal year ended December 31, 2000. This emphasis paragraph
represents our auditors' conclusion that there is substantial doubt as to our
ability to continue as a going-concern for a reasonable time. If we are unable
to restructure our debt and raise additional funds, our auditors may not remove
the explanatory paragraph from their opinion, and our operating results and
financial conditions could be detrimentally effected due to any of the
following:

       -  our customer relationships and orders with our customers could
          deteriorate;

       -  suppliers could reduce their willingness to extend credit;

       -  employee attrition could increase; and/or

       -  new lenders could be unwilling to refinance our existing debt.

DEMAND FOR DISK DRIVES IS LARGELY TIED TO DEMAND FOR PERSONAL COMPUTERS AND
FLUCTUATIONS IN AND REDUCED DEMAND FOR PERSONAL COMPUTERS MAY RESULT IN
CANCELLATIONS OR REDUCTIONS IN DEMAND FOR OUR PRODUCT.

      Trend Focus estimates that 74% of the disks consumed during 2000 were
incorporated into disk drives for the desktop personal computer market. Because
of this concentration in a single market, our business is tightly linked to the
success of the personal computer market. Historically, demand for personal
computers has been seasonal and cyclical. During the first quarter of 2001,
personal computer manufacturers generally announced lower expectations for
sales. Due to the high fixed costs of our business, fluctuations in demand
resulting from this seasonality and cyclicality can lead to disproportionate
changes in the results of our operations. If cancellations or reductions in
demand for our products occur in the future, our business, financial condition,
and results of operations could be seriously harmed.

DELAYS AND CANCELLATIONS OF OUR CUSTOMER ORDERS MAY CAUSE US TO UNDER-UTILIZE
OUR PRODUCTION CAPACITY, WHICH COULD SIGNIFICANTLY REDUCE OUR GROSS MARGINS AND
RESULT IN SIGNIFICANT LOSSES.

      Our business has a large amount of fixed costs, as we are highly
capital-intensive. If there is a decrease in demand for our products, our
production capacity could be under-utilized, and, as a result, we may
experience:

       -  equipment write-offs;

       -  restructuring charges;

       -  reduced average selling prices;

       -  increased unit costs; and

       -  employee layoffs.



                                      -23-
<PAGE>   24

IF WE ARE NOT ABLE TO ATTRACT AND RETAIN KEY PERSONNEL, OUR OPERATIONS COULD BE
HARMED.

      Our future success depends on the continued service of our executive
officers, our highly-skilled research, development, and engineering team, our
manufacturing team, and our key administrative, sales, and marketing and support
personnel. Competition for skilled personnel is intense. In particular, our
financial performance has increased the difficulty of attracting and retaining
skilled scientists and other knowledge workers. In our Silicon Valley
headquarters location, there are many employment opportunities for high-caliber
employees. As a result, we have experienced higher rates of turnover in the last
year than at other times in our history, and we may not be able to attract,
assimilate, or retain highly-qualified personnel to maintain the capabilities
that are necessary to compete effectively. If we are unable to retain existing
or hire key personnel, our business, financial condition, and operating results
could be harmed.

IF WE DO NOT SUCCESSFULLY INTEGRATE THE TECHNOLOGIES, BUSINESS, AND EMPLOYEES OF
HMT, OUR BUSINESS WILL BE DISRUPTED AND WE WILL INCUR ADDITIONAL EXPENSES.

      We completed our merger with HMT on October 2, 2000. We must take a number
of steps in order to fully integrate the two companies and realize the benefits
and synergies from the merger. Key steps include:

       -  integrating the operations of the two companies;

       -  retaining and assimilating the key personnel of each company;

       -  integrating HMT's process and equipment into our existing Malaysian
          factories;

       -  retaining the existing customers and strategic partners of each
          company; and

       -  maintaining uniform standards, controls, procedures and policies.

      The successful execution of these post-merger events involves considerable
risk and may not be successful. These risks include:

       -  potential disruption of the combined company's ongoing business and
          distraction of its management;

       -  unanticipated expenses related to technology integration;

       -  unanticipated expenses related to relocating HMT manufacturing
          equipment and the closure of certain facilities;

       -  availability of cash to pay for integration related efforts;

       -  impairment of relationships with employees, customers, suppliers and
          strategic partners as a result of any integration of new management
          personnel; and

       -  potential unknown liabilities.

      If we do not succeed in addressing the risks or any other problems
encountered in connection with the HMT merger, our business, financial condition
and operating results could suffer, we would lose key personnel, and we would
not achieve the anticipated benefits of the merger.



                                      -24-
<PAGE>   25

OUR FUTURE EARNINGS MAY BE REDUCED BECAUSE OF THE MERGER WITH HMT.

      The merger has been treated as a purchase for accounting purposes. This
creates expenses in our future statement of operations that we would not have
otherwise incurred, which could have a material adverse effect on the market
price of our common stock. We incurred direct transaction costs of $9.0 million
in connection with the merger. Under current purchase accounting rules, we have
recorded, and will continue to amortize, intangible assets totaling $109.6
million related to patents, existing technology, assembled workforce and
goodwill in connection with the merger. This amortization will reduce earnings
over seven years.

      We also expect that interest accretion on the existing notes of $42.5
million per year will reduce our future earnings through January 2004. If the
benefits of the merger do not exceed the costs associated with the merger,
including the dilution to our stockholders resulting from the issuance of 42.8
million shares in connection with the merger, our financial results, including
earnings per share, would be adversely affected.

THERE IS A HIGH CONCENTRATION OF CUSTOMERS IN THE DISK DRIVE MARKET, AND WE
RECEIVE A LARGE PERCENTAGE OF OUR REVENUES FROM ONLY A FEW CUSTOMERS, THE LOSS
OF ANY OF WHICH WOULD ADVERSELY AFFECT OUR SALES.

      Our customers consist of disk drive manufacturers. Given the relatively
small number of disk drive manufacturers, we expect that we will continue to
depend on a limited number of customers. This high customer concentration is due
to the following factors:

       -  the high-volume requirements of the dominant disk drive manufacturers;

       -  a tendency to rely on a few suppliers because of the close
          interrelationship between media performance and disk drive
          performance; and the complexity of integrating components from a
          variety of suppliers; and

       -  the increases in storage densities which have led to decreases in the
          platter count per drive. With lower platter counts, captive disk drive
          manufacturers have excess internal media capacity and they rely less
          on independent sources of media.

      During the first quarter of 2001, 46% of our sales were to Western
Digital, 36% were to Maxtor Corporation, and 12% were to Seagate Technology. In
fiscal 2000, 50% of our sales were to Western Digital, 28% were to Maxtor
Corporation, and 17% were to Seagate Technology. If our customers reduce their
media requirements or develop capacity to produce thin-film disks for internal
use, our sales will be reduced. For example, as part of our purchase of Western
Digital's media operations in April 1999, we entered into a volume purchase
agreement with Western Digital whereby Western Digital is obligated, over the
three years following the acquisition date, to purchase a significant majority
of its media requirements from us. As a result, our sales are significantly
connected to Western Digital's performance. In addition, our customers are
headquartered in the U.S. Should U.S.-based drive companies lose market share to
foreign competitors, it could have a negative impact on our sales. As a result,
our business, financial condition and operating results could suffer.



                                      -25-
<PAGE>   26

IF WE ARE NOT ABLE TO RAISE FUTURE CAPITAL FOR THE SUBSTANTIAL CAPITAL
EXPENDITURES NEEDED TO OPERATE OUR BUSINESS COMPETITIVELY, WE MAY BE FORCED TO
REDUCE OR SUSPEND OPERATIONS.

      The disk media business is capital-intensive, and we believe that in order
to remain competitive, we will likely require additional financing resources
over the next several years for capital expenditures, working capital and
research and development. In connection with our purchase of Western Digital's
media operations in April 1999, we also acquired building and equipment leases
with remaining lease commitments. As of April 1, 2001, we have continuing
payment obligations totaling $10.4 million for the leased equipment through the
second quarter of 2002. Because the leased assets are substantially unused, we
suffer a continued cash drain without deriving a benefit from this equipment. If
we cannot raise additional funds, we may be forced to reduce or suspend
operations.

BECAUSE OUR PRODUCTS REQUIRE A LENGTHY SALES CYCLE WITH NO ASSURANCE OF A SALE
OR HIGH VOLUME PRODUCTION, WE MAY EXPEND FINANCIAL AND OTHER RESOURCES WITHOUT
MAKING A SALE.

      With short product life cycles and rapid technological change, we must
qualify new products frequently, and we must also achieve high volume production
rapidly. Hard disk drive programs have increasingly become "bimodal" in that a
few programs are high-volume and the remaining programs are relatively small in
terms of volume. Supply and demand balance can change quickly from customer to
customer and from program to program. Further, qualifying thin-film disks for
incorporation into a new disk drive product requires us to work extensively with
the customer and the customer's other suppliers to meet product specifications.
Therefore, customers often require a significant number of product presentations
and demonstrations, as well as substantial interaction with our senior
management, before making a purchasing decision. Accordingly, our products
typically have a lengthy sales cycle, which can range from six to 12 months,
during which time we may expend substantial financial resources and management
time and effort, while not being sure that a sale will result, or that our share
of the program ultimately will result in high-volume production.

IF OUR CUSTOMERS CANCEL ORDERS THEY MAY NOT BE REQUIRED TO PAY ANY PENALTIES AND
OUR SALES COULD SUFFER.

      Our sales are generally made pursuant to purchase orders that are subject
to cancellation, modification, or rescheduling without significant penalties. If
our current customers do not continue to place orders with us, if orders by
existing customers do not recover to the levels of earlier periods, or if we are
unable to obtain orders from new customers, our sales and operating results will
suffer.

OUR CUSTOMERS' INTERNAL DISK OPERATIONS MAY LIMIT OUR ABILITY TO SELL OUR
PRODUCT.

      During 2000, IBM and Seagate Technology produced more than 85% of their
media requirements internally, and MMC Technology supplied approximately half of
Maxtor's requirement for media. Hyundai Electronics America owns MMC Technology
and is also one of Maxtor's major stockholders. To date, MMC Technology and the
captive media operations of IBM and Seagate Technology have sold minimal
quantities of disks in the merchant market.

      Disk drive manufacturers such as Seagate Technology, IBM, and Fujitsu have
large internal media manufacturing operations. We compete with these internal
operations directly, when we market our products to these disk drive companies,
and indirectly, when we sell our disks to customers who must compete with
vertically-



                                      -26-
<PAGE>   27

integrated disk drive manufacturers. Vertically-integrated companies have the
ability to keep their disk-making operations fully utilized, thus lowering
their costs of production. This cost advantage contributes to the pressure on us
and other independent media manufacturers to sell disks at prices so low that we
are unprofitable, and we cannot be sure when, if ever, we can achieve a low
enough cost structure to return to profitability. Vertically-integrated
companies are also able to achieve a large scale that supports the development
resources necessary to advance technology rapidly. As a result, we may not have
sufficient resources to be able to compete effectively with these companies.
Therefore, our business, financial condition, and operations could suffer.

BECAUSE WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS, IF OUR SUPPLIERS EXPERIENCE
CAPACITY CONSTRAINTS OR PRODUCTION FAILURES, OUR PRODUCTION AND OPERATING
RESULTS COULD BE HARMED.

      We rely on a limited number of suppliers for some of the materials and
equipment used in our manufacturing processes, including aluminum substrates,
nickel plating solutions, polishing and texturing supplies, and sputtering
target materials. For instance, Kobe is our sole supplier of aluminum blanks.
Further, the supplier base has been weakened by the poor financial condition of
the industry, and some suppliers have either exited the business or failed. Our
production capacity would be limited if one or more of these materials were to
become unavailable or available in reduced quantities, or if we were unable to
find alternative suppliers. If our source of materials and supplies were
unavailable for a significant period of time, our production and operating
results could be adversely affected.

IF WE ARE UNABLE TO SUCCESSFULLY COMPETE IN THE HIGHLY COMPETITIVE THIN-FILM
MEDIA INDUSTRY, WE MAY NOT BE ABLE TO GAIN ADDITIONAL MARKET SHARE OR WE MAY
LOSE OUR EXISTING MARKET SHARE, AND OUR OPERATING RESULTS WOULD BE HARMED. THE
IMBALANCE BETWEEN DEMAND AND SUPPLY HAS FURTHER INTENSIFIED THE COMPETITION IN
THE INDUSTRY.

      The market for our products is highly competitive, and we expect
competition to continue in the future. Competitors in the thin-film disk
industry fall into two groups: Asian-based manufacturers and U.S. captive
manufacturers. Our Asian-based competitors include Fuji, Mitsubishi, Trace,
Showa Denko, and Hoya. The U.S. captive manufacturers include the disk media
operations of Seagate Technology, IBM, and for all intents and purposes, MMC
Technology. Many of these competitors have greater financial resources than we
have. If we are not able to compete successfully in the future, we would not be
able to gain additional market share for our products, or we may lose our
existing market share, and our operating results could be harmed.

      In 2000, as in 1999, media supply exceeded media demand. As independent
suppliers struggled to utilize their capacity, the excess media supply caused
average selling prices for disk products to decline. Pricing pressure on
component suppliers has also been compounded by high consumer demand for
sub-$1,000 personal computers. Further, structural change in the disk media
industry, including combinations, failures, and joint venture arrangements, may
be required before media supply and demand are in balance. However, structural
changes would intensify the competition in the industry.



                                      -27-
<PAGE>   28

DISK DRIVE PROGRAM LIFE CYCLES ARE SHORT, AND DISK DRIVE PROGRAMS ARE HIGHLY
CUSTOMIZED. IF WE FAIL TO RESPOND TO OUR CUSTOMERS' DEMANDING REQUIREMENTS, WE
WOULD NOT BE ABLE TO COMPETE EFFECTIVELY.

      Our industry experiences rapid technological change, and our inability to
timely anticipate and develop products and production technologies could harm
our competitive position. In general, the life cycles of recent disk drive
programs have been shortening. Additionally, media must be more customized to
each disk drive program. Short program life cycles and customization have
increased the risk of voluntary obsolescence. Supply chain management, including
just-in-time delivery, has become a standard industry practice. In order to
sustain customer relationships and achieve profitability, we must be able to
develop in a timely fashion new products and technologies that can help
customers reduce their time-to-market performance, and continue to maintain
operational excellence that supports high-volume manufacturing ramps and tight
inventory management throughout the supply chain. If we cannot respond to this
rapidly changing environment or fail to meet our customers' demanding product
and qualification requirements, we would not be able to compete effectively. As
a result, we would not be able to maximize the use of our production facilities
and minimize our inventory losses.

IF WE DO NOT KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE AND CONTINUE TO IMPROVE
THE QUALITY OF OUR MANUFACTURING PROCESSES, WE WILL NOT BE ABLE TO COMPETE
EFFECTIVELY AND OUR OPERATING RESULTS WOULD SUFFER.

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

      Advances in hard disk drive technology demand continually lower glide
heights and higher storage densities. Over the last several years, storage
density has roughly doubled each year, requiring significant improvement in
every aspect of disk design. These advances require substantial on-going process
and technology development. New process technologies must support
cost-effective, high-volume production of thin-film disks that meet these
ever-advancing customer requirements for enhanced magnetic recording
performance. We may not be able to develop and implement such technologies in a
timely manner in order to compete effectively against our competitors' products
and/or entirely new data storage technologies. In addition, we must transfer our
technology from our U.S. research and development center to our Malaysian
manufacturing operations. If we cannot advance our process technologies or do
not successfully implement those advanced technologies in our Malaysian
operations, or if technologies that we have chosen not to develop prove to be
viable competitive alternatives, we would not be able to compete effectively. As
a result, we would lose our market share and face increased price competition
from other manufacturers, and our operating results would suffer.

      The manufacture of our high-performance, thin-film disks requires a
tightly controlled multi-stage process, and the use of high-quality materials.
Efficient production of our products requires utilization of advanced
manufacturing techniques and clean room facilities. Disk fabrication occurs in a
highly controlled, clean environment to minimize dust and other yield- and
quality-limiting contaminants. In spite of stringent manufacturing controls,
weaknesses in process control or minute impurities in materials may cause a
substantial percentage of the disks in a lot to be defective. The success of our
manufacturing operations depends in part on our ability to maintain process
control and minimize such impurities in order to maximize yield of acceptable
high-quality disks. Minor variations from specifications could have a
disproportionately adverse impact on our



                                      -28-
<PAGE>   29

manufacturing yields. If we are not able to continue to improve on our
manufacturing processes, our operating results would be harmed.

IF WE DO NOT PROTECT OUR PATENTS AND INFORMATION RIGHTS, OUR REVENUES WILL
SUFFER.

      Protection of technology through patents and other forms of intellectual
property rights in technically sophisticated fields is commonplace. In the disk
drive industry, it is common for companies and individuals to initiate actions
against others in the industry to enforce intellectual property rights. Although
we attempt to protect our intellectual property rights through patents,
copyrights, trade secrets, and other measures, we may not be able to protect our
technology adequately. Competitors may be able to develop similar technology and
also may have or may develop intellectual property rights and enforce those
rights to prevent us from using such technologies, or demand royalty payments
from us in return for using such technologies. Either of these actions may
affect our production, which would materially reduce our revenues and harm our
results of operations.

WE MAY FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS WHICH ARE COSTLY TO
RESOLVE, AND WHICH MAY DIVERT OUR MANAGEMENT'S ATTENTION.

      We have occasionally received, and may receive in the future,
communications from third parties which assert violation of intellectual rights
alleged to cover certain of our products or manufacturing processes or
equipment. We evaluate whether it would be necessary to defend against the
claims or to seek licenses to the rights referred to in such communications. In
those cases, we may not be able to negotiate necessary licenses on commercially
reasonable terms. Also, if we have to defend those claims, we could incur
significant expenses and our management's attention could be diverted from our
other business. Any litigation resulting from such claims could have a material
adverse effect on our business and financial results.

      We may not be able to anticipate claims by others that we infringe their
technology or successfully defend ourselves against such claims. Similarly, we
may not be able to discover significant infringements of our technology or
successfully enforce our rights to our technology if we discover infringing uses
by others.

HISTORICAL QUARTERLY RESULTS MAY NOT ACCURATELY PREDICT OUR FUTURE PERFORMANCE,
WHICH IS SUBJECT TO FLUCTUATION DUE TO MANY UNCERTAINTIES.

      Our operating results historically have fluctuated significantly on both a
quarterly and annual basis. As a result, our operating results in any quarter
may not reflect our future performance. We believe that our future operating
results will continue to be subject to quarterly variations based on a wide
variety of factors, including:

       -  timing of significant orders, order cancellations, modifications, and
          quantity adjustments and rescheduled shipments;

       -  availability of media versus demand;

       -  the cyclical nature of the hard disk drive industry;

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

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

       -  the extensibility of our process equipment to meet more stringent
          future product requirements;



                                      -29-
<PAGE>   30

       -  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;

       -  changes in our product mix and average selling prices;

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

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

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

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

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

      We cannot forecast with certainty the impact of these and other factors on
our revenues and operating results in any future period. Our expense levels are
based, in part, on expectations as to future revenues. If our revenue levels are
below expectations, our operating results are likely to suffer. Because
thin-film disk manufacturing requires a high level of fixed costs, our gross
margins are extremely sensitive to changes in volume. At constant average
selling prices, reductions in our manufacturing efficiency cause declines in our
gross margins. Additionally, decreasing market demand for our products generally
results in reduced average selling prices and/or low capacity utilization that,
in turn, adversely affect our gross margins and operating results.

OUR DEPENDENCE ON OUR MALAYSIAN OPERATIONS EXPOSES US TO UNAVOIDABLE RISKS IN
TRANSMITTING TECHNOLOGY FROM U.S. FACILITIES TO MALAYSIAN FACILITIES, AND WHICH
COULD IMPACT OUR RESULTS OF OPERATIONS.

      During the third quarter of 1999, we announced that all media production
would be consolidated into our Malaysian factories. In the fourth quarter of
2000, we decided to end the manufacture of aluminum substrates in Santa Rosa,
California, and end production of polished disks in HMT's Eugene, Oregon,
facility. Currently, all aluminum substrates are manufactured by our Malaysian
factory and a Malaysian vendor. In addition, all polished disks are manufactured
by our Malaysian factories. In addition, we recently transferred the
manufacturing capacity of HMT's Fremont, California, facility to Malaysia, and
have closed all of our U.S. media manufacturing operations, leaving us fully
dependent on our Malaysian manufacturing operations.

      Recent fluctuations in the electrical voltage available to our Malaysian
factories resulted in substantial down-time. Additionally, technology developed
at our U.S. research and development center must now be first implemented at our
Malaysian facilities without the benefit of being implemented at a U.S. factory.
Therefore, we rely heavily on electronic communications between our U.S.
facilities and Malaysia to transfer technology, diagnose operational issues, and
meet customer requirements. If our operations in Malaysia or overseas
communications are disrupted for a prolonged period for any reason, shipments of
our products would be delayed, and our results of operations would suffer.

OUR FOREIGN OPERATIONS AND INTERNATIONAL SALES SUBJECT US TO ADDITIONAL RISKS
INHERENT IN DOING BUSINESS ON AN INTERNATIONAL LEVEL THAT MAKE IT MORE COSTLY OR
DIFFICULT TO CONDUCT OUR BUSINESS.

      We are subject to a number of risks of conducting business outside of the
U.S. Our sales to customers in Asia, including the foreign subsidiaries of
domestic disk drive companies, account for substantially all of our net sales
from our U.S. and Malaysian facilities. Our customers assemble a substantial
portion of their disk drives in the



                                      -30-
<PAGE>   31

Far East and subsequently sell these products throughout the world. Therefore,
our high concentration of Far East sales does not accurately reflect the
eventual point of consumption of the assembled disk drives. We anticipate that
international sales will continue to represent the majority of our net sales.

      We are subject to these risks to a greater extent than most companies
because, in addition to selling our products outside the U.S., our Malaysian
operations will account for a large majority of our sales in 2001.

      Accordingly, our operating results are subject to the risks inherent with
international operations, including, but not limited to:

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

       -  fluctuations in tariffs or other trade barriers;

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

       -  difficulties in staffing and managing foreign operations;

       -  political, social and economic instability;

       -  exposure to taxes in multiple jurisdictions; and

       -  transportation delays and interruptions.

      In addition, our ability to transfer funds from our Malaysian operations
to the U.S. is subject to Malaysian rules and regulations. In 1999, the
Malaysian government repealed a regulation that restricted the amount of
dividends that a Malaysian company may pay to its stockholders. If not repealed,
this regulation would have potentially limited our ability to transfer funds to
the U.S. from our Malaysian operations. If similar regulations are enacted in
the future, the cost of our Malaysian operations would increase, and our
operating margin would be significantly reduced.

IF WE ARE UNABLE TO CONTROL CONTAMINATION IN OUR MANUFACTURING PROCESSES, WE MAY
HAVE TO SUSPEND OR REDUCE OUR MANUFACTURING OPERATIONS.

      It is possible that we will experience manufacturing problems from
contamination or other causes in the future. For example, if our disks are
contaminated by microscopic particles, they might not be fit for use by our
customers. If contamination problems arise, we would have to suspend or reduce
our manufacturing operations, and our operations could suffer.

THE NATURE OF OUR OPERATIONS MAKES US SUSCEPTIBLE TO MATERIAL ENVIRONMENTAL
LIABILITIES, WHICH COULD RESULT IN SIGNIFICANT CLEAN-UP EXPENSES AND ADVERSELY
AFFECT OUR FINANCIAL CONDITION.

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

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

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

       -  air quality management.



                                      -31-
<PAGE>   32

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

       -  we could be subject to significant penalties;

       -  our ability to expand or operate at locations in California or our
          locations in 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.

      Any accidental hazardous discharge could result in significant liability
and clean-up expenses, which could harm our business, financial condition, and
results of operations.

WE RELY ON A CONTINUOUS POWER SUPPLY TO CONDUCT OUR BUSINESS, AND CALIFORNIA'S
ENERGY CRISIS COULD DISRUPT OUR OPERATIONS AND INCREASE OUR EXPENSES.

      California is in the midst of an energy crisis that could disrupt our
research and development activities and increase our expenses. In the event of
an acute power shortage, which occurs when power reserves for the State of
California fall below 1.5%, California has, on occasion, implemented, and may in
the future continue to implement, rolling blackouts throughout the state. We
currently do not have back-up generators or alternate sources of power in the
event of a blackout, and our insurance does not provide coverage for any damages
we or our customers may suffer as a result of any interruption in our power
supply. If blackouts interrupt our power supply, we would be temporarily unable
to continue operations at our California-based facilities. This could damage our
reputation, harm our ability to retain existing customers and to obtain new
customers, and could result in lost revenue, any of which could substantially
harm our business and results of operations.

      Furthermore, the regulatory changes affecting the energy industry
instituted in 1996 by the California government have caused power prices to
increase. Under the revised regulatory scheme, utilities were encouraged to sell
their plants, which had traditionally produced most of California's power, to
independent energy companies that were expected to compete aggressively on
price. Instead, due in part to a shortage of supply, wholesale prices have
increased dramatically over the past year. If wholesale prices continue to
increase, our operating expenses will likely increase, as our headquarters and
certain facilities are in California.

EARTHQUAKES OR OTHER NATURAL OR MAN-MADE DISASTERS COULD DISRUPT OUR OPERATIONS.

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



                                      -32-
<PAGE>   33

       Other risk factors that may affect our financial performance are listed
in our various SEC filings, including our Form 10-K for the fiscal year ended
December 31, 2000, which was filed on March 26, 2001. We undertake 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.



                                      -33-
<PAGE>   34

PART II. OTHER INFORMATION

ITEM 1. Legal Proceeding

      Asahi Glass Company, Ltd., or Asahi, has asserted that a technology
cooperation agreement between the Company and Asahi gives Asahi exclusive
rights, even as to Komag, to certain glass substrate-related intellectual
property developed by the Company. The Company has sent Asahi a notice of
termination of the agreement and believes that Asahi has no rights to the glass
substrate technology developed by the Company. The Company believes that it has
full control of its glass-related intellectual property, and is proceeding to
commercialize the technology with the support of other glass makers.

      The Company has discontinued its litigation against Asahi, and is
currently engaged in discussions with Asahi to resolve the dispute. The Company
believes that the resolution of the dispute, whether favorable or unfavorable,
would not have a significant financial impact on the Company's financial
results.

ITEM 2. Changes in Securities

      Not Applicable.

ITEM 3. Defaults Upon Senior Securities

      Not Applicable

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

      Not Applicable

ITEM 5. Other Information

      We received a letter from Nasdaq informing us that we are not in
compliance with Nasdaq's minimum bid requirement because our stock has traded
below $1.00 per share for more than 30 consecutive trading days. If we do not
comply with the minimum bid price rule by July 24, 2001, Nasdaq intends to
delist our stock. At that time, we may appeal the delisting decision and request
a hearing.

ITEM 6. Exhibits and Reports on Form 8-K

      Not Applicable



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<PAGE>   35

                                   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:  May 15, 2001          BY:  /s/ Thian Hoo Tan
     ----------------           --------------------------------
                             Thian Hoo Tan
                             Chief Executive Officer

DATE:  May 15, 2001          BY: /s/ Edward H. Siegler
     ----------------           --------------------------------
                             Edward H. Siegler
                             Vice President,
                             Chief Financial Officer

DATE:  May 15, 2001          BY: /s/ Kathleen A. Bayless
     ----------------           --------------------------------
                             Kathleen A. Bayless
                             Vice President,
                             Corporate Controller



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