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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the Quarter Ended March 31, 2002
Commission File Number 0-16852

KOMAG, INCORPORATED
(Debtor-in-Possession as of August 24, 2001)
(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 March 31, 2002, 111,924,983 shares of the Registrants common stock,
$0.01 par value, were issued and outstanding.





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



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INDEX

KOMAG, INCORPORATED

|                                                                                              |                                                                                                     |  |          |      | 
|--------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- |  | -------- | ---- | 
|                                                                                              |                                                                                                     |  | Page No.
|                                                                                              |                                                                                                     |  |         
|PART I. FINANCIAL INFORMATION                                                                 |                                                                                                     |  |          |     
|Item 1. Consolidated Financial Statements (Unaudited)                                         |                                                                                                     |  |          |     
|                                                                                              | Consolidated statements of operations -Three
        months ended March 31, 2002 and April 1, 2001  |  |          | 3    | 
|                                                                                              | Consolidated balance sheets  March 31,
        2002 and December 30, 2001                          |  |          | 4    | 
|                                                                                              | Consolidated statements of cash flows 
        Three months ended March 31, 2002 and April 1, 2001 |  |          | 5    | 
|                                                                                              | Notes to consolidated financial statements
        - March 31, 2002                                 |  |          | 6-17 | 
|Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations |                                                                                                     |  | 18-38    |     
|Item 3. Quantitative and Qualitative Disclosures about
Market Risk                            |                                                                                                     |  | 38       |     
|PART II. OTHER INFORMATION                                                                    |                                                                                                     |  |          |     
|Item 1. Legal Proceedings                                                                     |                                                                                                     |  | 39       |     
|Item 2. Changes in Securities                                                                 |                                                                                                     |  | 39       |     
|Item 3. Defaults Upon Senior Securities                                                       |                                                                                                     |  | 39       |     
|Item 4. Submission of Matters to a Vote of Security Holders                                   |                                                                                                     |  | 40       |     
|Item 5. Other Information                                                                     |                                                                                                     |  | 40       |     
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                     |  | 40       |     
|SIGNATURES                                                                                    |                                                                                                     |  | 41       |     

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PART I. FINANCIAL INFORMATION

KOMAG, INCORPORATED
  (DEBTOR-IN-POSSESSION)

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

|                                                                     |                                                                                                                                                |                                                                                                                                         |         |                    |          |               |         |         |          |  
|-------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | ------- | ------------------ | -------- | ------------- | ------- | ------- | -------- | -
|                                                                     |                                                                                                                                                |                                                                                                                                         |         | Three Months Ended
|                                                                     |                                                                                                                                                |                                                                                                                                         |         |                   
|                                                                     |                                                                                                                                                |                                                                                                                                         |         | March 31, 2002     |          | April 1, 2001
|                                                                     |                                                                                                                                                |                                                                                                                                         |         |                    |          |              
|Net sales
          to unrelated parties                             |                                                                                                                                                | $                                                                                                                                       | 20,338  |                    |          | $             | 47,105  |        
|Net sales
          to related parties                               |                                                                                                                                                |                                                                                                                                         | 41,027  |                    |          |               | 40,751  |        
|                                                                     |                                                                                                                                                |                                                                                                                                         |         |                    |          |               |         |        
|                                                                     |                                                                                                                                                | Net sales                                                                                                                               |         |                    | 61,365   |               |         |         | 87,856   |  
|Cost of
          sales                                              |                                                                                                                                                |                                                                                                                                         | 55,168  |                    |          |               | 93,430  |        
|                                                                     |                                                                                                                                                |                                                                                                                                         |         |                    |          |               |         |        
|                                                                     |                                                                                                                                                | Gross
          profit (loss)                                                                                                           |         |                    | 6,197    |               |         |         | (5,574   | )
|Operating
          expenses:                                        |                                                                                                                                                |                                                                                                                                         |         |                    |          |               |         |        
|                                                                     | Research,
          development, and engineering                                                                                               |                                                                                                                                         |         | 9,391              |          |               |         | 10,669  |         
|                                                                     | Selling,
          general, and administrative                                                                                                 |                                                                                                                                         |         | 4,166              |          |               |         | 5,711   |         
|                                                                     | Amortization
          of intangible assets                                                                                                    |                                                                                                                                         |         | 3,074              |          |               |         | 7,565   |         
|                                                                     |                                                                                                                                                |                                                                                                                                         |         |                    |          |               |         |        
|                                                                     |                                                                                                                                                |                                                                                                                                         | 16,631  |                    |          |               | 23,945  |        
|                                                                     |                                                                                                                                                |                                                                                                                                         |         |                    |          |               |         |        
|                                                                     |                                                                                                                                                | Operating
          loss                                                                                                                |         |                    | (10,434  | )             |         |         | (29,519  | )
|Other
          income (expense):                                    |                                                                                                                                                |                                                                                                                                         |         |                    |          |               |         |        
|                                                                     | Interest
          income                                                                                                                      |                                                                                                                                         |         | 97                 |          |               |         | 852     |         
|                                                                     | Interest
          expense (contractual interest expense was $7,920 and $22,163 in the
          first quarter of 2002 and 2001, respectively) |                                                                                                                                         |         |                   |          |               |         | (22,163 | )       
|                                                                     | Other
          income, net                                                                                                                    |                                                                                                                                         |         | 3,035              |          |               |         | 1,025   |         
|                                                                     |                                                                                                                                                |                                                                                                                                         |         |                    |          |               |         |        
|                                                                     |                                                                                                                                                |                                                                                                                                         | 3,132   |                    |          |               | (20,286 | )      
|                                                                     |                                                                                                                                                |                                                                                                                                         |         |                    |          |               |         |        
|                                                                     |                                                                                                                                                | Loss before
          reorganization costs, income taxes, minority interest, and equity in
          net loss of unconsolidated company |         |                    | (7,302   | )             |         |         | (49,805  | )
|Reorganization
          costs, net                                  |                                                                                                                                                |                                                                                                                                         | 991     |                    |          |               |        |        
|Provision
          for income taxes                                 |                                                                                                                                                |                                                                                                                                         | 380     |                    |          |               | 460     |        
|                                                                     |                                                                                                                                                |                                                                                                                                         |         |                    |          |               |         |        
|                                                                     |                                                                                                                                                | Loss before
          minority interest and equity in net loss of unconsolidated company                                                |         |                    | (8,673   | )             |         |         | (50,265  | )
|Minority
          interest in net income of consolidated subsidiary |                                                                                                                                                |                                                                                                                                         | 9       |                    |          |               | 12      |        
|Equity
          in net loss of unconsolidated company               |                                                                                                                                                |                                                                                                                                         | 1,500   |                    |          |               | 737     |        
|                                                                     |                                                                                                                                                |                                                                                                                                         |         |                    |          |               |         |        
|                                                                     |                                                                                                                                                | Net loss                                                                                                                                |         |                    | ($10,182 | )             |         |         | ($51,014 | )
|                                                                     |                                                                                                                                                |                                                                                                                                         |         |                    |          |               |         |        
|Basic
          and diluted net loss per share                       |                                                                                                                                                |                                                                                                                                         | ($0.09  | )                  |          |               | ($0.46  | )      
|                                                                     |                                                                                                                                                |                                                                                                                                         |         |                    |          |               |         |        
|Number
          of shares used in basic and diluted computations    |                                                                                                                                                |                                                                                                                                         | 111,925 |                    |          |               | 111,645 |        
|                                                                     |                                                                                                                                                |                                                                                                                                         |         |                    |          |               |         |        

See notes to consolidated financial statements.

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KOMAG, INCORPORATED
  (DEBTOR-IN-POSSESSION)




CONSOLIDATED BALANCE SHEETS
  (In thousands)ASSETS

|                                                       |                                                                                                                                                                                             |                                       |         |          |                |   |                   |          |          |   | 
|------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | ------- | -------- | -------------- | - | ----------------- | -------- | -------- | - | 
|                                                       |                                                                                                                                                                                             |                                       |         |          | March 31, 2002 |   | December 30, 2001
|                                                       |                                                                                                                                                                                             |                                       |         |          |                |   |                  
|                                                       |                                                                                                                                                                                             |                                       |         |          | (unaudited)    |   | (note)           
|                                                       |                                                                                                                                                                                             |                                       |         |          |                |   |                  
|Current
          assets                               |                                                                                                                                                                                             |                                       |         |          |                |   |                   |         
|                                                       | Cash and
          cash equivalents                                                                                                                                                         |                                       | $       | 24,000   |                |   | $                 | 17,486   |         
|                                                       | Short-term
          investments                                                                                                                                                            |                                       |         |         |                |   |                   | 335      |         
|                                                       | Accounts
          receivable (including amounts due from related parties of $21,786 in
          2002 and $23,905 in 2001, less allowances of $1,701 in 2002 and $2,593
          in 2001) |                                       |         | 28,379   |                |   |                   | 25,148   |         
|                                                       | Inventories                                                                                                                                                                                 |                                       |         | 11,276   |                |   |                   | 11,766   |         
|                                                       | Prepaid
          expenses and deposits                                                                                                                                                     |                                       |         | 1,562    |                |   |                   | 1,878    |         
|                                                       |                                                                                                                                                                                             |                                       |         |          |                |   |                   |         
|                                                       |                                                                                                                                                                                             | Total
          current assets        |         |          | 65,217         |   |                   |          | 56,613   |  
|Investment
          in unconsolidated company         |                                                                                                                                                                                             |                                       | 2,576   |          |                |   | 4,076             |         
|Property,
          plant, and equipment, net          |                                                                                                                                                                                             |                                       | 221,140 |          |                |   | 232,256           |         
|Land and
          buildings held for sale             |                                                                                                                                                                                             |                                       | 24,600  |          |                |   | 24,600            |         
|Goodwill
          and other intangible assets, net    |                                                                                                                                                                                             |                                       | 87,149  |          |                |   | 90,185            |         
|Deposits
          and other assets                    |                                                                                                                                                                                             |                                       | 86      |          |                |   | 120               |         
|                                                       |                                                                                                                                                                                             |                                       |         |          |                |   |                   |         
|                                                       |                                                                                                                                                                                             | $                                     | 400,768 |          |                | $ | 407,850           |         
|                                                       |                                                                                                                                                                                             |                                       |         |          |                |   |                   |         
|                                                       | LIABILITIES AND STOCKHOLDERS
          DEFICIT                                                                                                                                            
|Current
          liabilities                          |                                                                                                                                                                                             |                                       |         |          |                |   |                   |         
|                                                       | Trade
          accounts payable                                                                                                                                                            |                                       | $       | 16,444   |                |   | $                 | 13,376   |         
|                                                       | Accounts
          payable to related parties                                                                                                                                               |                                       |         | 2,536    |                |   |                   | 1,627    |         
|                                                       | Accrued
          compensation and benefits                                                                                                                                                 |                                       |         | 7,862    |                |   |                   | 7,585    |         
|                                                       | Other
          liabilities                                                                                                                                                                 |                                       |         | 1,756    |                |   |                   | 1,763    |         
|                                                       | Other
          liabilities due to related party                                                                                                                                            |                                       |         | 5,963    |                |   |                   | 6,583    |         
|                                                       | Restructuring
          liabilities                                                                                                                                                         |                                       |         | 1,852    |                |   |                   | 2,371    |         
|                                                       |                                                                                                                                                                                             |                                       |         |          |                |   |                   |         
|                                                       |                                                                                                                                                                                             | Total
          current liabilities   |         |          | 36,413         |   |                   |          | 33,305   |  
|Deferred
          income taxes                        |                                                                                                                                                                                             |                                       | 1,003   |          |                |   | 1,003             |         
|Other
          long-term liabilities                  |                                                                                                                                                                                             |                                       | 908     |          |                |   | 910               |         
|                                                       |                                                                                                                                                                                             |                                       |         |          |                |   |                   |         
|                                                       | Total
          liabilities not subject to compromise                                                                                                                                       |                                       |         | 38,324   |                |   |                   | 35,218   |         
|Liabilities
          subject to compromise            |                                                                                                                                                                                             |                                       | 516,158 |          |                |   | 516,173           |         
|Minority
          interest in consolidated subsidiary |                                                                                                                                                                                             |                                       | 1,407   |          |                |   | 1,398             |         
|Stockholders
          deficit                        |                                                                                                                                                                                             |                                       |         |          |                |   |                   |         
|                                                       | Common
          stock                                                                                                                                                                      |                                       |         | 1,119    |                |   |                   | 1,119    |         
|                                                       | Additional
          paid-in capital                                                                                                                                                        |                                       |         | 586,304  |                |   |                   | 586,304  |         
|                                                       | Accumulated
          deficit                                                                                                                                                               |                                       |         | (742,544 | )              |   |                   | (732,362 | )       
|                                                       |                                                                                                                                                                                             |                                       |         |          |                |   |                   |         
|                                                       |                                                                                                                                                                                             | Total
          stockholders deficit |         |          | (155,121       | ) |                   |          | (144,939 | )
|                                                       |                                                                                                                                                                                             |                                       |         |          |                |   |                   |         
|                                                       |                                                                                                                                                                                             | $                                     | 400,768 |          |                | $ | 407,850           |         
|                                                       |                                                                                                                                                                                             |                                       |         |          |                |   |                   |         

Note: The balance sheet at December 30, 2001 was derived from the audited
financial statements at that date.

See notes to consolidated financial statements.

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KOMAG, INCORPORATED
  (DEBTOR-IN-POSSESSION)

CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)
  (Unaudited)

|                                                                                                    |                                                                           |                                                               |         |                    |       |               |         |        |        |  
|--------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ------------------------------------------------------------- | ------- | ------------------ | ----- | ------------- | ------- | ------ | ------ | -
|                                                                                                    |                                                                           |                                                               |         | Three Months Ended
|                                                                                                    |                                                                           |                                                               |         |                   
|                                                                                                    |                                                                           |                                                               |         | March 31, 2002     |       | April 1, 2001
|                                                                                                    |                                                                           |                                                               |         |                    |       |              
|OPERATING
          ACTIVITIES                                                                      |                                                                           |                                                               |         |                    |       |               |         |       
|Net loss                                                                                            |                                                                           | $                                                             | (10,182 | )                  |       | $             | (51,014 | )     
|Adjustments
          to reconcile net loss to net cash provided by (used in) operating activities: |                                                                           |                                                               |         |                    |       |               |         |       
|                                                                                                    | Depreciation
          and amortization on property, plant, and equipment |                                                               |         | 13,800             |       |               |         | 18,636 |       
|                                                                                                    | Amortization
          of intangible assets                               |                                                               |         | 3,074              |       |               |         | 7,565  |       
|                                                                                                    | Provision
          for doubtful accounts receivable                      |                                                               |         | (261               | )     |               |         | (95    | )     
|                                                                                                    | Interest
          accrual on long-term note payable to related party     |                                                               |         |                   |       |               |         | 1,120  |       
|                                                                                                    | Accretion
          and amortization of interest on debt                  |                                                               |         |                   |       |               |         | 12,580 |       
|                                                                                                    | Equity
          in net loss of unconsolidated company                    |                                                               |         | 1,500              |       |               |         | 737    |       
|                                                                                                    | Gain on
          liquidation of subsidiary                               |                                                               |         |                   |       |               |         | (579   | )     
|                                                                                                    | Gain on
          disposal of property, plant, and equipment, net         |                                                               |         | (2,387             | )     |               |         | (14    | )     
|                                                                                                    | Other                                                                     |                                                               |         | 7                  |       |               |         | (18    | )     
|Changes
          in operating assets and liabilities:                                              |                                                                           |                                                               |         |                    |       |               |         |       
|                                                                                                    | Accounts
          receivable                                             |                                                               |         | (5,089             | )     |               |         | 8,992  |       
|                                                                                                    | Accounts
          receivable from related parties                        |                                                               |         | 2,119              |       |               |         | 2,460  |       
|                                                                                                    | Inventories                                                               |                                                               |         | 490                |       |               |         | (8,603 | )     
|                                                                                                    | Prepaid
          expenses and deposits                                   |                                                               |         | 312                |       |               |         | 938    |       
|                                                                                                    | Trade
          accounts payable                                          |                                                               |         | 3,068              |       |               |         | 8,776  |       
|                                                                                                    | Accounts
          payable to related parties                             |                                                               |         | 909                |       |               |         | (278   | )     
|                                                                                                    | Accrued
          compensation and benefits                               |                                                               |         | 277                |       |               |         | (1,982 | )     
|                                                                                                    | Other
          liabilities                                               |                                                               |         | (998               | )     |               |         | (4,874 | )     
|                                                                                                    | Other
          liabilities to related party                              |                                                               |         | (620               | )     |               |         | 2,211  |       
|                                                                                                    | Restructuring
          liabilities                                       |                                                               |         | (519               | )     |               |         | (1,779 | )     
|                                                                                                    | Liabilities
          subject to compromise                               |                                                               |         | (15                | )     |               |         |       |       
|                                                                                                    |                                                                           |                                                               |         |                    |       |               |         |       
|                                                                                                    |                                                                           |                                                               | 5,485   |                    |       |               | (5,221  | )     
|Reorganization
          costs, net                                                                 |                                                                           |                                                               | 991     |                    |       |               |        |       
|                                                                                                    |                                                                           |                                                               |         |                    |       |               |         |       
|                                                                                                    |                                                                           | Net cash
          provided by (used in) operating activities |         |                    | 6,476 |               |         |        | (5,221 | )
|INVESTING
          ACTIVITIES                                                                      |                                                                           |                                                               |         |                    |       |               |         |       
|Acquisition
          of property, plant, and equipment                                             |                                                                           |                                                               | (2,720  | )                  |       |               | (16,523 | )     
|Purchases
          of short-term investments                                                       |                                                                           |                                                               |        |                    |       |               | (1,450  | )     
|Proceeds
          from short-term investments at maturity                                          |                                                                           |                                                               | 335     |                    |       |               | 9,597   |       
|Proceeds
          from disposal of property, plant, and equipment                                  |                                                                           |                                                               | 2,423   |                    |       |               | 158     |       
|                                                                                                    |                                                                           |                                                               |         |                    |       |               |         |       
|                                                                                                    |                                                                           | Net cash
          provided by (used in) investing activities |         |                    | 38    |               |         |        | (8,218 | )
|FINANCING
          ACTIVITIES                                                                      |                                                                           |                                                               |         |                    |       |               |         |       
|Payment
          of debt                                                                           |                                                                           |                                                               |        |                    |       |               | (7,499  | )     
|                                                                                                    |                                                                           |                                                               |         |                    |       |               |         |       
|                                                                                                    |                                                                           | Net cash
          used in financing activities               |         |                    |      |               |         |        | (7,499 | )
|Increase
          (decrease) in cash and cash equivalents                                          |                                                                           |                                                               | 6,514   |                    |       |               | (20,938 | )     
|Cash and
          cash equivalents at beginning of year                                            |                                                                           |                                                               | 17,486  |                    |       |               | 71,067  |       
|                                                                                                    |                                                                           |                                                               |         |                    |       |               |         |       
|                                                                                                    | Cash and
          cash equivalents at end of period                      |                                                               | $       | 24,000             |       |               | $       | 50,129 |       
|                                                                                                    |                                                                           |                                                               |         |                    |       |               |         |       

See notes to consolidated financial statements.

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KOMAG, INCORPORATED
  (DEBTOR-IN-POSSESSION)




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (UNAUDITED)
  March 31, 2002

Note 1. Basis of Presentation and Summary of Significant Accounting Policies

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 Rule
10-01 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 March 31, 2002 are not necessarily indicative of the results that may be
expected for the year ending December 29, 2002.

As discussed in Note 2, Komag, Incorporated (KUS) filed a voluntary
petition for reorganization under Chapter 11 of title 11 of the United States
Code (the Bankruptcy Code) on August 24, 2001 (the Petition Date). The
petition was filed with the United States Bankruptcy Court for the Northern
District of California. The petition affects only the Companys U.S. corporate
parent, KUS, and does not include any of its subsidiaries, including Komag
Material Technology (KMT), and Komag USA (Malaysia) Sdn (KMS). KUS is operating
its business as a debtor-in-possession.

The consolidated financial statements have been prepared on a
going-concern basis, which contemplates continuity of operations, realization
of assets, and liquidation of liabilities and commitments in the normal course
of business. As a result of: 1) the Companys recurring losses from operations
and net capital deficiency; and 2) the Chapter 11 Bankruptcy and related
circumstances, including the Companys substantial debt; the realization of
assets and liquidation of liabilities are subject to significant uncertainty.
These matters, among others, raise substantial doubt about the Companys
ability to continue as a going concern. The Companys ability to continue as a
going concern depends on, among other things, its ability to: 1) receive
confirmation of the Plan of Reorganization (the Plan) by the Bankruptcy Court
(as defined in Note 2); and 2) maintain business and financial operations
consistent with those expected in the Plan.

While the Company is operating as a debtor-in-possession, it may sell or
otherwise dispose of assets and liquidate or settle liabilities for amounts
other than those reflected in the consolidated financial statements. Further,
effectivity of the Plan could materially change the amounts and classifications
reported in the consolidated financial statements.

In connection with the Chapter 11 Bankruptcy case, the Company is required
to prepare its consolidated financial statements as of March 31, 2002 in
accordance with Statement of Position 90-7 (SOP 90-7), Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code, issued by the American
Institute of Certified Public Accountants. In accordance with SOP 90-7, all of
the Companys pre-petition liabilities that are subject to compromise under the
proposed Plan are segregated in the Companys consolidated balance sheet as
liabilities

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subject to compromise. These liabilities are recorded at the amounts
expected to be allowed as claims in the Chapter 11 case rather than at the
estimated amounts for which those allowed claims may be satisfied as a result
of the confirmed Plan.

As of the effective date of the Plan, the Company expects to adopt fresh
start reporting as defined in SOP 90-7. In accordance with fresh start
reporting, the reorganization value of the Company will be allocated to the
emerging entitys specific tangible and identified net intangible assets based
on their fair values. Excess reorganization value, if any, will be reported as
reorganization value in excess of amounts allocable to identifiable assets.
As a result of the adoption of such fresh start reporting, the Companys
post-emergence (successor) financial statements will not be comparable with
its pre-emergence (predecessor) financial statements including the historical
consolidated financial statements included herein.

Fiscal Year:The Company uses a 52-53 week fiscal year ending on the
Sunday closest to December 31. The three-month reporting periods included in
this report are comprised of 13 weeks.

Cash Equivalents:The Company considers as a cash equivalent any
highly-liquid investment that matures within three months of its purchase date.

Short-Term Investments:The Company invests its excess cash in
high-quality, short-term debt instruments. None of the Companys debt security
investments has a maturity date greater than one year. At April 1, 2001, all
short-term investments are designated as available for sale. There were no
short-term investments at March 31, 2002. Interest and dividends on the
investments are included in interest income.

The following is a summary of the Companys investments by major security
type at amortized cost, which approximates fair value:

|                                              |  |                |        |                   |  |   |        | 
|--------------------------------------------- |  | -------------- | ------ | ----------------- |  | - | ------ | 
|                                              |  | (in thousands)
|                                              |  | March 31, 2002 |        | December 30, 2001
|                                              |  |                |        |                  
|Corporate debt securities                     |  | $              | 6,653  |                   |  | $ | 6,874  | 
|Government-backed securities                  |  |                | 13,350 |                   |  |   | 5,350  | 
|                                              |  |                |        |                   |  |   |        | 
|                                              |  | $              | 20,003 |                   |  | $ | 12,224 | 
|                                              |  |                |        |                   |  |   |        | 
|Amounts included in cash and cash equivalents |  | $              | 20,003 |                   |  | $ | 11,889 | 
|Amounts included in short-term investments    |  |                |       |                   |  |   | 335    | 
|                                              |  |                |        |                   |  |   |        | 
|                                              |  | $              | 20,003 |                   |  | $ | 12,224 | 
|                                              |  |                |        |                   |  |   |        | 

There were no realized gains or losses on the Companys investments during
the first quarter of 2002, as all investments were held to maturity. The
Company utilizes zero-balance accounts and other cash management tools to
invest all available funds, including bank balances in excess of book balances.

Inventories:Inventories are stated at the lower of cost (first-in,
first-out method) or market, and consist of the following:

|                |  |                |        |                   |  |   |        | 
|--------------- |  | -------------- | ------ | ----------------- |  | - | ------ | 
|                |  | (in thousands)
|                |  | March 31, 2002 |        | December 30, 2001
|                |  |                |        |                  
|Raw material    |  | $              | 5,687  |                   |  | $ | 5,232  | 
|Work in process |  |                | 2,701  |                   |  |   | 1,608  | 
|Finished goods  |  |                | 2,888  |                   |  |   | 4,926  | 
|                |  |                |        |                   |  |   |        | 
|                |  | $              | 11,276 |                   |  | $ | 11,766 | 
|                |  |                |        |                   |  |   |        | 

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Property, Plant, and Equipment:Property, plant, and equipment are stated
at cost less accumulated depreciation and amortization. Depreciation is
computed by the straight-line method over the estimated useful lives of the
assets. The estimated useful life of the Companys buildings is thirty years.
Furniture and equipment are generally depreciated over three to five years, and
leasehold improvements are amortized over the shorter of the lease term or
their estimated useful life. Land and buildings acquired as part of the HMT
merger which are available for sale, are valued at their estimated fair value
(which was determined based on an independent valuation), less estimated costs
to sell of $24.6 million as of March 31, 2002. Property, plant, and equipment
and consists of the following:

|                                                  |  |                |          |                   |  |   |          |  
|------------------------------------------------- |  | -------------- | -------- | ----------------- |  | - | -------- | -
|                                                  |  | (in thousands)
|                                                  |  | March 31, 2002 |          | December 30, 2001
|                                                  |  |                |          |                  
|Land                                              |  | $              | 7,785    |                   |  | $ | 7,785    |  
|Buildings                                         |  |                | 163,459  |                   |  |   | 163,333  |  
|Leasehold improvements                            |  |                | 30,813   |                   |  |   | 30,786   |  
|Furniture                                         |  |                | 7,569    |                   |  |   | 7,549    |  
|Equipment                                         |  |                | 474,786  |                   |  |   | 474,662  |  
|                                                  |  |                |          |                   |  |   |          |  
|                                                  |  |                | 684,412  |                   |  |   | 684,115  |  
|Less allowances for depreciation and amortization |  |                | (463,272 | )                 |  |   | (451,859 | )
|                                                  |  |                |          |                   |  |   |          |  
|                                                  |  | $              | 221,140  |                   |  | $ | 232,256  |  
|                                                  |  |                |          |                   |  |   |          |  

Long-lived assets and certain identifiable intangible assets:Long-lived
assets and certain identifiable intangible assets are generally evaluated for
impairment on an individual acquisition, market, or product basis whenever
events or changes in circumstances indicate that such assets may be 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
undiscounted cash flows attributable to the assets. In the event that 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 utilizing
discounted estimates of future cash flows. The discount rate used is based on
the estimated incremental borrowing rate at the date of the event that triggers
the impairment. Land and buildings held for sale are evaluated for impairment
periodically when there are significant changes in market conditions for
commercial real estate, and carried at amounts based on independent valuation
less estimated selling costs.

Revenue Recognition:The Company records sales upon shipment, at which
point the title transfers, and provides an allowance for estimated returns of
defective products based on historical data as well as current knowledge of
product quality.

Shipping and Handling Costs:Shipping and handling costs associated with
manufactured product are charged to cost of sales as incurred.

Research and Development:Research and development costs are expensed as
incurred.

Stock-Based Compensation:The Company accounts for employee stock-based
compensation using the intrinsic-value method, in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.
Accordingly, compensation cost is recorded on the date of grant to the extent
that the fair value of the underlying share of common stock exceeds the
exercise price for a stock option or the purchase price

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for a share of common stock. The Company has not recorded stock-based
compensation expense for stock options issued to employees, as the exercise
prices of stock options granted were equal to the fair value of the stock on
the date of grant. Pursuant to Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, the Company discloses
the pro forma effect of using the fair value method of accounting for employee
stock-based compensation arrangements.

Income Taxes:The Company accounts for income taxes using the asset and
liability method. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and for operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using the enacted tax laws
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax laws is recognized in the results of
operations in the period that includes the enactment date. A valuation
allowance is established for deferred tax assets if it is considered more
likely than not that the assets will not be realized.

Loss Per Share:The Company determines loss per share in accordance with
SFAS No. 128, Earnings per Share. The net loss per share was computed using
only the weighted average number of shares of common stock outstanding during
the period.

Potential incremental common shares attributable to the future exercise of
outstanding options (assuming proceeds would be used to purchase treasury
stock) of zero and 187,219 for the three months ended March 31, 2002, and April
1, 2001, respectively, were not included in the diluted net loss per share
because the effect would have been anti-dilutive.

Potential incremental common shares attributable to the exercise of
outstanding warrants (assuming proceeds would be used to purchase treasury
stock) of zero for both of the three month periods ended March 31, 2002, and
April 1, 2001, were not included in the diluted net loss per share because the
effect would have been anti-dilutive.

Potential incremental common shares totaling 12,474,181 attributable to
conversion of convertible debt for both of the three month periods ended March
31, 2002, and April 1, 2001, were not included in the diluted net loss per
share computation because their effect would have been anti-dilutive.

Comprehensive Loss:The comprehensive loss for all periods presented
reflect the adoption of SFAS No. 130, Reporting Comprehensive Income.
Comprehensive loss for the three-month periods ended March 31, 2002, and April
1, 2001, in the accompanying consolidated statements of operations is the same
as the Companys net loss.

Recent Accounting Pronouncements: In June 2001, the Financial Accounting
Standards Board (FASB) issued SFAS No. 141, Business Combinations, and SFAS No.
142, Goodwill and Other Intangible Assets. SFAS No. 141 is effective for any
business combinations initiated after June 30, 2001, and also includes the
criteria for the recognition of intangible assets separately from goodwill.
SFAS No. 142 is effective for fiscal years beginning after December 15, 2001,
and requires that goodwill not be amortized, but rather be subject to an
impairment test at least annually. Separately identified and recognized
intangible assets resulting from business combinations completed

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before July 1, 2001 that do not meet the new criteria for
separate recognition of intangible assets will be subsumed into goodwill upon
adoption. In addition, the useful lives of recognized intangible assets
acquired in transactions completed before July 1, 2001 will be reassessed, and
the remaining amortization periods adjusted accordingly. Under the adoption of
SFAS No. 142, the Company will be required to perform a transitional impairment
analysis of its goodwill. Any transitional impairment loss will be recognized
as the cumulative effect of a change in accounting principle in the Companys
consolidated statement of operations.

At the beginning of fiscal 2002 (the date of adoption of SFAS No. 142),
the Company had unamortized goodwill and other intangibles in the amount of
$90.2 million ($83.5 million of which pertains to goodwill) which is subject
to the transition provisions of SFAS No. 142. The Company is in the process of
having an independent appraisal performed as a basis for determining the value
of goodwill and other intangible assets. As a result, as of the beginning of
fiscal year 2002 the Company expects to record a transitional impairment loss
in the range of $60.0 million to $80.0 million in the second quarter of 2002.
In accordance with SFAS 142, no further amortization of the remaining goodwill
associated with the HMT Technology, Corporation (HMT) acquisition was recorded
in the first quarter of 2002.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This Statement applies to
legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development or normal use of the
assets. SFAS No. 143 is effective for fiscal years beginning after June 15,
2002. The Company does not expect the adoption of SFAS No. 143 to have a
material impact on its financial position or results of operations.

In October 2001, the FASB issued SFAS No. 144 Accounting for the
Impairment or Disposal of Long-Lived Assets which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and also
supersedes the accounting and reporting provisions of APB Opinion No. 30,
Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a business. SFAS No.
144 is effective for fiscal years beginning after December 15, 2001, and
interim periods within those fiscal years. The Company adopted SFAS No. 144 in
the first quarter of 2002. SFAS No. 144 did not have a material impact on the
Companys financial position or results of operations in the first quarter of
2002.

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

Note 2. Reorganization under Chapter 11 of the United States Bankruptcy Code

On the Petition Date, Komag, Incorporated filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code. The Company has
continued operations since the Petition Date, and expects to continue its
operations during and after the Chapter 11 bankruptcy proceedings.

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The Company filed a proposed Plan of Reorganization (the Plan) on
September 21, 2001, by which it intends to satisfy and discharge the claims
underlying the liabilities discussed below. The Company amended the Plan on
November 9, 2001, and filed a modified Plan on April 8, 2002. As modified,
the proposed Plan, which must be confirmed by the Bankruptcy Court, currently
has the support of creditors holding substantially all of the Companys
undisputed outstanding debt. As a result of the vote by the Companys
stockholders, there will be no distribution to stockholders when the Company
emerges from bankruptcy.

The Company continues to pursue diligently the steps necessary to emerge
from its Chapter 11 bankruptcy proceedings. A hearing before the Bankruptcy
Court to consider confirmation of the modified Plan is scheduled for May 9,
2002. The proposed Plan may be modified materially before it is confirmed by
the Bankruptcy Court.

The accompanying consolidated statements of operations reflect certain
reorganization costs, including professional fees. Interest expense on the
Companys senior bank debt, subordinated convertible notes, subordinated
unsecured convertible debt, and note payable has been recorded up to the
Petition Date. Such interest expense has not been recorded subsequent to that
date because it will not be paid, and will not be included as an allowed claim
under the Plan. In the first quarter of 2002, stated contractual interest was
$7.9 million.

In accordance with SOP 90-7, a significant portion of the Companys
outstanding debt, related accrued interest, and pre-petition accounts payable
is classified as liabilities subject to compromise at March 31, 2002.
Comparable items in the prior year have not been reclassified. See below for a
complete description of liabilities subject to compromise.

The accompanying consolidated financial statements include the
consolidated financial position and results of operations of all of the
Companys entities, including KUS. The following condensed financial
statements reflect the financial position and results of operations of KUS
only, using the equity method of accounting for reporting the results of
operations of all subsidiaries of the Company which are not debtors in the
Chapter 11 bankruptcy proceedings.

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KOMAG, INCORPORATED (KUS)
  (DEBTOR-IN-POSSESSION)
  CONDENSED STATEMENT OF OPERATIONS
(In thousands)

|                                              |                                        |                                                  |                                                                                                                           |       |                |         |  
|--------------------------------------------- | -------------------------------------- | ------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------- | ----- | -------------- | ------- | -
|                                              |                                        |                                                  |                                                                                                                           |       | Three         
|                                              |                                        |                                                  |                                                                                                                           |       | Months Ended  
|                                              |                                        |                                                  |                                                                                                                           |       |               
|                                              |                                        |                                                  |                                                                                                                           |       | March 31, 2002
|                                              |                                        |                                                  |                                                                                                                           |       |               
|Net sales                                     |                                        | $                                                | 864                                                                                                                       |      
|Cost of sales                                 |                                        |                                                  | 5,214                                                                                                                     |      
|                                              |                                        |                                                  |                                                                                                                           |      
|                                              |                                        |                                                  | Gross loss                                                                                                                |       |                | (4,350  | )
|Operating expenses:                           |                                        |                                                  |                                                                                                                           |      
|                                              | Research, development, and engineering |                                                  |                                                                                                                           | 8,270 |               
|                                              | Selling, general, and administrative   |                                                  |                                                                                                                           | 3,181 |               
|                                              | Amortization of intangible assets      |                                                  |                                                                                                                           | 518   |               
|                                              |                                        |                                                  |                                                                                                                           |      
|                                              |                                        |                                                  | 11,969                                                                                                                    |      
|                                              |                                        |                                                  |                                                                                                                           |      
|                                              |                                        |                                                  | Operating loss                                                                                                            |       |                | (16,319 | )
|Other income (expense):                       |                                        |                                                  |                                                                                                                           |      
|                                              |                                        | Interest income                                  |                                                                                                                           |       | 51             |        
|                                              |                                        | Intercompany income from non-debtor subsidiaries |                                                                                                                           |       | 13,486         |        
|                                              |                                        | Other income, net                                |                                                                                                                           |       | 2,747          |        
|                                              |                                        |                                                  |                                                                                                                           |      
|                                              |                                        |                                                  | 16,284                                                                                                                    |      
|                                              |                                        |                                                  |                                                                                                                           |      
|                                              |                                        |                                                  | Loss before reorganization costs, income taxes,
equity in net loss of unconsolidated company,
and non-debtor subsidiaries |       |                | (35     | )
|Reorganization costs, net                     |                                        |                                                  | 991                                                                                                                       |      
|Provision for income taxes                    |                                        |                                                  | 367                                                                                                                       |      
|                                              |                                        |                                                  |                                                                                                                           |      
|                                              |                                        |                                                  | Loss before equity in net loss of unconsolidated company,
and non-debtor subsidiaries                                     |       |                | (1,393  | )
|Equity in net loss of unconsolidated company  |                                        |                                                  | (1,500                                                                                                                    | )    
|Equity in net loss of non-debtor subsidiaries |                                        |                                                  | (7,289                                                                                                                    | )    
|                                              |                                        |                                                  |                                                                                                                           |      
|                                              |                                        |                                                  | Net loss                                                                                                                  |       | $              | (10,182 | )
|                                              |                                        |                                                  |                                                                                                                           |      

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KOMAG, INCORPORATED (KUS)
  (DEBTOR-IN-POSSESSION)
  CONDENSED BALANCE SHEET
(In thousands)

ASSETS

|                                                                          |                                                                      |                                     |          |        |                |  | 
|------------------------------------------------------------------------- | -------------------------------------------------------------------- | ----------------------------------- | -------- | ------ | -------------- |  | 
|                                                                          |                                                                      |                                     |          |        | March 31, 2002
|                                                                          |                                                                      |                                     |          |        |               
|Current
          assets                                                  |                                                                      |                                     |          |       
|                                                                          | Cash and
          cash equivalents                                  |                                     | $        | 14,129 |               
|                                                                          | Accounts
          receivable, net                                   |                                     |          | 855    |               
|                                                                          | Intercompany
          receivables from non-debtor subsidiaries, net |                                     |          | 10,451 |               
|                                                                          | Inventories                                                          |                                     |          | 886    |               
|                                                                          | Prepaid
          expenses and deposits                              |                                     |          | 558    |               
|                                                                          |                                                                      |                                     |          |       
|                                                                          |                                                                      | Total
          current assets      |          |        | 26,879         | 
|Investment
          in non-debtor subsidiaries                           |                                                                      |                                     | 1,643    |       
|Investment
          in unconsolidated company                            |                                                                      |                                     | 2,576    |       
|Long-term
          intercompany receivables from non-debtor subsidiaries |                                                                      |                                     | 209,921  |       
|Property,
          plant, and equipment, net                             |                                                                      |                                     | 25,436   |       
|Land and
          buildings held for sale                                |                                                                      |                                     | 24,600   |       
|Goodwill
          and other intangible assets, net                       |                                                                      |                                     | 87,149   |       
|Deposits
          and other assets                                       |                                                                      |                                     | 14       |       
|                                                                          |                                                                      |                                     |          |       
|                                                                          |                                                                      | $                                   | 378,218  |       
|                                                                          |                                                                      |                                     |          |       
|LIABILITIES AND STOCKHOLDERS
          DEFICIT                          
|Current
          liabilities                                             |                                                                      |                                     |          |       
|                                                                          | Trade
          accounts payable                                     |                                     | $        | 2,029  |               
|                                                                          | Accrued
          compensation and benefits                          |                                     |          | 5,024  |               
|                                                                          | Other
          liabilities                                          |                                     |          | 1,363  |               
|                                                                          | Other
          liabilities due to related party                     |                                     |          | 5,963  |               
|                                                                          | Restructuring
          liabilities associated with merger           |                                     |          | 891    |               
|                                                                          |                                                                      |                                     |          |       
|                                                                          |                                                                      | Total
          current liabilities |          |        | 15,270         | 
|Deferred
          income taxes                                           |                                                                      |                                     | 1,003    |       
|Other
          long-term liabilities                                     |                                                                      |                                     | 908      |       
|                                                                          |                                                                      |                                     |          |       
|                                                                          | Total
          liabilities not subject to compromise                |                                     |          | 17,181 |               
|Liabilities
          subject to compromise                               |                                                                      |                                     | 516,158  |       
|Stockholders
          deficit                                           |                                                                      |                                     | (155,121 | )     
|                                                                          |                                                                      |                                     |          |       
|                                                                          |                                                                      | $                                   | 378,218  |       
|                                                                          |                                                                      |                                     |          |       

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KOMAG, INCORPORATED (KUS)
  (DEBTOR-IN-POSSESSION)
  CONDENSED STATEMENT OF CASH FLOWS
(In thousands)

|                                                                                |                                                                 |                                           |         |                |       | 
|------------------------------------------------------------------------------- | --------------------------------------------------------------- | ----------------------------------------- | ------- | -------------- | ----- | 
|                                                                                |                                                                 |                                           |         | Three         
|                                                                                |                                                                 |                                           |         | Months Ended  
|                                                                                |                                                                 |                                           |         |               
|                                                                                |                                                                 |                                           |         | March 31, 2002
|                                                                                |                                                                 |                                           |         |               
|Operating
          Activities                                                  |                                                                 |                                           |         |               
|Net loss                                                                        |                                                                 | $                                         | (10,182 | )             
|Adjustments to reconcile net loss to net cash provided by
operating activities: |                                                                 |                                           |         |               
|                                                                                | Depreciation and amortization on property, plant, and equipment |                                           |         | 2,093          |      
|                                                                                | Amortization of intangible assets                               |                                           |         | 518            |      
|                                                                                | Provision for doubtful accounts receivable                      |                                           |         | (19            | )    
|                                                                                | Equity in net loss of unconsolidated company                    |                                           |         | 1,500          |      
|                                                                                | Equity in net loss of non-debtor subsidiaries                   |                                           |         | 7,289          |      
|                                                                                | Gain on disposal of equipment                                   |                                           |         | (2,338         | )    
|Changes in operating assets and liabilities:                                    |                                                                 |                                           |         |               
|                                                                                | Accounts receivable                                             |                                           |         | 354            |      
|                                                                                | Accounts receivable from related parties                        |                                           |         | 90             |      
|                                                                                | Inventories                                                     |                                           |         | (250           | )    
|                                                                                | Prepaid expenses and deposits                                   |                                           |         | 675            |      
|                                                                                | Trade accounts payable                                          |                                           |         | 126            |      
|                                                                                | Intercompany balances with non-debtor subsidiaries              |                                           |         | 8,559          |      
|                                                                                | Accrued compensation and benefits                               |                                           |         | (51            | )    
|                                                                                | Other liabilities                                               |                                           |         | (998           | )    
|                                                                                | Other liabilities due to related party                          |                                           |         | (620           | )    
|                                                                                | Restructuring liabilities associated with merger                |                                           |         | (472           | )    
|                                                                                | Liabilities subject to compromise                               |                                           |         | (15            | )    
|                                                                                |                                                                 |                                           |         |               
|                                                                                |                                                                 |                                           | 6,259   |               
|Reorganization costs, net                                                       |                                                                 |                                           | 991     |               
|                                                                                |                                                                 |                                           |         |               
|                                                                                |                                                                 | Net cash provided by operating activities |         |                | 7,250 | 
|Investing
          Activities                                                  |                                                                 |                                           |         |               
|Acquisition of property, plant, and equipment                                   |                                                                 |                                           | (1,395  | )             
|Proceeds from disposal of property, plant, and equipment                        |                                                                 |                                           | 2,374   |               
|                                                                                |                                                                 |                                           |         |               
|                                                                                |                                                                 | Net cash provided by investing activities |         |                | 979   | 
|                                                                                |                                                                 |                                           |         |               
|Increase in cash and cash equivalents                                           |                                                                 |                                           | 8,229   |               
|Cash and cash equivalents at beginning of period                                |                                                                 |                                           | 5,900   |               
|                                                                                |                                                                 |                                           |         |               
|                                                                                | Cash and cash equivalents at end of period                      |                                           | $       | 14,129         |      
|                                                                                |                                                                 |                                           |         |               

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As part of the bankruptcy case, the Company has rejected certain leases
and contracts, and intends to reject additional leases and contracts as allowed
by the Bankruptcy Code. Certain of the leases that the Company already has
rejected or intends to reject have previously been accounted for as part of
restructuring plans in accordance with Emerging Issues Task Force (EITF) Issue
No. 95-3, Recognition of Liabilities in Connection with Purchase Business
Combinations, and EITF Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (Including
Certain Costs Incurred in a Restructuring). Consequently, the Company has
reclassified the merger and restructuring related accruals for these leases to
liabilities subject to compromise.

The amounts for Chapter 11-related reorganization costs included in the
consolidated and condensed debtor-in-possession statements of operations for
the first quarter of 2002 included $1.0 million in professional fees.

Liabilities included in the condensed and consolidated
debtor-in-possession balance sheet at March 31, 2002, which are subject to
compromise under the terms of the Plan, are summarized as follows (in
thousands):

|                                        |  |                |         | 
|--------------------------------------- |  | -------------- | ------- | 
|                                        |  | (in thousands)
|                                        |  | March 31, 2002
|                                        |  |               
|Priority tax claims                     |  | $              | 1,729   | 
|Loan restructure agreement claims       |  |                | 206,880 | 
|Western Digital note claim              |  |                | 33,675  | 
|Western Digital rejection claims        |  |                | 11,262  | 
|Convertible notes claims                |  |                | 10,193  | 
|Subordinated notes claims               |  |                | 238,195 | 
|General unsecured claims                |  |                | 14,224  | 
|                                        |  |                |         | 
|Total liabilities subject to compromise |  | $              | 516,158 | 
|                                        |  |                |         | 

The above balance sheet amounts represent the Companys estimate of known
or potential pre-petition claims. Pursuant to the Bankruptcy Code, schedules
have been filed by KUS with the Bankruptcy Court setting forth its assets and
liabilities. Differences between amounts recorded by KUS and claims filed by
creditors are being investigated and resolved as part of the Chapter 11
bankruptcy proceedings. Such claims remain subject to future adjustment. Any
such adjustments would increase or decrease the liabilities subject to
compromise and reorganization costs in the period in which they become known.
Adjustments may result from negotiations, actions of the Bankruptcy Court,
further developments with respect to disputed claims, and rejection of
executory contracts, unexpired leases, and proofs of claim. Payment terms for
these amounts will be established in connection with the Chapter 11 bankruptcy
proceedings.

Liabilities subject to compromise are explained as follows:



| |  |  | Priority tax claims- reflect the liability for property,
sales, and income taxes that were unpaid as of August 24, 2001.                                                                                                                                                                                                                                                                                                                                                                            
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Loan restructure agreement claims- reflect the outstanding
$201.7 million principal balance of the senior unsecured bank debt.
In June 2000, the Company entered into a senior unsecured loan
restructure agreement with its senior lenders. Under the loan
restructure agreement, the bank debt became due and payable on June
30, 2001. This debt bore interest at the prime interest rate plus
1.25%, and required principal payments of $7.5 million a quarter. The
amount also includes accrued

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| |   |  | interest of $4.4 million through August
24, 2001, and $0.8 million for reimbursement of professional advisory
expenses.                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Western Digital note claim- reflects a note to Western
Digital in the principal amount of $30.1 million in connection with
the purchase of the assets of Western Digitals media operation in
April 1999. The note bears interest at 4.9% and was originally due
in April 2002 and was subordinated to the Companys senior bank
debt. The amount includes $3.6 million in accrued interest through
August 24, 2001.                                                                                                                               
|
| |  |  | Western Digital rejection claims- reflect the liability
for all unused equipment leases in connection with the closure of
the media operation acquired from Western Digital in April 1999.                                                                                                                                                                                                                                                                                                                                                         
|
| |  |  | Convertible notes claims- reflect the outstanding $9.3
million of subordinated unsecured convertible debt that was
scheduled to mature in 2005. This convertible debt was issued in
June 2000 as part of the restructuring of the senior bank debt. The
convertible notes originally bore interest of 8%, payable on the
maturity date of the convertible notes. The claim amount includes
$0.9 million in accrued interest through August 24, 2001.                                                                                               
|
| |  |  | Subordinated notes claims- reflect the outstanding $230.0
million in subordinated convertible notes assumed in the merger with
HMT. The HMT notes originally bore interest at 53/4% payable
semiannually on January 15 and July 15, were convertible into shares
of common stock of the Company at a conversion price of $26.12, and
were scheduled to mature in January 2004. The Company has not paid
the interest on the HMT notes that was due on July 15, 2001. This
amount includes $8.3 million in accrued interest through August 24,
2001.
|
| |  |  | General unsecured claims- reflect the liability for: 1) all
materials and services that were received by KUS but unpaid as of
August 24, 2001; 2) remaining lease payments for unused equipment
leased by HMT; and 3) unpaid severance costs as of August 24, 2001.                                                                                                                                                                                                                                                                                

The Company has received approval from the Bankruptcy Court to pay or
otherwise honor certain of its pre-petition obligations, including employee
wages, salaries, benefits and other employee obligations, and certain other
pre-petition claims. The pre-petition liabilities that have been approved for
payment by the Bankruptcy Court are excluded from liabilities subject to
compromise.

Note 3. Income Taxes

The Companys income tax provisions of $0.4 million and $0.5 million for
the three-month periods ended March 31, 2002, and April 1, 2001, respectively,
represent foreign withholding taxes on royalty and interest payments. The
Companys 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 in Malaysia. KMS has also been granted an additional eight-year and
ten-year tax holiday through December 2006 and 2008 for its second and third
plant sites in Malaysia, respectively.

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Note 4. Restructuring Liabilities

On October 2, 2000, the Company merged with 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 completed in the second quarter of
2001.

Under purchase accounting rules, the Company recorded liabilities
associated with the merger. At December 30, 2001, the liability balance was
$1.4 million. In the first quarter of 2002, $0.5 million of payments were
made against these liabilities.

In December 2000, the Company implemented a restructuring plan to cease
KMTs U.S. manufacturing operations in May 2001. At December 30, 2001, the
liability balance was $1.0 million. Cash payments in the first quarter of
2002 were less than $0.1 million. The remaining liabilities are expected to
be paid through 2004, the remaining facility lease term.

Note 5. Investment in Unconsolidated Company

In November 2000, the Company formed Chahaya Optronics, Inc. (Chahaya)
with two venture capital firms. The Company 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.

The Company recorded an investment in Chahaya for $12.0 million in the
fourth quarter of 2000. The investment included $4.0 million for future cash
payments and $8.0 million for facilities, facility services, and equipment.
In June 2001, the Companys investment was reduced by $4.0 million due to
cancellation of the shares related to the future $4.0 million cash
contribution. This activity, as well as additional changes in Chahayas
equity structure, reduced the Companys ownership percentage to 34% at March
31, 2002. In the first quarter of 2002, the Company recorded a $1.5 million
loss for its equity share of Chahayas net loss. As of March 31, 2002, the
Companys remaining liability for facilities and facility services was $6.0
million.

Note 6. Legal Proceeding

As discussed in Note 2, KUS filed a voluntary petition for reorganization
under Chapter 11 of the Bankruptcy Code on the Petition Date. The petition was
filed with the Bankruptcy Court. The petition affects only the Companys U.S.
corporate parent, KUS, and does not include any of its subsidiaries, including
KMT and KMS. The Company is operating its business as a debtor-in-possession.
See Note 2 for additional information.

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KOMAG, INCORPORATED




MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND 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. Some of the
important factors that may influence possible differences are continued
competitive factors, pricing pressures, changes in customer demand,
developments in and the outcome of the Chapter 11 proceedings described below,
and general economic conditions.

Results of Operations

Overview

Our business is characterized by capital intensity and high fixed costs,
making it imperative that we sell disks in high volume. Our contribution
margin per disk sold varies with changes in selling price, input material
costs, and production yield. As demand for our disks increases, our total
contribution margin increases proportionally, improving our financial results.
Currently, we are operating substantially below our estimated production
capacity due to poor market conditions. If the market improves, we should
achieve better financial performance, because we do not have to increase our
fixed cost structure in proportion to increases in demand and resultant
capacity utilization. Conversely, our financial results would deteriorate
rapidly if the disk market were to worsen. Furthermore, our ability to operate
as a going concern will depend on confirmation of our Plan of Reorganization
and emergence from Chapter 11 Bankruptcy proceedings, but even then, there can
be no assurance that there will be improvement in our financial condition.

Adverse conditions in the thin-film media market, which began in mid-1997,
continued to impact our business throughout 1999, 2000, and 2001, and the first
quarter of 2002. 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 companies), in 1996 we committed to
expansion programs and substantially increased media manufacturing capacity in
1997. In 1997, the rate of growth in demand for disk drives fell. Disk drive
manufacturers abruptly reduced orders for media from independent suppliers and
relied more heavily on internal capacity to supply a larger proportion of their
media requirements. The media industrys capacity expansion, coupled with the
decrease in the rate of demand growth, resulted in excess media production
capacity. Due to classic micro-economic forces, this excess industry capacity
caused sharp declines in average selling prices for disk products as
independent suppliers struggled to utilize their capacity.

In addition to adversities caused by excess capacity, by the end of 1998,
most disk drives were manufactured with advanced, magneto-resistive (MR) media
and recording heads. This transition to MR and subsequently to giant
magneto-resistive (GMR) components led to significant, unprecedented increases
in areal

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density and, therefore, the amount of data that can be stored on a
single disk platter. Increased storage capacity per disk allows drive
manufacturers to offer lower-priced disk drives by incorporating fewer
components into their disk drives. Because of this lower disk-per-drive ratio,
demand for disks was relatively flat during the period from 1997 through the
first quarter of 2002, resulting in substantial excess disk production
capacity. The significant amount of captive capacity employed by certain disk
drive manufacturers also continues to impair the market opportunities for
independent disk suppliers such as our company.

In April 1999, we purchased the assets of Western Digitals media
operation. At the time of the asset purchase, we also signed a volume purchase
agreement with Western Digital under which we agreed to supply a substantial
portion of Western Digitals media needs over the following three years. In
October 2001, this contract was extended for an additional three-year term,
through April 2005 at a minimum. Due to weak unit demand, we closed the former
Western Digital media operation in Santa Clara, California at the end of June
1999, nearly fifteen months ahead of our original transition plan.

In July 1999, we announced that we would reduce the size of our U.S.
operations further in response to the poor industry conditions. In August 1999,
we announced that we would cease volume production of finished disks in the
U.S., close two manufacturing facilities in San Jose, California, and institute
staged work force reductions that would affect 980 employees by the end of
1999.

In October 2000, we merged with HMT. The merger was accounted for under
purchase accounting rules and accordingly, our financial statements include the
operating results of HMT beginning in the fourth quarter of 2000.

In December 2000, we implemented a restructuring plan to cease KMTs
manufacturing operations in Santa Rosa, California. These operations ended in
May 2001. A portion of the location has been retained as a research and
development center.

During fiscal 2001, we closed HMTs U.S. manufacturing facilities and
consolidated all of our manufacturing activities in Malaysia, where we can
achieve significantly lower costs. As a result, we lowered our fixed
manufacturing costs by approximately $27 million per quarter in the fourth
quarter of 2001 compared to the fourth quarter of 2000. Over the same period,
we combined technologies, lowered variable costs, and improved manufacturing
yields substantially, and ended the year with considerably stronger operating
performance.

Now that the relocation of our manufacturing operations to our Malaysian
facilities has been completed, our California sites are solely focused on
activities related to research, process development, and product prototyping.
Our selling, general, and administrative functions also remain in California.
We believe that the shift of high-volume production to our cost-advantaged
Malaysian manufacturing plants has improved our overall cost structure,
resulted in lower unit production costs, and improved our ability to respond to
the continuing price pressures in the disk industry.

On the Petition Date, we filed a voluntary petition for reorganization
under Chapter 11 of the Bankruptcy Code. The petition was filed with the
Bankruptcy Court. The petition relates only to our U.S. corporate parent, KUS,
and does not include any of our subsidiaries, including KMT and KMS. We are
operating our business as a debtor-in-possession subject to supervision and
orders of the Bankruptcy Court.

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Net Sales

Consolidated net sales declined by 30.2% in the first quarter of 2002,
from $87.9 million in the first quarter of 2001 to $61.4 million in the first
quarter of 2002. Finished unit sales volume declined to 9.5 million units in
the first quarter of 2002, from 12.7 million units in the first quarter of
2001, due primarily to continued weakness in demand for computers. The
finished unit average selling price declined to $5.87 in the first quarter of
2002, from $6.35 in the first quarter of 2001. Substrate sales declined to
$5.6 million in the first quarter of 2002, from $8.1 million in the first
quarter of 2001. We expect modest improvement in our sales volume during each
of the next three quarters in 2002. The improvement will depend, in part, on
our ability to qualify for 60 and 80 gigabyte per platter programs.

The customer sales mix changed significantly in the first quarter of 2002.
Net sales to Western Digital were 67% in the first quarter of 2002, compared
to 46% in the first quarter of 2001. Net sales to Seagate in the first
quarter of 2002 were 8% (all of which were substrate sales), compared to 12% in
the first quarter of 2001. Net sales to Maxtor were 23% in the first quarter
of 2002, compared to 36% in the first quarter of 2001. Sales of 30GB disks and
greater were 84% in the first quarter of 2002, versus 26% in same period of
2001. We expect to continue to derive a substantial portion of our sales from
Western Digital and Maxtor, and from a small number of other customers. The
distribution of sales among customers may vary from quarter to quarter based on
the qualifications of our disks in specific customers drive programs, and the
success of those programs in the disk drive marketplace. However, as a result
of the April 1999 acquisition of Western Digitals media operation and the
related volume purchase agreement, we expect our sales to remain highly
concentrated with Western Digital.

Gross Margin

Compared to the first quarter of 2001, our gross margin improved by 16.4
points in the first quarter of 2002, to a gross profit of 10.1 % compared to a
gross loss of 6.3%. The first quarter of 2001 included higher costs of running
underutilized plants associated with the HMT merger, which were closed in the
second quarter of 2001.

We expect to maintain our variable cost per unit at levels similar to the
last three quarters while continuing to advance our technology. With all of
our manufacturing now being performed in Malaysia, we expect our fixed cost per
unit in the remainder of 2002 to vary based on changes in production volumes
from the first quarter of 2002.

Operating Expenses

Research, development, and engineering expenses of $9.4 million in the
first quarter of 2002 were $1.3 million less than the $10.7 million in the
first quarter of 2001. The year-over-year decrease reflected cost efficiencies
gained by producing a growing proportion of samples shipped to customers for
product qualifications, at our Malaysian manufacturing sites. We expect
research, development, and engineering spending in each of the
three remaining quarters of 2002 to be similar to the first quarter of
2002.

Selling, general, and administrative expenses of $4.2 million declined by
$1.5 million in the first quarter of 2002, compared to $5.7 million in the
first quarter of 2001. The year-over-year decrease reflected significantly
lower headcount and payroll costs, as well as lower retention bonuses. The
decrease in retention bonuses primarily

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resulted from lower headcount resulting
from our closure of the U.S. HMT factories in the second quarter of 2001. We
expect selling, general, and administrative spending in each of the three
remaining quarters of 2002 to be similar to the first quarter of 2002.

Amortization of intangible assets was $3.1 million in the first quarter of
2002, compared to $7.6 in the first quarter of 2001. The decrease was
primarily due to the cessation of amortization of goodwill of $3.5 million per
quarter beginning in January 2002, in accordance with SFAS 142. The balance of
the reduction resulted from discontinuing amortization of other intangibles
which became fully amortized at the end of the first quarter of 2001.

Interest and Other Income/Expense

Overall interest income of $0.9 million in the first quarter of 2001
reflected significantly higher cash and cash equivalent balances, as well as
higher investment interest rates, compared to $0.1 million of interest income
in the first quarter of 2002.

No interest expense was recorded the first quarter of 2002, as interest
will not be paid and will not be an allowed claim under the Plan. The
contractual interest expense for the first quarter of 2002 was $7.9 million
compared to $22.2 million recorded in the first quarter of 2001. The first
quarter 2001 expense was higher primarily due to $10.9 million of accretion of
the discount on convertible debt, and $1.7 million for amortization of loan
fees and warrant expense related to the Loan Restructure Agreement. These
charges are no longer applicable.

Other income/expense was $3.0 million in the first quarter of 2002
compared to $1.0 million in the first quarter of 2001. The increase included a
$2.4 million gain on the sale of certain idle manufacturing equipment.

Reorganization Costs

In connection with our Chapter 11 Bankruptcy filing, we recorded
reorganization costs of $1.0 million in the first quarter of 2002. These
expenses primarily reflect professional fees related to the Chapter 11
Bankruptcy case. We will continue to incur reorganization costs until we
emerge from bankruptcy.

Income Taxes

Our income tax provisions of $0.4 million and $0.5 million for the
three-month periods ended March 31, 2002, and April 1, 2001, 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 in
Malaysia. KMS has also been granted an additional eight-year and ten-year tax
holiday through December 2006 and 2008 for its second and third plant sites in
Malaysia, respectively.

Minority Interest in KMT

The minority interest in the net income of consolidated subsidiary
represented Kobe Steel USA Holdings Inc.s (Kobe USA) 20% share of KMTs net
income. KMT recorded net income of $0.04 million in the first quarter of 2002,
compared to net income of $0.06 million in the first quarter of 2001. We are
currently negotiating with Kobe USA to repurchase its share of KMT in exchange
for certain idle assets.

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Equity in Unconsolidated Company

We recorded a $1.5 million loss in the first quarter of 2002 as our equity
share of Chahayas net loss, compared to a $0.7 million loss in the first
quarter of 2001.

Critical Accounting Policies

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

Allowance for Sales Returns

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

Allowance for Doubtful Accounts

We record an allowance for doubtful accounts based on estimates of
potential uncollectability of our accounts receivable. We specifically analyze
our accounts receivable and analyze historical bad debts, customer
concentrations, customer credit-worthiness, current economic trends, and
changes in our customer payment terms when evaluating the adequacy of the
allowance for doubtful accounts. The majority of our sales and resulting
accounts receivable are concentrated among a few large customers. As a result
of this sales concentration, at March 31, 2002, 72% of our accounts receivable
was with one customer for which no allowance was provided. Historically, we
have not experienced material differences between our estimated allowance for
doubtful accounts and actual results. However, if the financial condition of
our customers were to deteriorate, resulting in an impairment of their ability
to make payments, our results would suffer and additional allowances may be
required.

Restructuring Liabilities

Restructuring liabilities have been estimated and accrued based on
historical data on prior costs for such activities, coupled with assumptions on
expected timeframes for such activities and specific actions necessary to
complete such transitions. It is possible that future costs incurred to exit
related business activities could vary from historical costs, assumptions on
timeframes could change or different actions may be determined necessary than
assumed in our original estimates, which could result in significant changes in
costs to exit certain business activities. Any significant difference between
our estimated restructuring liabilities and actual experience or

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changes in our
estimate would be reflected in our reported operating expenses in the period in
which that difference is determined.

Liabilities Subject to Compromise

We have recorded amounts for liabilities subject to compromise using
judgement on the estimated allowable amounts, as prescribed by Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code. The estimates for allowable amounts are based on our
accounting records, discussions with creditors and amounts as documented in the
Plan, as well as discussions with outside legal counsel. If we obtain new
information in the future, including Court orders, our estimates for allowable
amounts could change. Any significant change would be reflected in our
reported reorganization costs in our statement of operations in the period in
which any difference is determined.

Long-lived Assets and Certain Identifiable Intangible Assets

Long-lived assets and certain identifiable intangible assets are generally
evaluated for impairment on an individual acquisition, market, or product basis
whenever events or changes in circumstances indicate that such assets may be
impaired or the estimated useful lives are no longer appropriate. We consider
the primary indicators of impairment to include significant decreases in unit
volumes, unit prices or significant increases in production costs.
Periodically, we review our long-lived assets and certain identifiable
intangible assets for impairment based on estimated future undiscounted 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 utilizing discounted estimates of
future cash flows. Land and buildings held for sale are evaluated for
impairment periodically when there are significant changes in market conditions
for commercial real estate and valued based on independent valuation less
estimated selling costs. Any such identified writedowns are recorded as
impairment charges and included in operating expenses in the period the
impairment is determined.

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 is effective for any business combinations initiated
after June 30, 2001, and also includes the criteria for the recognition of
intangible assets separately from goodwill. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001, and requires that goodwill not
be amortized, but rather be subject to an impairment test at least annually.
Separately identified and recognized intangible assets resulting from business
combinations completed before July 1, 2001 that do not meet the new criteria
for separate recognition of intangible assets will be subsumed into goodwill
upon adoption. In addition, the useful lives of recognized intangible assets
acquired in transactions completed before July 1, 2001 will be reassessed, and
the remaining amortization periods adjusted accordingly. Under the adoption of
SFAS No. 142, we will be required to perform a transitional impairment analysis
of its goodwill. Any
transitional impairment loss will be recognized as the cumulative effect
of a change in accounting principle in our consolidated statement of
operations.

At the beginning of fiscal 2002 (the date of adoption of SFAS No. 142),
the Company had unamortized goodwill and other intangibles in the amount of
$90.2 million ($83.5 million of which pertains to goodwill) which is subject
to the transition provisions of SFAS No. 142. The Company is in the process of
having an independent appraisal performed as a basis for determining the value
of goodwill and other intangible assets. As a result, as of

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the beginning of
fiscal year 2002, the Company expects to record a transitional impairment loss
in the range of $60.0 million to $80.0 million in the second quarter of 2002.
In accordance with SFAS 142, no further amortization of the remaining goodwill
associated with the HMT acquisition was recorded in the first quarter of 2002.

Liquidity and Capital Resources

Cash and cash equivalents and short-term investments of $24.0 million at
the end of the first quarter of 2002 increased by $6.2 million from the end of
the previous fiscal year. The increase primarily reflected a $6.5 million cash
increase resulting from consolidated operating activities. Based on current
operating forecasts, the Company estimates that the cash balance is adequate to
support its continuing operations for at least the next twelve months.
Additionally, we have commitments from certain of our lenders to provide
debtor-in-possession financing, should we require it, and exit financing on our
emergence from Chapter 11 in the amount of $15.0 million. Our forecasts and
the exit financing agreement are contingent on our emergence from our Chapter
11 case. If we are unsuccessful in obtaining confirmation of the Plan,
creditors or equity holders may seek other alternatives for us, which may
include soliciting bids for our company through an auction process, or possible
liquidation of our assets. In a liquidation, all creditors would be paid prior
to any distribution to shareholders.

Working capital increased by $5.5 million compared to the end of the
previous fiscal year, resulting primarily from the increase in cash as noted
above.

Consolidated operating activities generated $6.5 million in cash in the
first quarter of 2002. The components of this change include the following:



| |  |  | The first quarter 2002 net loss of $10.2 million, net of
non-cash depreciation and amortization of $16.9 million, a $2.4
million gain on the disposal of fixed assets, other non-cash charges
of $1.2 million, and $1.0 million in reorganization costs, generated
$6.5 million in cash.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The accounts receivable increase of $3.0 million was a direct
result of higher sales.                                                                                                                                                                                                   
|
| |  |  | The accounts payable increase of $4.0 million primarily
reflected increased spending at the end of the quarter to prepare
for increasing production of substrates.                                                                                                                      
|
| |  |  | Lower other assets and liabilities used $1.0 million in cash
on a net basis.                                                                                                                                                                                                            

In the first quarter of 2002, we received $2.4 million in cash on proceeds
from the sale of equipment, and we spent $2.7 million on fixed assets
acquisitions. There were no financing activities in the first quarter of 2002.

Current noncancellable capital commitments as of March 31, 2002 totaled
$2.8 million. Year-to-date capital expenditures were $2.7 million. For 2002,
we plan to spend approximately $20.0 million on property,
plant, and equipment for projects designed to improve yield and
productivity, as well as costs to improve equipment capability for the
manufacture of advanced products. In addition, we plan to install additional
manufacturing equipment in Malaysia from the former HMT facilities if our sales
volumes increase in the remaining three quarters of 2002, and the equipment is
required.

We lease certain research and administrative facilities under operating
leases that expire at various dates between 2004 and 2007. Certain of these
leases include renewal options varying from five to twenty years. At March 31,
2002, the future minimum commitments for non-cancelable operating facility
leases and a sublease that

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we have not rejected or we do not intend to reject pursuant to the Bankruptcy
Code (see Note 2), are as follows (in thousands):

|                  |  |          |        |          |  |   |       | 
|----------------- |  | -------- | ------ | -------- |  | - | ----- | 
|                  |  | Minimum  |        |          |  |  
|                  |  | Lease    |        | Sublease
|                  |  | Payments |        | Income  
|                  |  |          |        |         
|Remaining in 2002 |  | $        | 2,637  |          |  | $ | 1,093 | 
|2003              |  |          | 3,509  |          |  |   | 1,494 | 
|2004              |  |          | 3,458  |          |  |   | 1,539 | 
|2005              |  |          | 3,308  |          |  |   | 1,585 | 
|2006              |  |          | 3,308  |          |  |   | 1,633 | 
|Thereafter        |  |          | 636    |          |  |   | 414   | 
|                  |  |          |        |          |  |   |       | 
|                  |  | $        | 16,856 |          |  | $ | 7,758 | 
|                  |  |          |        |          |  |   |       | 

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, we
have $201.7 million in senior unsecured bank debt outstanding that matured on
June 30, 2001, and $9.3 million of convertible debt that was originally
scheduled to mature in 2005. In addition, we have a note payable to Western
Digital with a principal balance of $30.1 million, which was originally
scheduled to mature in April, 2002. Upon completion of the HMT merger in the
fourth quarter of 2000, we assumed HMTs convertible debt, which was originally
scheduled to mature in 2004. The principal amount of these notes is $230.0
million. As a result, under the terms of the loan restructure agreement for
the senior bank debt and the subordination provisions for the HMT convertible
notes, we did not pay interest on the HMT subordinated notes when it became
due on July 15, 2001. In addition, our failure to pay our senior bank debt when
due caused a default under the HMT subordinated notes as of July 30, 2001.

As of the Petition Date, the aforementioned debts remained outstanding,
and were reclassified to liabilities subject to compromise. The repayment of
this indebtedness is subject to the Plan. Through August 24, 2001, unpaid
accrued interest on the aforementioned debt was $17.3 million. Contractual
interest expense for the period from August 25, 2001, to March 31, 2002, was
$19.6 million.

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.

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RISKS RELATED TO OUR FINANCIAL POSITION AND OUR COMMON STOCK

Our pending Chapter 11 bankruptcy has had, and will continue to have, a
negative impact on our business and operating results.

On the Petition Date, our company, Komag, Incorporated (KUS), filed a
voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code.
Chapter 11 permits us to remain in control of our business, protected by a stay
of all creditor action, while we attempt to negotiate and confirm our Plan.
Due to our pending Chapter 11 case and our financial condition, we believe our
stakeholders continue to be concerned about our bankruptcy proceedings and the
prospect of emergence from such proceedings. Some of our customers, suppliers
and employees have continued to express this apprehension, which may have an
adverse effect on our ability to continue to run our operations without
impairment.

In addition, although we are authorized to operate our businesses and
manage our properties as debtor-in-possession, we may not engage in
transactions outside of the ordinary course of business without complying with
applicable notice and hearing provisions of the Bankruptcy Code and obtaining
Bankruptcy Court approval. An official committee of unsecured creditors has
been formed by the United States Trustee. This committee and various other
parties-in-interest, including creditors holding claims, such as the
pre-petition senior bank lenders and bondholders, have the right to appear and
be heard on any of our applications relating to certain business transactions.
We are required to pay certain expenses of the committee, including legal fees,
to the extent allowed by the Bankruptcy Court.

Although we are currently continuing business operations as a
debtor-in-possession under the jurisdiction of the Bankruptcy Court, the
continuation of our business as a going concern is contingent upon, among other
things: 1) our ability to obtain confirmation of the Plan, or to formulate an
alternative Plan if necessary for confirmation by the Bankruptcy Court; and 2)
our ability to generate sufficient cash from operations and financing sources
to meet obligations as they become due.

A hearing regarding confirmation of our modified Plan is scheduled to
occur on May 9, 2002. The Plan faces objections from one party. We cannot
assure you that the Bankruptcy Court ultimately will overrule those objections
and confirm the Plan.

If we are unable to receive confirmation of the Plan or an alternative
Plan of Reorganization, we will not be able to operate our company as a viable
business, and may have to liquidate our assets. In addition, our operating
results and financial condition could be detrimentally affected due to any of
the following:



| |  |  | our customer relationships and orders with our customers could deteriorate;
| | - |  | ---------------------------------------------------------------------------
|
| |  |  | suppliers could reduce their willingness to extend credit; and/or          
|
| |  |  | employee attrition could increase.                                         

We may not be able to confirm our Plan of Reorganization. In that event,
unless we are able to confirm an alternative Plan of Reorganization, our assets
likely would be liquidated or sold as a going concern.

We may be unsuccessful in our attempts to confirm a Plan of Reorganization
with our creditors. Many

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Chapter 11 cases are unsuccessful, and virtually all
involve substantial expense and damage to the business. We have incurred, and
will continue to incur, professional fees and other cash demands typically
incurred in bankruptcy. If we are unsuccessful in obtaining confirmation of the
Plan, creditors or equity security holders may seek other alternatives for the
company, which may include soliciting bids for the company through an auction
process or possible liquidation of our assets. In a liquidation, all creditors
would be paid prior to any payments to our stockholders.

Existing holders of equity in our company will not receive any distributions
under our Plan of Reorganization.

Our proposed Plan contemplates a complete change of equity ownership in
our company as it exists today, with existing shares being cancelled. Because
the proposed Plan was not approved by our current stockholders, our equity
holders ultimately will have their shares cancelled and will not receive any
distributions under the Plan with respect to those shares.

Upon consummation of the Plan of Reorganization, certain holders of claims may
receive a significant proportion of the shares of new common stock, which could
put them in a position to control the outcome of actions requiring stockholder
approval if they were to act together.

If holders of significant numbers of shares of our new common stock were
to act as a group, such holders may be in a position to control the outcome of
actions requiring stockholder approval. These actions include electing
directors, approving significant corporate transactions, and influencing the
management and affairs of the reorganized company. This concentration of
ownership could also facilitate or hinder a negotiated change of control of the
reorganized company and, consequently, impact upon the value of the new common
stock.

Further, the possibility exists that one or more of the holders of
significant numbers of shares of new common stock may decide to sell all or a
large portion of their shares of new common stock within a short period of
time. This could adversely affect the market price of the new common stock.

The market price of our common stock has been depressed.

Since our filing under Chapter 11 and the delisting of our common stock
from the Nasdaq, the trading price of our stock has been further depressed to a
minimal level. Recent prices of our common stock reflect that not all impaired
classes of creditors approved our Plan, meaning that our stockholders will not
receive any distribution at all. From the second quarter of 1997 through May 3,
2002, the price of our stock fell to a low of $0.01 from a high of $35.13.
Even prior to our filing under Chapter 11, the market price of our common stock
had been depressed in response to actual and anticipated events, including our
operational results, decreased demand for computers and data storage, perceived
weaknesses of the disk drive industry, and variations in macroeconomic
conditions. Also, low-priced stocks are subject to additional risks, including
certain state regulatory requirements and the potential loss of effective
trading markets. Furthermore, because our common stock trades on the OTC
Bulletin Board since being delisted from Nasdaq, our stock may be less liquid
than prior to the delisting.

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The market price and valuation of new securities of the reorganized company
will be subject to uncertainties and contingencies, all of which are difficult
to predict.

If the Plan is approved, we will issue new common stock upon our emergence
from bankruptcy. At issuance, there will be no immediate trading market for
the new common stock and there can be no assurance that a trading market will
develop. We will attempt to list our new common stock for trading on the
Nasdaq National Market System. However, it is possible that we will not be able
to meet the Nasdaq listing requirements. Actual market prices of such
securities at issuance will depend upon, among other things, prevailing
interest rates, conditions in the financial markets, the anticipated initial
holdings of pre-petition creditors (some of whom may prefer to liquidate their
investment rather than hold it on a long-term basis), and other factors which
generally influence the prices of securities.

Even if the new common stock is listed on the Nasdaq National Market
System, the market price for the stock will be affected by many factors,
including the following:



| |  |  | variations in our operating results;                                                                      
| | - |  | ----------------------------------------------------------------------------------------------------------
|
| |  |  | variations in macroeconomic conditions;                                                                   
|
| |  |  | changes in demand for computers and data storage;                                                         
|
| |  |  | perceptions of the disk drive industrys relative strength or weakness;                                   
|
| |  |  | 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 volatility in our stock price to continue. In addition, any
shortfall or changes in our revenue, gross margins, earnings, or other
financial results could cause the price of our new common stock to fluctuate
significantly. Even if we emerge from bankruptcy, we cannot assure you that our
financial condition or results of
operations will improve. Moreover, 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.

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 in their audit report on the consolidated financial statements for
our fiscal year ended December 30, 2001. This 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 obtain
confirmation of the Plan and fund our business with cash generated by
operations or

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raise future capital, our auditors may not remove the explanatory
paragraph from their subsequent opinions, and any of the following may occur:



| |  |  | our custom relations and order with our customers could deteriorate;
| | - |  | --------------------------------------------------------------------
|
| |  |  | suppliers could reduce their willingness to extend credit; or       
|
| |  |  | employee attrition could increase.                                  

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 75% of the disks consumed during 2001 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 2002,
personal computer manufacturers generally announced expectations of flat sales
for 2002. 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 continue to 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 underutilize
our production capacity, which could significantly reduce our gross margins and
result in significant losses.

Our business has a large amount of fixed costs. If there is a decrease in
demand for our products, our production capacity could be underutilized, and,
as a result, we may experience:



| |  |  | equipment write-offs;          
| | - |  | -------------------------------
|
| |  |  | restructuring charges;         
|
| |  |  | reduced average selling prices;
|
| |  |  | increased unit costs; and      
|
| |  |  | employee layoffs.              

If we are unable 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 bankruptcy filing and our financial performance have increased the
difficulty of attracting and retaining skilled engineers and other
knowledgeable workers. 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.

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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;                                                                                                                                      
|
| |  |  | 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,
disk drive manufacturers with captive disk manufacturing operations
have excess capacity, and they rely less on independent sources of
media.

During the first quarter of 2002, 67% of our sales were to Western Digital
and 23% were to Maxtor. In fiscal 2001, 59% of our sales were to Western
Digital and 27% were to Maxtor. If our customers reduce their media
requirements or develop capacity to produce thin-film disks for internal use,
our sales will be reduced. As a result, our business, financial condition and
operating results could suffer.

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 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 mainly fall into two groups: Asian-based manufacturers and U.S.
captive manufacturers. Our Asian-based competitors include Fuji Electric,
Mitsubishi Chemical Corporation, Trace
Storage, Showa Denko, and Hoya. The U.S. captive manufacturers include the
disk media operations of Seagate Technology, IBM and Maxtor. 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 2001, as in 2000, 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 business combinations, failures, and joint venture
arrangements, may be required before media supply and demand are in balance.
However, structural changes could also intensify the competition in the
industry, which will continue to put pressure on our profit margin.

Price competition may force us to lower our prices and our revenues and gross
margins would suffer.

We face fierce price competition in the disk media industry. Continued
high levels of competition have continued to put downward pressure on prices
per unit. We may be forced to lower our prices or add new products

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and features at lower prices to remain competitive, and we may otherwise be unable to
introduce new products at higher prices. We cannot assure you that we will be
able to compete successfully in this kind of price competitive environment.
Lower prices would reduce our ability to generate revenue, and our gross margin
would suffer. If we fail to mitigate the effect of these pressures through
cost reduction of our products or changes in our product mixes our business,
financial condition and results of operations could be adversely affected.

If we are not able to fund our business with cash generated by operations or
raise future capital we may be forced to reduce or suspend operations.

The disk media business has historically been capital-intensive, and we
believe that in order to remain competitive, we will likely have to make
continued investments over the next several years for capital expenditures,
working capital, and research and development. If the Plan is approved, we will
issue new debt instruments to some of our pre-petition creditors. If we do not
meet our projections for expense and cost reductions we may be unable to
service the debt. If we cannot raise additional funds required by our
business, 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 6 to 12 months. During this 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.
As a result, if a customer cancels, modifies, or reschedules an order, we may
make expenditures that are not recoverable, and our profitability will suffer.
Furthermore, 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 2001, IBM and Seagate Technology produced more than 90% of their
media requirements internally, and MMC Technology supplied approximately half
of Maxtors requirement for media. In 2001, Maxtor purchased MMC Technology. To
date, the captive media operations of IBM, Maxtor and Seagate Technology have

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sold minimal quantities of disks in the merchant market.

Disk drive manufacturers such as Seagate Technology, Maxtor, and IBM 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-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 have been 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. We
may not have sufficient resources to be able to compete effectively with these
companies. Therefore, our business, financial condition, and operations could
continue to suffer and deteriorate further.

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.
Additionally, several suppliers have expressed concern about continuing to
supply us because of our financial condition. 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.

Disk drive program life cycles are short, and disk drive programs are highly
customized. If we fail to respond to our customers demanding requirements, we
will not be able to compete effectively.

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

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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.

Our manufacturing processes must continue to improve, or our yields will
decrease, which will negatively affect our ability to become profitable.

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 production lot to be defective. The success
of our manufacturing operations depends in part on our ability to maintain
process control and minimize such impurities in order to maximize yield of
acceptable high-quality disks. Minor variations from specifications could have
a disproportionately adverse impact on our manufacturing yields. If we are not
able to continue to improve our manufacturing processes, our costs would rise
and 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

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production, which would materially reduce our revenues
and harm our operating results.

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 that assert violation of intellectual
property 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 be indicative of 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, or order cancellations,                                                                                                                               
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | changes in our product mix and average selling prices;                                                                                                                              
|
| |  |  | modified, adjusted or rescheduled shipments;                                                                                                                                        
|
| |  |  | availability of media versus demand for media;                                                                                                                                      
|
| |  |  | 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;                                                                                      
|
| |  |  | our ability to introduce new products that achieve
cost-effective high-volume production in a timely manner, timing of
product announcements, and market acceptance of new products;
|
| |  |  | the availability of our production capacity, and the extent
to which we can use that capacity;                                                                                      
|
| |  |  | changes in our manufacturing efficiencies, in particular
product yields and input costs for direct materials, operating
supplies and other running costs;                           
|
| |  |  | prolonged disruptions of operations at any of our facilities for any reason;                                                                                                        
|
| |  |  | changes in the cost of or limitations on availability of labor or materials; 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

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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, would adversely affect our gross margins and
operating results.

Because we depend on our Malaysian operations, we are exposed to unavoidable
risks in transmitting technology from U.S. facilities to Malaysian facilities,
which could adversely 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. Currently, all aluminum substrates are manufactured by our
Malaysian factory and a Malaysian vendor. In addition, we ended production of
polished disks in HMTs Eugene, Oregon, facility in the second quarter of 2001.
All polished disks are manufactured by our Malaysian factories. Further, in
the second quarter of 2001, we transferred the manufacturing capacity of HMTs
Fremont, California, facility to Malaysia, and closed all of our U.S. media
manufacturing operations, leaving us fully dependent on our Malaysian
manufacturing operations.

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, including a failure in electronic communications with our U.S.
operations, the manufacture and shipment of our products would be delayed, and
our results of operations would suffer.

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

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 accounted for substantially all 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;                                    

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| |  |  | 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;                                                                                                                                                                                                                                               
|
| |  |  | local infrastructure problems or failures including but not
limited to loss of power and water supply; 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, we may not be able to finance our
U.S.-based research and development and/or repay our U.S. debt obligations

If we are unable to control contamination in our manufacturing processes, we
may have to suspend or reduce our manufacturing operations, and our operations
would suffer.

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 would 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.                                                                                

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 in California
      or Malaysia could be restricted;                                        
|
| |  |  | our ability to establish additional operations
      in other locations could be restricted; or                              
|
| |  |  | we could be required to obtain costly equipment
      or incur significant expenses to comply with environmental
regulations.

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Furthermore, our manufacturing processes rely on the use of hazardous
materials, and any accidental hazardous discharge could result in significant
liability and clean-up expenses, which could harm our business, financial
condition, and results of operations.

Downturns in the disk drive manufacturing market and related markets may
decrease our revenues and margins.

The market for our products depends on economic conditions affecting the
disk drive manufacturing and related markets. Downturns in these markets may
cause disk drive manufacturers to delay or cancel projects, reduce their
production or reduce or cancel orders for our products. In the event of such a
downturn, customers may experience financial difficulty, cease operations or
fail to budget for the purchase of our products. This, in turn, may lead to
longer sales cycles, delays in payment and collection, and price pressures,
causing us to realize lower revenues and margins. In particular, many of our
customers and potential customers have experienced declines in their revenues
and operations. In addition, the terrorist acts of September 11, 2001 and
subsequent terrorist activities have created an uncertain economic environment.
We cannot predict the impact of these events, or of any related military
action, on our customers or business, particularly in light of the fact that we
rely heavily on overseas sales and production. We believe that, in light of
these events, some businesses may curtail or eliminate spending on technology
related to our products.

We rely on a continuous power supply to conduct our business, and an energy
crisis in California could disrupt our operations and increase our expenses.

From time to time in the past, California has experienced energy
shortages. An energy crisis 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 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

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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.

Additional asset impairments could adversely impact our financial condition and
results of operations.

As a result of recently issued SFAS No. 142 in 2002 we are required to
evaluate our existing intangible assets and goodwill that were acquired in
prior purchase business combinations, and make any necessary adjustments in
order to conform with the new criteria for classifications of goodwill and
other intangible assets. We are also required to reassess the useful lives and
residual values of all intangible assets acquired in purchase business
combinations. These changes are expected to have a material affect on our
accounting for goodwill and other intangible assets and will adversely affect
our results of operations as of the transition date.

At March 31, 2002, the Company had unamortized goodwill and other
intangibles in the amount of $87.1 million, of which $81.4 million pertains to
goodwill. The Company is in the process of having an independent appraisal
performed as a basis for determining the value of goodwill and other intangible
assets. As a result of the new accounting rules and the appraisal, the Company
expects to record a transitional impairment loss in the range of approximately
$60 million to $80 million in the second quarter of 2002. However, the other
intangibles are expected to be amortized over remaining lives of three to five
years. Amortization expense related to goodwill was $22.8 million, $12.2
million, and $16.1 million for the fiscal years ended 2001, 2000, and 1999,
respectively. After adoption of SFAS No. 142, any remaining goodwill balance
will not be amortized.

In addition, if we emerge from Chapter 11, we will be required to adopt
fresh start reporting in
accordance with Statement of Position 90-7, Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code, issued by the American
Institute of Certified Public Accountants. Under fresh start reporting, the
reorganization value of the Company will be allocated to the emerging entitys
specific tangible and identifiable intangible assets based on their fair
values. Excess reorganization value, if any, will be reported as
reorganization value in excess of amounts allocable to identifiable assets.
This asset will be reviewed periodically for impairment in accordance with
newly issued financial accounting standards. As a result of the adoption of
such fresh start reporting, the Companys post emergence (successor)
financial statements will not be comparable with its pre-emergence
(predecessor) financial statements and could adversely affect our financial
condition and results of operations.




QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to financial market risks, including foreign currency
exchange rates. We currently do not utilize derivative financial instruments to
hedge such risks.

The primary objective of our investment activities is to preserve
principal while at the same time maximizing yields without significantly
increasing risk. We invest primarily in high-quality, short-term debt
instruments. A hypothetical 100 basis point increase in interest rates would
result in less than a $0.2 million decrease (less than 1.0 per cent) in the
fair value of our available-for-sale securities.

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A substantial majority of our revenue, expense, and capital purchasing
activities are transacted in U.S. dollars. However, a large portion of our
payroll, certain operating expenses and capital purchases are transacted in
other currencies, primarily Malaysian ringgit. Since late 1998, the ringgit has
been pegged at a conversion rate of 3.8 Malaysian ringgit to the U.S. dollar.
If the pegging is lifted in the future, we will evaluate whether or not we will
enter any hedging contracts for the Malaysian ringgit. Based on expenses in the
first quarter of 2002 that were denominated in Malaysian ringgit, an adverse
change in exchange rates (defined as a 20% fluctuation in the Malaysian ringgit
to the U.S. dollar rate) would result in an increased loss before taxes of
approximately $1.6 million.

As of March 31, 2002, our debt is not subject to financial market risk due
to our Chapter 11 Bankruptcy filing in August, 2001. The debt is included in
liabilities subject to compromise on the balance sheet (see Note 2).




PART II. OTHER INFORMATION




ITEM 1. Legal Proceeding

We filed a voluntary petition for reorganization under Chapter 11 of the
Bankruptcy Code on the Petition Date. The petition was filed with the
Bankruptcy Court. The petition affects only our U.S. corporate parent, KUS,
and does not include any of our subsidiaries, including KMT and KMS. We are
operating our business as a debtor-in-possession, and as such, continue to
manage and operate our business pending confirmation of the Plan, and subject
to supervision and orders of the Bankruptcy Court. Any transactions not in the
ordinary course of business must be engaged in compliance with applicable
notice and procedural provisions of the Bankruptcy law and approval of the
Bankruptcy Court.




ITEM 2. Changes in Securities

Not Applicable.




ITEM 3. Defaults Upon Senior Securities

On June 30, 2001, the $201.7 million principal amount of the Companys
senior bank debt became due. As of May 3, 2002, this amount, as well as
accrued interest of $4.4 million from June 1, 2001 through August 24, 2001, has
not been repaid. As a result, under the terms of the loan restructure
agreement for the senior bank debt and the subordination provisions for the
$230.0 million of HMT subordinated convertible notes, the Company did not pay
interest of $6.6 million on the outstanding HMT subordinated convertible notes
when it became due on July 15, 2001. The Company then became in interest
payment default under the HMT subordinated convertible notes. As of May 3,
2002, accrued interest on the HMT subordinated convertible notes through August
24, 2001, is $8.3 million. In addition, the Companys failure to pay the bank
debt when due caused a default under the HMT subordinated convertible notes as
of July 30, 2001.

This indebtedness, as well as all of the Companys other indebtedness and
obligations, is now the subject of our bankruptcy proceedings, and will be
restructured in accordance with the Plan of Reorganization.

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

Not Applicable.




ITEM 5. Other Information

Not Applicable.




ITEM 6. Exhibits and Reports on Form 8-K

Not Applicable.

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SIGNATURES

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

KOMAG, INCORPORATED
  (Registrant)

|                  |     |                                                                            
|----------------- | --- | ---------------------------------------------------------------------------
|                  |     |                                                                            
|DATE: May 3, 2002 | BY: | /s/ Thian Hoo Tan                                                          
|                  |     | Thian Hoo Tan
        Chief Executive Officer                              
|                  |    
|                  |     |                                                                            
|                  |     |                                                                            
|DATE: May 3, 2002 | BY: | /s/ Edward H. Siegler                                                      
|                  |     | Edward H. Siegler 
        Vice President, 
        Chief Financial Officer
|                  |    
|                  |     |                                                                            
|                  |     |                                                                            
|DATE: May 3, 2002 | BY: | /s/ Kathleen A. Bayless                                                    
|                  |     | Kathleen A. Bayless 
        Vice President, 
        Corporate Controller 
|                  |    

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