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 October 3, 1999
                         Commission File Number 0-16852



                               KOMAG, INCORPORATED
                                  (Registrant)



                      Incorporated in the State of Delaware
                I.R.S. Employer Identification Number 94-2914864
               1704 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 October 3, 1999,  65,448,887  shares of the  Registrant's  common stock,
     $0.01 par value, were issued and outstanding.


<PAGE>



<TABLE>
<CAPTION>
                                      INDEX

                               KOMAG, INCORPORATED


                                                                           Page No.
<S>                                                                         <C>
     PART I.        FINANCIAL INFORMATION

     Item 1.        Consolidated Financial Statements (Unaudited)

                    Consolidated statements of operations--Three and nine
                    months ended October 3, 1999 and September 27, 1998.. . . . .3

                    Consolidated balance sheets--October 3, 1999
                    and January 3, 1999 . . . . . . . . . . . . . . . . . . . .  4

                    Consolidated statements of cash flows--Nine months
                    ended October 3, 1999 and September 27, 1998. . . . . . . .  5

                    Notes to consolidated financial statements--
                    October 3, 1999 . . . . . . . . . . . . . . . . . . . . ..6-12

     Item 2.        Management's Discussion and Analysis of
                    Financial Condition and Results of Operations . . . . . .13-23

     PART II.       OTHER INFORMATION

     Item 1.        Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 24

     Item 2.        Changes in Securities . . . . . . . . . . . . . . . . . . . 24

     Item 3.        Defaults Upon Senior Securities . . . . . . . . . . . . . . 24

     Item 4.        Submission of Matters to a Vote of Security Holders . . . . 24

     Item 5.        Other Information . . . . . . . . . . . . . . . . . . . . . 24

     Item 6.        Exhibits and Reports on Form 8-K . . . . . . . . . . . . . .24

     SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>

                                      -2-
<PAGE>
<TABLE>
PART I.   FINANCIAL INFORMATION


                                                     KOMAG, INCORPORATED
                                            CONSOLIDATED STATEMENTS OF OPERATIONS
                                            (In thousands, except per share data)
                                                         (Unaudited)
<CAPTION>
                                                                        Three Months Ended         Nine Months Ended
                                                                      -------------------------------------------------
                                                                        Oct 3       Sept 27       Oct 3        Sept 27
                                                                         1999         1998         1999         1998
                                                                      ---------    ---------    ---------    ---------
<S>                                                                   <C>          <C>          <C>          <C>
Net sales to unrelated parties                                        $  13,402    $  81,314    $ 127,328    $ 236,179
Net sales to related party                                               66,496         --        135,809         --
                                                                      ---------    ---------    ---------    ---------
          NET SALES                                                      79,898       81,314      263,137      236,179

Cost of sales                                                            97,504       84,117      284,627      306,214
                                                                      ---------    ---------    ---------    ---------
          GROSS PROFIT (LOSS)                                           (17,606)      (2,803)     (21,490)     (70,035)

Operating expenses:
     Research, development and engineering                               11,531       14,312       35,697       47,341
     Selling, general and administrative                                  4,240        4,854       15,330       14,407
     Amortization of intangibles                                          7,174         --         14,533         --
     Restructuring/impairment charges                                   183,644         --        187,965      187,768
                                                                      ---------    ---------    ---------    ---------
                                                                        206,589       19,166      253,525      249,516
                                                                      ---------    ---------    ---------    ---------
          OPERATING LOSS                                               (224,195)     (21,969)    (275,015)    (319,551)

Other income (expense):
     Interest income                                                      1,211        1,888        4,172        6,821
     Interest expense                                                    (6,199)      (4,763)     (17,138)     (14,072)
     Other, net                                                             169          943        1,699        4,857
                                                                      ---------    ---------    ---------    ---------
                                                                         (4,819)      (1,932)     (11,267)      (2,394)
                                                                      ---------    ---------    ---------    ---------
Loss before income taxes, minority interest,
   and equity in joint venture loss                                    (229,014)     (23,901)    (286,282)    (321,945)
Provision for income taxes                                                  350          256        1,100          959
                                                                      ---------    ---------    ---------    ---------
Loss before minority interest and equity in
   joint venture loss                                                  (229,364)     (24,157)    (287,382)    (322,904)
Minority interest in net income (loss) of consolidated subsidiary          (198)         (38)         142          459
Equity in net loss of unconsolidated joint venture                         --         (3,330)      (1,402)     (24,128)
                                                                      ---------    ---------    ---------    ---------
          NET LOSS                                                    ($229,166)   ($ 27,449)   ($288,926)   ($347,491)
                                                                      =========    =========    =========    =========


Basic loss per share                                                  ($   3.50)   ($   0.51)   ($   4.72)   ($   6.56)
                                                                      =========    =========    =========    =========
Diluted loss per share                                                ($   3.50)   ($   0.51)   ($   4.72)   ($   6.56)
                                                                      =========    =========    =========    =========

Number of shares used in basic computation                               65,449       53,444       61,204       53,003
                                                                      =========    =========    =========    =========
Number of shares used in diluted computation                             65,449       53,444       61,204       53,003
                                                                      =========    =========    =========    =========
<FN>
       </FN>
</TABLE>

                                                              -3-
<PAGE>
<TABLE>
                                    KOMAG, INCORPORATED
                                CONSOLIDATED BALANCE SHEETS
                                      (In thousands)
<CAPTION>
                                                                     Oct 3         Jan 3
                                                                      1999         1999
                                                                   ---------    ---------
<S>                                                                <C>          <C>
ASSETS                                                             (unaudited)     (note)
Current Assets
      Cash and cash equivalents                                    $  27,984    $  64,467
      Short-term investments                                          55,815       63,350
      Accounts receivable (including $30,520 and
       $512 due from related parties in 1999
       and 1998, respectively) less allowances
       of $2,370 in 1999 and $2,847 in 1998                           36,642       43,434
      Inventories:
         Raw materials                                                 5,617        8,434
         Work-in-process                                               8,351       10,672
         Finished goods                                               12,897       14,534
                                                                   ---------    ---------
              Total inventories                                       26,865       33,640
      Prepaid expenses and deposits                                    5,853        4,348
      Income taxes receivable                                          2,175        2,216
      Deferred income taxes                                            7,883        7,883
                                                                   ---------    ---------
              Total current assets                                   163,217      219,338
Investment in Unconsolidated Joint Venture                              --          1,399
Property, Plant and Equipment
      Land                                                             7,785        7,785
      Building                                                       129,755      128,359
      Equipment                                                      682,419      686,169
      Furniture                                                       10,924       10,911
      Leasehold improvements                                          86,905       86,565
                                                                   ---------    ---------
                                                                     917,788      919,789
      Less allowances for depreciation and amortization             (586,300)    (449,772)
                                                                   ---------    ---------
              Net property, plant and equipment                      331,488      470,017
Net Intangible Assets                                                 25,736         --
Deposits and Other Assets                                              2,607        3,341
                                                                   ---------    ---------
                                                                   $ 523,048    $ 694,095
                                                                   =========    =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
      Current portion of long-term debt                            $ 260,000    $ 260,000
      Trade accounts payable                                          25,154       27,274
      Accounts payable to related parties                              1,735        1,848
      Accrued compensation and benefits                               12,569       15,544
      Other liabilities                                               21,026        3,254
      Income taxes payable                                               177          134
      Restructuring Liability                                         37,910        4,128
                                                                   ---------    ---------
              Total current liabilities                              358,571      312,182
Note Payable to Related Party                                         21,186         --
Deferred Income Taxes                                                 52,564       52,564
Other Long-term Liabilities                                           14,737        1,403
Minority Interest in Consolidated Subsidiary                           4,281        4,139
Stockholders' Equity
      Preferred stock                                                   --           --
      Common stock                                                       654          539
      Additional paid-in capital                                     444,262      407,549
      Accumulated deficit                                           (373,786)     (84,860)
      Accumulated other comprehensive income                             579          579
                                                                   ---------    ---------
              Total stockholders' equity                              71,709      323,807
                                                                   ---------    ---------
                                                                   $ 523,048    $ 694,095
                                                                   =========    =========
<FN>
      Note:  The balance sheet at January 3, 1999 has been derived from the audited
             financial statements at that date.

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

                                      -4-
<PAGE>
<TABLE>
                                          KOMAG, INCORPORATED
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                             (In thousands)
                                              (Unaudited)
<CAPTION>
                                                                                   Nine Months Ended
                                                                                 ----------------------
                                                                                  Oct 3       Sept 27
                                                                                   1999         1998
                                                                                 ---------    ---------
<S>                                                                              <C>          <C>
OPERATING ACTIVITIES
      Net loss                                                                   ($288,926)   ($347,491)
      Adjustments to reconcile net loss to net cash
          provided by (used in) operating activities:
            Depreciation and amortization                                           72,893       91,129
            Amortization of intangibles                                             14,533         --
            Provision for losses on accounts receivable                               (334)      (1,019)
            Equity in net loss of unconsolidated joint venture                       1,402       24,129
            Loss on disposal of property, plant and equipment                          260          885
            Impairment charge related to property, plant and equipment                --        175,000
            Impairment of goodwill                                                  44,348         --
            Non-cash portion of restructuring charge related to
                   write-off of property, plant and equipment                       98,547         --
            Deferred rent                                                             (398)         325
            Minority interest in net income of consolidated subsidiary                 142          459
            Changes in operating assets and liabilities:
                  Accounts receivable                                               37,134       34,928
                  Accounts receivable from related parties                         (30,008)       2,638
                  Inventories                                                        8,924       35,956
                  Prepaid expenses and deposits                                     (1,508)      (1,732)
                  Trade accounts payable                                            (2,120)     (13,403)
                  Accounts payable to related parties                                 (113)      (6,464)
                  Accrued compensation and benefits                                 (2,975)       2,130
                  Other liabilities                                                 (4,032)       1,158
                  Deferred income taxes receivable/payable                            --            (47)
                  Income taxes receivable/payable                                       84       22,233
                  Restructuring liability                                           33,782       (1,201)
                                                                                 ---------    ---------
                           Net cash provided by (used in) operating activities     (18,365)      19,613

INVESTING ACTIVITIES
      Acquisition of property, plant and equipment                                 (28,765)     (83,958)
      Purchases of short-term investments                                           (5,180)     (27,650)
      Proceeds from short-term investments at maturity                              12,715         --
      Proceeds from disposal of property, plant and equipment                          860        5,449
      Deposits and other assets                                                         (3)         732
                                                                                 ---------    ---------
                         Net cash used in investing activities                     (20,373)    (105,427)

FINANCING ACTIVITIES
      Increase in long-term obligations                                               --         15,000
      Sale of Common Stock, net of issuance costs                                    2,255        3,585
                                                                                 ---------    ---------
                         Net cash provided by financing activities                   2,255       18,585
                                                                                 ---------    ---------
                      Decrease in cash and cash equivalents                        (36,483)     (67,229)

      Cash and cash equivalents at beginning of year                                64,467      133,897
                                                                                 ---------    ---------

                      Cash and cash equivalents at end of period                 $  27,984    $  66,668
                                                                                 =========    =========
<FN>
                         See notes to consolidated financial statements.
</FN>
</TABLE>


                                      -5-
<PAGE>

                               KOMAG, INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 OCTOBER 3, 1999


NOTE 1 - BASIS OF PRESENTATION

       The accompanying  unaudited  consolidated  financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements.  In the opinion of management,  all adjustments considered
necessary for a fair presentation have been included.  Operating results for the
three-  and  nine-month  periods  ended  October  3,  1999  are not  necessarily
indicative  of the results that may be expected  for the year ending  January 2,
2000.

       The financial statements have been prepared on a going concern basis. The
Report of  Independent  Auditors on the Company's  financial  statements for the
year ended January 3, 1999 included in the Company's  Annual Report on Form 10-K
contained an explanatory  paragraph which indicated  substantial doubt about the
Company's  ability to continue as a going  concern  because of recent  operating
losses  and lack of  compliance  with  certain  covenants  of its  various  bank
agreements.  Such  non-compliance  constitutes  an event of  default  under  the
agreements.  The Company  has not been in payment  default  under  these  credit
facilities  and has  continued  to pay  all  interest  charges  and  other  fees
associated  with  these  facilities  on  their  scheduled  due  dates.   Amounts
outstanding  under these unsecured credit agreements at October 3, 1999 amounted
to $260  million.  To date,  the  Company's  lenders  have not  accelerated  any
principal payments under these facilities.  The Company is currently negotiating
with its lenders for amendments to its existing credit facilities.  There can be
no  assurance  that the Company  will be able to obtain such  amendments  to its
credit  facilities  on  commercially  reasonable  terms.  In the event  that the
Company does not  successfully  amend its credit  facilities or restructure  its
debt  obligations,  the Company  could be required  to  significantly  reduce or
possibly suspend its operations, and/or sell additional securities on terms that
would be highly dilutive to current  stockholders of the Company.  The financial
statements do not include any adjustments to reflect the possible future effects
on  the   recoverability  and  classification  of  assets  or  the  amounts  and
classification  of assets and  liabilities  that may result  from the outcome of
this uncertainty.


                                      -6-
<PAGE>

       For further information,  refer to the consolidated  financial statements
and footnotes  thereto  included in the Company's Annual Report on Form 10-K for
the year ended January 3, 1999.

       The Company uses a 52-53 week fiscal year ending on the Sunday closest to
December 31. The three- and nine-month reporting periods included in this report
are comprised of thirteen and thirty-nine weeks, respectively.


NOTE 2 - INVESTMENT IN DEBT SECURITIES

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

                                                       Oct 3      Jan 3
(in thousands)                                          1999       1999
                                                      --------   --------
Municipal auction rate preferred stock                $ 52,600   $ 63,350
Corporate debt securities                               12,943     33,765
Mortgage-backed securities                              17,102     34,060
                                                      --------   --------
                                                      $ 82,645   $131,175
                                                      ========   ========

Amounts included in cash and cash equivalents         $ 26,830   $ 67,825
Amounts included in short-term investments              55,815     63,350
                                                      --------   --------
                                                      $ 82,645   $131,175
                                                      ========   ========

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


NOTE 3 - INCOME TAXES

       The Company's  income tax  provisions of  approximately  $0.4 million and
$1.1  million  for the  three-  and  nine-month  periods  ended  October 3, 1999
primarily  represent  foreign  withholding  taxes.  The  Company's  wholly-owned
thin-film  media  operation,  Komag USA  (Malaysia)  Sdn.  ("KMS")  received  an
extension  of its initial  five-year  tax holiday for an  additional  five years
commencing  July 1998. KMS was granted a ten-year tax holiday for its second and
third plant sites in Malaysia. The government determined in the third quarter of
1999 that  earnings  from the  second  and third  plant  sites  will be tax free
through  2001.  The  remaining  period  of the  ten-year  tax  holiday  will  be
reassessed in 2001 based on achieving certain investment criteria.


                                      -7-
<PAGE>

NOTE 4 - COMPREHENSIVE LOSS

       The following are the components of comprehensive loss:

                                  Three Months Ended       Nine Months Ended
                               ------------------------------------------------
                                 Oct 3       Sept 27      Oct 3       Sept 27
                                  1999         1998        1999         1998
                               ---------    ---------    ---------    ---------
(in thousands)
Net loss                       ($229,166)   ($ 27,449)   ($288,926)   ($347,491)
Foreign currency translation
    adjustments                     --           --           --         (2,560)
                               ---------    ---------    ---------    ---------
Comprehensive loss             ($229,166)   ($ 27,449)   ($288,926)   ($350,051)
                               =========    =========    =========    =========

Accumulated other  comprehensive  loss at October 3, 1999 and January 3, 1999 in
the accompanying  Consolidated  Balance Sheets consists  entirely of accumulated
foreign currency translation adjustments.


NOTE 5 - RESTRUCTURING CHARGES

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

        At October  3, 1999,  $35.6  million  related to the 1999  restructuring
activities  remained in current  liabilities.  During the third quarter of 1999,
the Company made cash payments totaling $3.2 million primarily for severance pay
and $2.0 million for leases included in the restructuring  charge. Cash outflows
of approximately  $19.9 million  associated with severance pay and closure costs
will occur primarily  during the fourth quarter of 1999 and the first quarter of
2000. Cash payments of  approximately  $15.7 million under the equipment  leases
will be made monthly through mid-2002.

        The Company recorded restructuring charges of $4.3 million in the second
quarter of 1999 and $187.8  million  in the second  quarter of 1998.  The second
quarter 1999 restructuring  charge primarily related to severance pay associated
with 400  terminated


                                      -8-
<PAGE>

employees.  The entire  $4.3  million was paid out to the  employees  during the
second and third quarter of 1999.

        The 1998  restructuring  charge consisted  primarily of a $175.0 million
non-cash  asset  impairment  charge.  The cash  component of the 1998 charge was
$12.8 million for employee severance costs, equipment order cancellations costs,
and facility  closure  costs.  The Company has made cash  payments in connection
with the 1998 restructuring charge totaling $12.2 million as of October 3, 1999.


NOTE 6 - LOSS PER SHARE
<TABLE>
       The net loss per share  was  computed  using  only the  weighted  average
number of shares of common stock  outstanding  during the period.  The following
table sets forth the computation of net loss per share.
<CAPTION>
                                                    Three Months Ended        Nine Months Ended
                                                  ----------------------    ----------------------
                                                    Oct 3       Sept 27       Oct 3      Sept 27
                                                     1999         1998         1999         1998
                                                  ---------    ---------    ---------    ---------
<S>                                               <C>          <C>          <C>          <C>
(in thousands, except per share amounts)
Numerator:  Net loss                              ($229,166)   ($ 27,449)   ($288,926)   ($347,491)
                                                  ---------    ---------    ---------    ---------
Denominator for basic
       loss per share -
       weighted-average shares                       65,449       53,444       61,204       53,003
                                                  ---------    ---------    ---------    ---------
Effect of dilutive securities:
       Employee stock options                          --           --           --           --
Denominator for diluted                           ---------    ---------    ---------    ---------
       loss per share                                65,449       53,444       61,204       53,003
                                                  ---------    ---------    ---------    ---------
Basic loss per share                              ($   3.50)   ($   0.51)   ($   4.72)   ($   6.56)
                                                  =========    =========    =========    =========
Diluted loss per share                            ($   3.50)   ($   0.51)   ($   4.72)   ($   6.56)
                                                  =========    =========    =========    =========
</TABLE>

         Incremental  common shares  attributable to the exercise of outstanding
options  (assuming  proceeds would be used to purchase treasury stock) of 28,009
and 14,176 for the three months ended  October 3, 1999 and  September  27, 1998,
respectively,  and 421,659 and 936,863 for the nine months ended October 3, 1999
and  September  27,  1998,  respectively,  were not included in the net loss per
share computation because the effect would be antidilutive.


                                      -9-
<PAGE>

NOTE 7 - USE OF ESTIMATES

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


NOTE 8 - PURCHASE OF WESTERN DIGITAL CORPORATION'S MEDIA OPERATIONS

       In April  1999,  the  Company  purchased  the assets of  Western  Digital
Corporation's  ("WDC's") media operations  through the issuance of approximately
10.8 million  shares of the  Company's  Common Stock and a note in the principal
amount of $30.1 million. The shares issued in the transaction, which represented
16.7%  of  the  Company's  outstanding  shares  on a  post-issuance  basis,  are
unregistered and subject to trading restrictions. WDC may resell these shares in
specified  increments  over a three and one-half year period under  registration
rights  granted  by the  Company  or under SEC  rules  after  expiration  of the
required holding periods.  Principal and interest accrued on the note are due in
three  years  and the  note  is  subordinated  to the  Company's  senior  credit
facilities.  In the event WDC realizes a return on its Komag equity  holdings in
excess of a targeted  amount  within three years,  the excess amount will reduce
the balance due under the note. The Company  discounted the principal  amount of
the subordinated note payable to $21.2 million based on the Company's  estimated
incremental  borrowing rate at the time of the acquisition of 18% for this class
of financial instrument.

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


                                      -10-
<PAGE>

Company  closed the former WDC media  operation at the end of June 1999,  nearly
fifteen months ahead of the Company's original transition plan.

         The Company's  acquisition of WDC's media operation was recorded in the
second quarter of 1999 as a business  combination  using the purchase  method of
accounting. Under this method the Company recorded the following (in millions):


Purchase Price Paid:
       Common Stock                  $  34.6
       Note Payable                     21.2
                                     -------
Direct Costs                         $  55.8
                                     =======

Assets Acquired:
       Goodwill                      $  79.2
       Volume Purchase Agreement         4.7
       Equipment                         5.3
       Inventory                         2.1
Liabilties Assumed:
       Remaining Lease Obligations
          for Equipment Removed
          from Service                 (26.5)
       Facility Closure Costs           (5.6)
       Purchase Order Cancellation
          Liabilities                   (2.6)
       Other Liabilities                (0.8)
                                     -------
Net Assets Acquired                  $  55.8
                                     =======

         The Company  recognized  goodwill and other  intangibles  in connection
with the  acquisition of the WDC media operation in the amount of $83.9 million.
Goodwill  typically reflects the difference between the fair value of the assets
acquired and  consideration  paid.  Under purchase  accounting rules the Company
also recorded  liabilities  that  increased  the amount of goodwill  recognized.
These  liabilities  included  estimated  costs for the closure of the former WDC
media operation as well as costs related to the remaining lease  obligations for
equipment taken out of service due to the closure.

        During the second and third  quarter of 1999 the Company paid a total of
approximately  $9.0 million against  liabilities  arising from this  transaction
including  equipment  lease  obligations  ($5.1  million),  property taxes ($1.1
million) and other liabilities  ($2.8 million).  Equipment lease obligations are
expected to be paid monthly  through  mid-2002.  At October 3, 1999, the current
portion of the equipment lease


                                      -11-
<PAGE>

obligations  was  approximately  $10.2  million.  The  majority of the  facility
closure  costs,   purchase  order   cancellation  costs  and  other  liabilities
associated with the WDC transaction are expected to be paid by mid-2000.

        Based  on  reduced  cash  flow  expectations  influenced  by  continuing
difficult  market  conditions  through the end of the third quarter of 1999, the
company  recorded an impairment  charge of  approximately  $44.3 million against
this goodwill balance. The fair value of the goodwill as of the end of the third
quarter of 1999 was determined based on the discounted cash flows resulting from
expected  sales  volumes  to WDC  through  the  remaining  period of the  volume
purchase agreement. This charge, combined with the goodwill amortization for the
second and third quarters,  reduced the goodwill balance to approximately  $25.7
million at October 3, 1999.  The  remaining  balance will be amortized  over the
remaining  ten-quarter  term of the Company's  volume  purchase  agreement  with
Western Digital.


                                      -12-
<PAGE>




                               KOMAG, INCORPORATED

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


Results of Operations:

        The  following  discussion  contains  predictions,  estimates  and other
forward-looking  statements  that  involve a number of risks and  uncertainties.
These  statements  may be  identified  by the use of  words  such as  "expects,"
"anticipates,"   "intends,"  "plans,"  and  similar   expressions.   While  this
discussion  represents the Company's current judgment on the future direction of
the business,  such risks and uncertainties could cause actual results to differ
materially from any future  performance  suggested  herein.  In particular,  the
actions taken to  restructure  its U.S.  operations  might disrupt the Company's
ability to execute against  customer  obligations  and  operational  improvement
plans. Such failures to execute would jeopardize the anticipated improvements in
the Company's financial  performance  outlined below. Due to the volume purchase
agreement  with Western  Digital  Corporation  ("WDC"),  the  Company's  results
continue to remain highly  dependent on the relative  success of WDC in the data
storage market.  Other factors that could cause actual results to differ include
the following:  disk consumption per drive based on the relative growth rates of
areal  density and overall  storage  usage;  pricing  levels  determined  by the
continuing imbalance between supply and demand for disk products; growth rate of
the merchant disk market as influenced by the level of captive disk  production;
structural  changes  within the disk  media  industry  created by  combinations,
failures, and joint venture arrangements;  unit volumes derived from new product
qualifications;  changes in manufacturing  efficiencies,  in particular  product
yields and  material  input  costs;  factory  utilization  levels;  and  capital
expenditure  levels  required  to  maintain or acquire  process  equipment  with
capabilities to meet more stringent future product requirements.  Moreover,  the
Company must maintain  sufficient  cash  resources to operate  efficiently.  The
Company's  ability  to  raise  additional   funding,   will  be  dependent  upon
improvement  in the  Company's  financial  performance  and  the  status  of the
Company's credit facilities.  Improvement in the Company's financial performance
remains highly dependent on macro industry fundamentals. Other risk factors that
may affect  the  Company's  financial  performance  are listed in the  Company's
various SEC filings,  including  its Form 10-K for the fiscal year ended January
3, 1999 which was filed on April 2, 1999.  The Company  undertakes no obligation
to  publicly  release  the  result  of any  revisions  to these  forward-looking
statements which may be made to reflect events or  circumstances  after the date
hereof or to reflect the occurrence of unanticipated events.

Overview:
        Adverse market conditions,  which began in mid-1997, continued to impact
the thin-film media market throughout 1998 and the first three quarters of 1999.
Demand for


                                      -13-
<PAGE>

disk drives grew rapidly  during the mid-1990s and industry  forecasts  were for
continued  strong growth.  The Company and a majority of its  competitors  (both
independent  disk  manufacturers  and  captive  disk   manufacturers   owned  by
vertically  integrated disk drive customers)  committed to expansion programs in
1996 and substantially  increased their media manufacturing capacity in 1997. In
1997,  the  rate  of  growth  in  demand  for  disk  drives  fell.   Disk  drive
manufacturers  abruptly reduced orders for media from independent  suppliers and
relied more heavily on internal  capacity to supply a larger proportion of their
media requirements.  The media industry's  capacity expansion,  coupled with the
decrease in the rate of demand growth,  has resulted in excess media  production
capacity. This excess media production 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 the excess supply of media,  1998
was a year of tremendous transition for the Company and the disk drive industry.
Disk drive programs  utilizing  newer,  more advanced,  magnetoresistive  ("MR")
media and recording heads replaced older generation programs utilizing inductive
media and heads. By the end of 1998 most disk drives were  manufactured  with MR
components.   The  transition  to  MR  disk  drives  has  led  to   significant,
unprecedented increases in areal density and, therefore, the amount of data that
can be stored on a single disk platter. In the first and second quarters of 1999
the majority of the Company's 3 1/2-inch  disks were capable of storing at least
4.3 gigabytes (GB) per platter. This represented a 34% increase in disk capacity
relative to a product mix of predominately 3.2 GB platters in the fourth quarter
of 1998. In the third quarter of 1999 50% of the Company's 3 1/2-inch disks were
capable of storing at least 6.8 GB per platter,  which represents a 58% increase
in disk capacity relative to the first half of 1999. The Company expects the 6.8
GB and 9.1 GB per platter disk  capacities  will account for the majority of the
Company's  unit  shipments  during the fourth  quarter of 1999.  Increased  disk
storage capacity per disk allows drive  manufacturers to offer lower-priced disk
drives at given  capacity  points,  especially  in the  price-sensitive  desktop
segment,  through the  incorporation of fewer components into their disk drives.
The rapid  advancement  in storage  capacity per disk platter has further slowed
disk demand throughout the industry. According to industry market analysts, this
resulting  reduction in the average number of disks per drive will likely result
in flat to declining  media demand for the  remainder of 1999 and into the first
half of 2000. The  significant  amount of captive  capacity  employed by certain
disk drive  manufacturers also continues to reduce the market  opportunities for
independent disk suppliers such as the Company.

        In April 1999, the Company  acquired the thin-film  media  operations of
Western Digital Corporation  ("WDC"). As part of the acquisition the Company and
WDC also entered into a volume purchase agreement under which the Company agreed
to supply a substantial portion of WDC's thin-film media requirements. Under the
volume purchase  agreement WDC began to purchase  substantially all of its media
requirements  from the


                                      -14-
<PAGE>

Company  after the closing  date.  The Company  initially  expected  that second
quarter 1999 unit sales from the combined  operations would grow sequentially in
the range of 20-35%  compared to the  Company's  first  quarter of 1999 results.
Actual unit  shipments for the second quarter fell  considerably  short of these
expectations  as  customer  order  reductions  (including  those  from  WDC) and
lower-than-expected   volumes  on  certain  new  product   programs   restricted
sequential  unit sales growth to  approximately  10%. In response to competitive
market conditions the Company's  customers reduced the number of disks per drive
to support the  delivery of lower  priced disk drives to the rapidly  expanding,
low-cost  segment of the PC  market.  These  customer  actions,  the  continuing
imbalance  between the supply and demand for disk products,  and the lack of new
data-intensive   applications   continue  to  depress  the  Company's  financial
performance.  Due to this weak unit  demand  the  Company  closed the former WDC
media  operation  at the end of June 1999,  nearly  fifteen  months ahead of the
Company's original transition plan.

        Disk  industry  conditions  remain  very  difficult.  Increased  storage
capacity  per disk is limiting  overall unit demand in the disk  industry  while
excess production capacity within the industry continues to push average selling
prices for disk products lower.  Vertically integrated disk drive customers such
as  Seagate  and IBM are also  supplying  a  larger  percentage  of  their  disk
requirements  internally  as a direct result of the lower disk  consumption  per
drive facilitated by the increased storage capacity per platter.  As a result of
these  negative   industry  trends  the  Company  has   experienced   continuing
deterioration in its revenue forecasts during the course of 1999.

        Following  the closure of the former WDC media  operation  at the end of
June 1999,  the Company  announced in July 1999 that it would reduce the size of
its U.S. operations further in response to the poor industry  conditions.  Later
in August 1999, the Company  indicated that it would cease volume  production of
finished  disks in the U.S.,  close two  manufacturing  facilities  in San Jose,
California,  and institute  staged work force  reductions  that would affect 980
people by the end of 1999.  These  reductions,  combined with the June 1999 work
force  of  reduction  of 400  people,  will  lower  the  employment  base at the
Company's  U.S.  operations  from 1,950 people in April 1999  (subsequent to the
acquisition of WDC's media  operation) to 570 people by year end. As a result of
these actions the Company expects to realize cash savings of  approximately  $20
million per  quarter in U.S.  payroll  costs,  a 67%  reduction  from the second
quarter 1999 level when total U.S.  employment reached 1,950 people. The Company
employed approximately 860 people in its U.S. operations and 2,740 people in its
Malaysian  manufacturing  operations  at the end of third  quarter of 1999.  The
Company  recorded a restructuring  charge of $139.3 million in the third quarter
for the write-off of equipment and leasehold improvements in the U.S. production
facilities   scheduled  for  closure  and  for  severance  pay  related  to  the
reorganization of its U.S. operations.

        After  completion of the phase out of volume  production,  the Company's
San Jose site will be solely focused on activities related to research,  process
development,  and


                                      -15-
<PAGE>

product  prototyping.  Selling,  general and administrative  functions will also
remain in San Jose. The Company's  highly automated  substrate  manufacturing in
Santa Rosa, California will continue to produce low-cost aluminum substrates and
perform advanced  development work for both aluminum and glass  substrates.  The
Company believes that the shift of high volume production to its cost-advantaged
Malaysian   manufacturing   plants  will  improve  the  Company's  overall  cost
structure,  result in lower unit  production  costs,  and improve the  Company's
ability to respond to the continuing price pressures in the disk industry.

 Revenue:
         Net sales decreased to $79.9 million in the third quarter of 1999, down
1.7% compared to $81.3 million in the third quarter of 1998. The  year-over-year
decrease  was  primarily  due to the net effect of a 14%  increase in unit sales
volume and a 14% decrease in the overall  average  selling  price.  Net sales in
third  quarters  of 1999 and 1998  included  $1.8  million  and $0.2  million of
substrate sales, respectively. The Company periodically sells substrate products
but does not  currently  anticipate  that such sales will  become a  significant
portion  of its  revenue.  Third  quarter  1999  unit  sales of  finished  media
increased to 9.7 million  disks from 8.5 million  disks in the third  quarter of
1998. The severe  pricing  pressures  generated by the  continuing  imbalance in
supply and demand for  thin-film  media in the third quarter of 1999 resulted in
the  year-over-year  decrease in the overall average selling price. Net sales in
the first nine months of 1999 increased  11.4% relative to the first nine months
of 1998.  Net sales in the first  nine  months  of 1999 and 1998  included  $7.9
million and $5.9 million of substrate sales,  respectively.  The increase in net
sales for the nine-month  period of 1999 was primarily due to the combination of
a 31%  increase  in unit sales and a 15%  decrease  in overall  average  selling
price.

        In addition to sales of internally  produced disk products,  the Company
has periodically  resold products  manufactured by its 50%-owned  Japanese joint
venture,  Asahi Komag Co., Ltd.  (AKCL).  Distribution  sales of thin-film media
manufactured by AKCL were negligible in both the third quarter of 1999 and 1998.
Distribution sales of these products were negligible in the first nine months of
1999 and  accounted  for $2.4  million  in the first  nine  months of 1998.  The
Company expects that distribution  sales of AKCL product will be minimal for the
remainder of 1999.

        During the third  quarter of 1999 sales to Western  Digital  Corporation
accounted for  approximately 84% of consolidated net sales. Net sales to each of
the  Company's  other  customers  were less than 10% during the third quarter of
1999. The Company expects that it will continue to derive a substantial  portion
of its sales from WDC and from a few other customers.  The distribution of sales
among  customers  may vary from  quarter  to  quarter  based on the match of the
Company's  product  capabilities with specific disk drive programs of customers.
Additionally, as a result of the April 1999 acquisition of WDC's media operation
and related  volume  purchase  agreement,  the  Company's  sales  remain  highly
dependent upon WDC's performance in the disk drive industry.


                                      -16-
<PAGE>

Gross Margin:
        The Company recorded a negative gross margin  percentage of 22.0% in the
third quarter of 1999  compared to a negative  gross margin of 3.4% in the third
quarter of 1998. The decline in the gross margin percentage was primarily due to
a 14% reduction in the average selling price.  The Company  produced 9.1 million
units in the third  quarter of 1999  compared to 7.1 million  units in the third
quarter of 1998.  The higher  unit  production  volume as well as higher  yields
reduced the Company's unit  production cost as fixed costs were spread over more
units. This positive effect,  however, was only a slight offset to the affect of
the decline in the average selling price.

        The gross  margin  improved to a negative  8.2% for the first  months of
1999 from a negative  29.7% for the first nine months of 1998.  Unit  production
increased  to 30.5  million  disks in the first nine months of 1999  compared to
22.4 million disks in the first nine months of 1998.  The Company  operated well
below  capacity  in the  first  nine  months  of 1998 in  order  to  match  unit
production  to the  sharply  lower  demand  for its  products.  Improvements  in
manufacturing  efficiencies,  higher unit production volumes,  and reductions in
fixed manufacturing costs favorably impacted the Company's gross margin in 1999.
Depreciation  charges in the first nine  months of 1999 were  approximately  33%
lower  than  in the  first  nine  months  of  1998  primarily  due to the  asset
impairment charges recorded in June 1998. The effect of these manufacturing cost
reductions  more than offset the effect of the  decline in the  overall  average
selling price on the Company's gross margin.

Operating Expenses:
        Research and development  ("R&D") expenses decreased to $11.5 million in
the third quarter of 1999 from $14.3  million in the third quarter of 1998.  R&D
expenses  decreased to $35.7 million in the first nine months of 1999 from $47.3
million in the first  nine  months of 1998.  Decreased  R&D  staffing  and lower
facility  and  equipment  costs  (primarily  due to the  1998  asset  impairment
charges)  accounted  for most of the decrease in R&D expenses in both the three-
and nine-month periods of 1999.  Selling,  general and  administrative  ("SG&A")
expenses  decreased  to $4.2  million  in the  third  quarter  of 1999 from $4.9
million in the third quarter of 1998.  SG&A expenses  increased to $15.3 million
in the first nine months of 1999 from $14.4  million in the first nine months of
1998. The decrease for the three-month period of 1999 relative to the comparable
period  of 1998 was  primarily  due to lower bad debt  provisions  and legal and
consulting fees,  partially offset by an increase in bonus expense. The increase
for  the  nine-month  period  of 1999  was  primarily  due to  higher  bad  debt
provisions  and bonus  expenses,  partially  offset by a decline in facility and
depreciation costs.


                                      -17-
<PAGE>

Goodwill Amortization:

The Company's  acquisition  of WDC's media  operation was recorded in the second
    quarter  of 1999 as a  business  combination  using the  purchase  method of
    accounting.  Under this  method  the  Company  recorded  the  following  (in
    millions):


Purchase Price Paid:
       Common Stock                  $  34.6
       Note Payable                     21.2
                                     -------
Direct Costs                         $  55.8
                                     =======

Assets Acquired:
       Goodwill                      $  79.2
       Volume Purchase Agreement         4.7
       Equipment                         5.3
       Inventory                         2.1
Liabilties Assumed:
       Remaining Lease Obligations
          for Equipment Removed
          from Service                 (26.5)
       Facility Closure Costs           (5.6)
       Purchase Order Cancellation
          Liabilities                   (2.6)
       Other Liabilities                (0.8)
                                     -------
Net Assets Acquired                  $  55.8
                                     =======


         The Company  recognized  goodwill and other  intangibles  in connection
with the  acquisition of the WDC media operation in the amount of $83.9 million.
Goodwill  typically reflects the difference between the fair value of the assets
acquired and  consideration  paid.  Under purchase  accounting rules the Company
also recorded  liabilities  that  increased  the amount of goodwill  recognized.
These  liabilities  included  estimated  costs for the closure of the former WDC
media operation as well as costs related to the remaining lease  obligations for
equipment taken out of service due to the closure.

        During the second and third  quarter of 1999 the Company paid a total of
approximately  $9.0 million against  liabilities  arising from this  transaction
including  equipment  lease  obligations  ($5.1  million),  property taxes ($1.1
million) and other liabilities  ($2.8 million).  Equipment lease obligations are
expected to be paid monthly  through  mid-2002.  At October 3, 1999, the current
portion of the equipment lease obligations was approximately $10.2 million.  The
majority of the facility closure costs,


                                      -18-
<PAGE>

purchase order cancellation costs and other liabilities  associated with the WDC
transaction are expected to be paid by mid-2000.

        Based  on  reduced  cash  flow  expectations  influenced  by  continuing
difficult  market  conditions  through the end of the third quarter of 1999, the
company  recorded an impairment  charge of  approximately  $44.3 million against
this goodwill balance. The fair value of the goodwill as of the end of the third
quarter of 1999, was determined  based on the  discounted  cash flows  resulting
from expected  sales  volumes to WDC through the remaining  period of the volume
purchase agreement. This charge, combined with the goodwill amortization for the
second and third quarters,  reduced the goodwill balance to approximately  $25.7
million at October 3, 1999.  The  remaining  balance will be amortized  over the
remaining  ten-quarter  term of the Company's  volume  purchase  agreement  with
Western Digital.

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

        At October  3, 1999,  $35.6  million  related to the 1999  restructuring
activities remained in current liabilities. During the third quarter of 1999 the
Company made cash payments totaling $3.2 million primarily for severance pay and
$2.0 million for leases included in the restructuring  charge.  Cash outflows of
approximately $19.9 million associated with severance pay and closure costs will
occur primarily during the fourth quarter of 1999 and the first quarter of 2000.
Cash payments of approximately  $15.7 million under the equipment leases will be
made monthly through mid-2002.

        The Company recorded restructuring charges of $4.3 million in the second
quarter of 1999 and $187.8  million  in the second  quarter of 1998.  The second
quarter 1999 restructuring  charge primarily related to severance pay associated
with 400  terminated  employees.  The entire  $4.3  million  was paid out to the
employees during the second and third quarter of 1999.

        The 1998  restructuring  charge consisted  primarily of a $175.0 million
non-cash  asset  impairment  charge.  The cash  component of the 1998 charge was
$12.8 million for employee severance costs, equipment order cancellations costs,
and facility  closure costs.


                                      -19-
<PAGE>

The Company has made cash payments totaling $12.2 million as of October 3, 1999.

Interest and Other Income/Expense:
        Interest  income  decreased  $0.7  million in the third  quarter of 1999
relative to the third  quarter of 1998 and $2.6 million in the first nine months
of 1999  relative to the first nine months of 1998 due to lower average cash and
short-term  investment  balances in the current year periods.  Interest  expense
increased  $1.4  million  in the third  quarter  of 1999  compared  to the third
quarter of 1998 and  increased  $3.1  million  in the first nine  months of 1999
compared  to the first nine  months of 1998.  The  increases  for the three- and
nine-month  periods were  primarily due to an  additional  $1.0 million and $1.9
million, respectively in interest expense under the Company's $21.2 million note
payable to WDC in connection with the acquisition of WDC's media operation.  The
note  payable  to WDC was  discounted  by the  Company's  estimated  incremental
borrowing  rate of 18% for  subordinated  debt  instruments  at the  time of the
acquisition.  Other income  decreased  $0.8 million in the third quarter of 1999
compared to the third  quarter of 1998.  The  decrease  was  primarily  due to a
reduction of $0.6  million in foreign  currency  transaction  gains in the third
quarter of 1999  compared to the third quarter of 1998.  Other income  decreased
$3.2 million in the first nine months of 1999  relative to the first nine months
of 1998.  Other income in the first nine months of 1998  included a $3.1 million
gain on the March 1998 sale of vacant land located in Milpitas, California.

Income Taxes:
        The Company's  income tax provision was  approximately  $0.4 million and
$1.1  million  for the three-  and  nine-month  periods  of 1999,  respectively,
compared to $0.3 million and $1.0 million for the three- and nine-month  periods
of 1998,  respectively.  The  income tax  provisions  for both the 1999 and 1998
periods  primarily   represented   foreign   withholding  taxes.  The  Company's
wholly-owned  thin-film  media  operation,  Komag USA (Malaysia)  Sdn.  ("KMS"),
received an extension  of its initial  five-year  tax holiday for an  additional
five years  commencing in July 1998.  KMS was granted a ten-year tax holiday for
its second and third plant sites in Malaysia. The government has determined that
earnings  from the second and third plant sites will be tax free  through  2001.
The  remaining  period of the ten-year tax holiday  will be  reassessed  in 2001
based on achieving certain investment criteria.

Minority Interest in KMT/Equity in Net Income (Loss) of AKCL:
        The  minority  interest  in the net  income of  consolidated  subsidiary
represented  Kobe Steel USA Holdings  Inc.'s  ("Kobe  USA's") 20% share of Komag
Material Technology, Inc.'s ("KMT's") net income (loss). KMT recorded a net loss
of $1.0  million  and net income of $.7  million in the third  quarter and first
nine months of 1999,  respectively,  compared to a net loss of $0.2  million and
net income of $2.3  million in the third  quarter and first nine months of 1998,
respectively.

        The Company  owns a 50% interest in AKCL and records its share of AKCL's
net


                                      -20-
<PAGE>

income (loss) as equity in net income (loss) of  unconsolidated  joint  venture.
During the first three  months of 1999,  the  Company's  investment  in AKCL was
reduced to zero as a result of  recording  a portion of the  Company's  share of
AKCL's losses for the first quarter of 1999.  Approximately  $0.6 million of the
Company's  share of AKCL's first  quarter loss was not recorded as it would have
reduced the net book value of the  investment in AKCL below zero.  AKCL recorded
net income of $0.3 million and $0.8 million for the second and third quarters of
1999, respectively. The Company has not recorded its share of this income as the
Company's  cumulative  unrecorded equity in AKCL is a loss of approximately $0.1
million  as of  October  3, 1999.  Assuming  AKCL  reports  net income in future
periods,  the Company will record its share of such income only to the extent by
which the income exceeds the losses incurred subsequent to the date on which the
investment balance became zero.


Year 2000 Issue:
        Many computer  systems were not designed to properly handle dates beyond
the year 1999.  Such systems were designed  using two digits rather than four to
define the  applicable  year.  Any computer  programs  that have  time-sensitive
software  may  recognize a date using "00" as the year 1900 rather than the year
2000.  This  could  result  in  a  system  failure  or  miscalculations  causing
disruptions  of  operations.  Disruptions  may also  occur if key  suppliers  or
customers  experience  disruptions in their ability to transact with the Company
due to Year 2000 issues.  The Company's  global  operations  rely heavily on the
infrastructures  of the countries in which it conducts  business.  The Year 2000
readiness within infrastructure  suppliers (utilities,  government agencies such
as customs, shipping organizations) will be critical to the Company's ability to
avoid  disruption of its operations.  The Company is working with industry trade
associations  to evaluate the Year 2000 readiness of  infrastructure  suppliers.
The Company has committed personnel and resources to resolve potential Year 2000
issues and is working with key suppliers and customers to ensure their Year 2000
readiness.

        The  Company's  Year 2000 efforts are focused on three  primary areas of
potential  impact:  internal  information  technology  ("IT") systems,  internal
non-IT  systems,  and the  readiness of third  parties with whom the Company has
critical  business  relationships.  Testing and  remediation  of internal IT and
non-IT systems is complete.

        The Company has developed a process for  identifying  and assessing Year
2000 readiness of its critical  suppliers.  This process generally  involves the
following  steps:  initial  supplier  survey,  follow-up  supplier  review,  and
contingency  planning.  The Company is following up with critical suppliers that
either did not respond  initially or whose  responses  were  unsatisfactory.  To
date, the Company has received responses from all of its critical suppliers, all
of whom have responded that they expect to address all of their significant Year
2000 issues on a timely basis.


                                      -21-
<PAGE>

        Remediation  costs of the Year 2000 issue have not been  material to the
Company's  results  of  operations  or  financial  position.   The  Company  has
cumulatively  incurred  remediation  costs of  approximately  $0.6 million.  The
Company does not separately  track the internal costs incurred for the Year 2000
project  (primarily the payroll cost for its information  systems group).  While
the Company currently expects that the Year 2000 issue will not pose significant
operational  problems, a failure to fully identify all Year 2000 dependencies in
the  Company's  systems  and in the  systems  of its  suppliers,  customers  and
financial  institutions  could have  material  adverse  consequences,  including
delays  in the  delivery  or sales  of  products.  Therefore,  the  Company  has
developed contingency plans for continuing operations in the event such problems
arise.  These  contingency  plans are materially  complete but may be subject to
refinement through December 1999.

        During the development of the Company's contingency plans for continuing
operations,  the Company  identified  and  analyzed the most  reasonably  likely
worst-case   scenarios   where  it  may  be  affected   by  Year  2000   related
interruptions. These scenarios may include possible infrastructure collapse, the
failure  of  power  and  water  supplies,   major  transportation   disruptions,
unforeseen  product  shortages  due to hoarding of material  and  supplies,  and
failures of  communications  and financial  systems.  Any one of these scenarios
could have a major and material  effect on the Company's  ability to produce and
deliver products to its customers.  While the Company has developed  contingency
plans, which are materially  complete,  to address issues under its control,  an
infrastructure  problem outside of its control or some combination of several of
these  problems  could result in a delay in product  shipments  depending on the
nature  and  severity  of the  problems.  The  Company  would  expect  that most
utilities and service  providers  would be able to restore  service  within days
although more pervasive system problems  involving multiple providers could last
several  weeks or longer  depending  on the  complexity  of the  systems and the
effectiveness of their contingency plans.

        The Company's products are not date sensitive.  Additionally, disk drive
manufacturers  have  generally  stated that disk drives as a stand alone product
are not date sensitive.  The Company expects that it will have limited  exposure
to product liability litigation resulting from Year 2000 related failures.


Liquidity and Capital Resources:

        Cash and short-term investments of $83.8 million at the end of the third
quarter of 1999  decreased  $44.0 million from the end of the prior fiscal year.
Working capital  decreased $102.5 million from the end of the prior fiscal year.
Consolidated  operating  activities  consumed  $18.4  million in cash during the
first nine months of 1999. The $288.9 million  operating loss for the first nine
months of 1999, net of the non-cash  portion of  restructuring  charges of $98.5
million,  non-cash  depreciation and amortization


                                      -22-
<PAGE>

charges of $87.4 million,  the goodwill impairment charge of $44.3 million,  the
non-cash  equity  loss from  AKCL of $1.4  million  and other  non-cash/deferred
charges totaling $(0.2) million, used $57.5 million. Changes in operating assets
and  liabilities  provided  $39.2  million.  Inventory  and accounts  receivable
decreased  $8.9 million and $7.1  million,  respectively,  providing a source of
cash. The net change in the restructuring liability for the first nine months of
1999 provided  $33.8 million.  In addition,  the net change in the other various
operating  assets and  liabilities  used $10.6 million.  The Company spent $28.8
million on capital  requirements  during the first nine months of 1999. Sales of
Common Stock under the Company's stock programs generated $2.3 million.

        Total  capital   expenditures   for  1999  are   currently   planned  at
approximately $35.0 million.  Current  noncancellable  capital commitments total
approximately  $4.4  million.  In light of the  continuing  weak  disk  industry
conditions  the Company  plans to closely  monitor its capital needs in order to
limit capital spending for the last quarter of 1999 and future periods. The size
of the Company's  net losses have resulted in a default under certain  financial
covenants contained in the Company's various bank credit facilities. The Company
currently  has  $260  million  of  unsecured  bank  borrowings  outstanding.  No
additional borrowing capacity is available as a result of the technical default.
The Company is not in payment  default under any of its credit  facilities.  The
Company is currently negotiating with its lenders for amendments to the existing
credit facilities.  The Company's ability to successfully  conclude negotiations
has been  delayed  during the past year as a result of changes in the  Company's
business  model due to the  acquisition  of WDC's media  facility and continuing
deterioration  in the disk industry.  There can be no assurance that the Company
will be able to obtain  amendments  to its  credit  facilities  on  commercially
reasonable  terms.  If the Company  does not  successfully  amend  these  credit
facilities,  it would  remain in  technical  default  of its bank  loans and the
lenders  would  retain  their  rights and  remedies  under the  existing  credit
agreements.  As long as the  lenders  choose  not to  accelerate  any  principal
payments,  the Company  would  continue to operate in default for the near term.
However, the Company will need to raise additional funds to restructure its debt
obligations and to operate its business for the long term.

        There can be no  assurance  that the Company will be able to secure such
financial  resources on commercially  reasonable terms. If the Company is unable
to obtain adequate  financing,  it could be required to significantly  reduce or
possibly suspend its operations,  and/or to sell additional  securities on terms
that would be highly dilutive to current stockholders.


                                      -23-
<PAGE>




PART II. OTHER INFORMATION

         ITEM 1. Legal Proceedings-Not Applicable.

         ITEM 2. Changes in Securities-Not Applicable.

         ITEM 3. Defaults Upon Senior Securities--

                  The size of the Company's  second quarter of 1998 net loss has
         resulted in a default under certain  financial  covenants  contained in
         the Company's various bank credit facilities. The Company currently has
         $260 million of unsecured bank  borrowings  outstanding.  No additional
         borrowing  capacity is available as a result of the technical  default.
         The  Company  is not  in  payment  default  under  any  of  its  credit
         facilities.  The Company is currently  negotiating with its lenders for
         amendments to the existing credit facilities.

         ITEM 4. Submission   of  Matters  to  a  Vote of  Security  Holders-Not
                 Applicable.

         ITEM 5. Other Information-Not Applicable.

         ITEM 6. Exhibits and Reports on Form 8-K

                  a) Exhibits

                  Exhibit 27--Financial Data Schedule.

                  b) Reports on Form 8-K

                  On August 9, 1999 the Company  filed Form 8-K  containing  the
                  contents of its press  release  dated August 5, 1999  entitled
                  "Komag Announces Management Changes".


                                      -24-
<PAGE>




                                   SIGNATURES



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




                               KOMAG, INCORPORATED
                                  (Registrant)



DATE:  November 12, 1999            BY: /s/ William L. Potts, Jr.
     --------------------              ---------------------------

                                    William L. Potts, Jr.
                                    Senior Vice President and
                                    Chief Financial Officer



DATE:  November 12, 1999            BY:  /s/ Thian Hoo Tan
     --------------------              ---------------------

                                    Thian Hoo Tan
                                    President and
                                    Chief Executive Officer


                                      -25-