---

# UNITED STATESSECURITIES
AND EXCHANGE COMMISSION

                                                        WASHINGTON, D.C. 20549

---

# FORM 10-Q

## [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                                                         EXCHANGE ACT OF 1934

## FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

## OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                                                         EXCHANGE ACT OF 1934
 For the Transition Period from............to...............

## COMMISSION FILE NUMBER 1-12333

Iomega Corporation(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction
      of incorporation or organization | 86-0385884(IRS employer identification number)
|--------------------------------------------------------------------------- | ----------------------------------------------

4435 Eastgate Mall, 3rd Floor, San Diego, CA 92121(Address of principal executive offices)

(858) 795-7000(Registrant's telephone number, including area code)

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock,
as of August 4, 2002.

|Common Stock, par value $.03 1/3(Title of each class) | 54,612,144(Number of shares)
|----------------------------------------------------- | ----------------------------

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# IOMEGA CORPORATION
TABLE OF CONTENTS

`Page
                                                                                                        ----

Special Note Regarding Forward-Looking Statements..................................................       2

                                                     PART I - FINANCIAL STATEMENTS

Item 1.  Financial Statements

         Condensed Consolidated Balance Sheets at June 30, 2002
             and December 31, 2001.................................................................       3

         Condensed Consolidated Statements of Operations for the Quarters
             ended June 30, 2002 and July 1, 2001..................................................       5

         Condensed Consolidated Statements of Operations for the Six Months
             ended June 30, 2002 and July 1, 2001..................................................       6

         Condensed Consolidated Statements of Cash Flows for the Six Months
             ended June 30, 2002 and July 1, 2001..................................................       7

         Notes to Condensed Consolidated Financial Statements......................................       8

Item 2.  Management's Discussion and Analysis of Financial
             Condition and Results of Operations...................................................      34

Item 3.  Quantitative and Qualitative Disclosures About Market Risk................................      73

                                                      PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.........................................................................      74

Item 2.  Changes in Securities and Use of Proceeds.................................................      74

Item 4.  Submission of Matters to a Vote of Security Holders.......................................      74

Item 6.  Exhibits and Reports on Form 8-K..........................................................      74

Signatures.........................................................................................      75

Exhibit Index......................................................................................      76`

Copyright(C)2002 Iomega  Corporation.  All rights  reserved.  Iomega,  Zip,  Jaz,  Peerless,  Predator,  PocketZip,  HipZip,  FotoShow,
QuikSync,  HotBurn,  LifeWorks,  and ioLink are either registered  trademarks or trademarks of Iomega  Corporation in the United States
and/or other countries.

IBM and Microdrive are trademarks or registered  trademarks of International  Business Machines Corporation in the United States, other
countries or both.  Microdrive  is used under license by Iomega  Corporation.  Certain  other  product  names,  brand names and company
names may be trademarks or designations of their respective owners.

## SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This  Quarterly  Report on Form 10-Q  contains  a number of  forward-looking  statements,  including,  without  limitation,  statements
referring  to: the  Company's  goal of continuing to reduce operational expenses; expected savings from prior restructuring  and
non-restructuring  activities;  future utilization of prior  restructuring and  non-restructuring  charges;  plans to introduce new and
enhanced  products;  plans to stabilize and improve the Company's  core Zip business;  the need for additional  restructuring  or other
charges in the future;  the expected  profitability  or lack of  profitability  on certain product lines;  the expected sales volume or
lack of sales volume on certain  product  lines;  plans  concerning  PocketZip  and Jaz disks  during 2002 and other plans
concerning product lines;  the  expectation of continuing to lower product  costs;  the possible  divestment and  outsourcing of the
Company's  Penang,  Malaysia  manufacturing  facility;  the expected  sufficiency of unrestricted  cash, cash equivalents and temporary
investment  balances and cash flows from future  operations;  the factors affecting future gross margins;  expected sales levels due to
seasonal demand; the expectation that the Company can obtain sufficient  product and components thereof to meet business  requirements;
anticipated hedging  strategies;  the possible effects of an adverse outcome in the review of the Company's SEC filings described under
the caption "Other  Matters" in  Management's  Discussion and Analysis of Financial  Condition and Results of Operations;  the expected
impact of the adoption of accounting  pronouncements;  the generation of future taxable income to realize net deferred tax assets;  and
the  possible  effects of an adverse  outcome  in the legal  proceedings  described  in Note 5 of the notes to  condensed  consolidated
financial  statements  in Part I. Any  statements  contained  herein that are not  statements  of  historical  fact may be deemed to be
forward-looking  statements.  Without limiting the foregoing,  the words "believes,"  "anticipates,"  "plans," "expects," "intends" and
similar expressions are intended to identify  forward-looking  statements,  although not all  forward-looking  statements contain these
words.

There are a number of important  factors that could cause actual  events or the  Company's  actual  results to differ  materially  from
those indicated by such  forward-looking  statements.  These factors include,  without  limitation,  those set forth under the captions
"Critical Accounting  Policies," "Liquidity and Capital Resources," "Factors Affecting Future Operating Results" and "Disclosures About
Market Risk" included under  "Management's  Discussion and Analysis of Financial Condition and Results of Operations" and "
Quantitative and Qualitative Disclosures about Market Risk" in Items 2 and 3 of Part
I of this Quarterly Report on Form 10-Q and those set forth in Note 5 of the notes to condensed  consolidated  financial  statements in
Part I of this  Quarterly  Report on Form 10-Q.  The  factors  discussed  herein do not  reflect  the  potential  future  impact of any
mergers,  acquisitions or divestments.  In addition,  any forward-looking  statements  represent the Company's estimates only as of the
day this quarterly  report was first filed with the Securities  and Exchange  Commission and should not be relied upon as  representing
the Company's  estimates as of any subsequent date. While the Company may elect to update  forward-looking  statements at some point in
the future, the Company specifically disclaims any obligation to do so, even if its estimates change.

# IOMEGA CORPORATION
                                                 CONDENSED CONSOLIDATED BALANCE SHEETS
                                                                ASSETS
                                                            (In thousands)

`June 30,                December 31,
                                                                           2002                      2001
                                                                       -----------               ----------
                                                                       (Unaudited)
Current Assets:
   Cash and cash equivalents                                             $ 271,146                $ 219,949
   Restricted cash                                                           1,921                    4,144
   Temporary investments                                                    99,046                  104,953
   Trade receivables, less allowance for doubtful accounts of
      $9,464 and $11,559, respectively                                      53,897                   89,396
   Inventories                                                              36,103                   56,336
   Deferred income taxes                                                    30,771                   39,978
   Income taxes receivable                                                  15,426                    4,025
   Other current assets                                                     16,415                   15,742
                                                                         ---------                ---------
      Total Current Assets                                                 524,725                  534,523
                                                                         ---------                ---------

Property, plant and equipment, at cost                                     243,924                  266,634
Accumulated depreciation and amortization                                 (194,665)                (211,437)
                                                                         ---------                ---------
      Net property, plant and equipment                                     49,259                   55,197
                                                                         ---------                ---------

Goodwill                                                                    11,691                   11,691
                                                                         ---------                ---------
Other intangibles, net                                                       8,116                    9,744
                                                                         ---------                ---------
Other assets                                                                   173                    2,820
                                                                         ---------                ---------
    Total Assets                                                         $ 593,964                $ 613,975
                                                                         =========                =========`

The
accompanying notes to condensed consolidated financial statements are an
integral part of these statements.

# IOMEGA
CORPORATION 
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS EQUITY
(In thousands, except share data)

`June 30,            December 31,
                                                                             2002                  2001
                                                                          ----------           ------------
                                                                          (Unaudited)
Current Liabilities:
   Accounts payable                                                         $  35,353            $  68,550
   Other current liabilities (Note 1)                                         120,805              151,095
                                                                            ---------            ---------
      Total Current Liabilities                                               156,158              219,645
                                                                            ---------            ---------
Other long-term liabilities                                                     2,131                3,018
                                                                            ---------            ---------

Deferred income taxes                                                          16,863               12,374
                                                                            ---------            ---------

Commitments and contingencies (Notes 4 and 5)

Stockholders' Equity:
   Preferred Stock, $0.01 par value; authorized 4,600,000
      shares, none issued                                                           -                    -
   Series A Junior Participating Preferred Stock; authorized
      400,000 shares, none issued                                                   -                    -
   Common Stock, $0.03 1/3 par value; authorized 400,000,000
      shares; issued 54,600,513 and 54,572,019 shares,
      respectively                                                              1,821                1,819
   Additional paid-in capital                                                 307,543              307,413
   Less: 3,426,288 and 3,085,888 Common Stock treasury
      shares, respectively, at cost                                           (33,791)             (30,867)
   Retained earnings                                                          143,239              100,573
                                                                            ---------            ---------
      Total Stockholders' Equity                                              418,812              378,938
                                                                            ---------            ---------
         Total Liabilities and Stockholders' Equity                         $ 593,964            $ 613,975
                                                                            =========            =========`

The
accompanying notes to condensed consolidated financial statements are an
integral part of these statements.

# IOMEGA
CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

`For the Quarter Ended
                                                                       ----------------------------------
                                                                        June 30,                 July 1,
                                                                          2002                    2001
                                                                       ---------                ---------
                                                                                   (Unaudited)
Sales                                                                  $ 145,208                $ 183,689
Cost of sales                                                             90,262                  176,733
                                                                       ---------                ---------
Gross margin                                                              54,946                    6,956
                                                                       ---------                ---------

Operating Expenses:
    Selling, general and administrative                                   33,073                   54,002
    Research and development                                               8,885                   13,241
    Restructuring charges (reversals)                                     (2,181)                   1,086
    Bad debt expense (credit)                                             (1,235)                     869
                                                                       ---------                ---------
       Total Operating Expenses                                           38,542                   69,198
                                                                       ---------                ---------

Operating income (loss)                                                   16,404                  (62,242)
Interest income                                                            2,406                    4,323
Interest and other expense                                                (1,041)                    (255)
                                                                       ---------                ---------

Income (loss) before income taxes                                         17,769                  (58,174)
Benefit (provision) for income taxes                                      (6,312)                  22,319
                                                                       ----------               ---------

Net income (loss)                                                      $  11,457                $ (35,855)
                                                                       =========                =========

Net income (loss) per common share:
    Basic and Diluted                                                  $    0.22                $   (0.66)
                                                                       =========                =========

Weighted average common shares outstanding                                51,170                   54,042
                                                                       =========                =========
Weighted average common shares outstanding -
    assuming dilution                                                     51,429                   54,042
                                                                       =========                =========`

The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.

# IOMEGA
CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

`For the Six Months Ended
                                                                       ----------------------------------
                                                                        June 30,                  July 1,
                                                                           2002                    2001
                                                                       ---------                ---------
                                                                                   (Unaudited)
Sales                                                                  $ 324,105                $ 460,699
Cost of sales                                                            196,633                  369,223
                                                                       ---------                ---------
Gross margin                                                             127,472                   91,476
                                                                       ---------                ---------

Operating Expenses:
    Selling, general and administrative                                   71,269                  113,794
    Research and development                                              17,529                   27,317
    Restructuring charges (reversals)                                     (2,181)                   1,086
    Bad debt expense (credit)                                             (1,931)                     593
                                                                       ---------                ---------
       Total Operating Expenses                                           84,686                  142,790
                                                                       ---------                ---------

Operating income (loss)                                                   42,786                  (51,314)
Interest income                                                            4,726                    9,648
Interest and other expense                                                (3,145)                    (319)
                                                                       ---------                ---------

Income (loss) before income taxes                                         44,367                  (41,985)
Benefit (provision) for income taxes                                      (1,701)                  15,962
                                                                       ---------                ---------

Net income (loss)                                                      $  42,666                $ (26,023)
                                                                       =========                =========

Net income (loss) per common share:
    Basic and Diluted                                                  $    0.83                $   (0.48)
                                                                       =========                =========

Weighted average common shares outstanding                                51,226                   54,037
                                                                       =========                =========
Weighted average common shares outstanding -
    assuming dilution                                                     51,407                   54,037
                                                                       =========                =========`

The
accompanying notes to condensed consolidated financial statements are an
integral part of these statements.

# IOMEGA
CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

`For the Six Months Ended
                                                                            --------------------------------
                                                                             June 30,                July 1,
                                                                               2002                   2001
                                                                            ---------              ---------
                                                                                      (Unaudited)
   Cash Flows from Operating Activities:
       Net income (loss)                                                    $  42,666              $ (26,023)
       Non-cash revenue and expense adjustments:
          Depreciation and amortization                                        12,411                 27,421
          Deferred income taxes                                                13,696                (16,170)
          Non-cash inventory write-offs                                         3,752                 14,268
          Loss on fixed assets                                                    720                  7,046
          Bad debt expense (credit)                                            (1,931)                   593
          Other                                                                 1,541                     79
                                                                            ---------              ---------
                                                                               72,855                  7,214
       Changes in Assets and Liabilities:
          Trade receivables                                                    37,430                 29,890
          Inventories                                                          18,058                  1,347
          Other current assets                                                 (2,250)                 3,490
          Accounts payable                                                    (33,197)               (29,964)
          Other current liabilities                                           (20,372)               (14,947)
          Accrued restructuring                                                (9,355)                   318
          Restricted cash                                                       2,223                      -
          Income taxes                                                        (11,401)                  (699)
                                                                            ---------              ---------
       Net cash provided by (used in) operating activities                     53,991                 (3,351)
                                                                            ---------              ---------

   Cash Flows from Investing Activities:
       Purchase of property, plant and equipment                               (5,575)               (13,007)
       Purchase of temporary investments                                      (92,401)               (91,310)
       Sale of temporary investments                                           98,308                125,175
       Net change in other assets/liabilities                                     270                 (1,394)
                                                                            ---------              ---------
   Net cash provided by investing activities                                      602                 19,464
                                                                            ---------              ---------

   Cash Flows from Financing Activities:
       Proceeds from sales of Common Stock                                         91                    634
       Purchases of Common Stock                                               (2,924)                  (295)
       Payments on capitalized lease and other obligations                       (563)                  (603)
                                                                            ---------              ---------
   Net cash used in financing activities                                       (3,396)                  (264)
                                                                            ---------              ---------
   Net increase in cash and cash equivalents                                   51,197                 15,849
   Cash and cash equivalents at beginning of period                           219,949                255,572
                                                                            ---------              ---------
   Cash and cash equivalents at end of period                               $ 271,146              $ 271,421
                                                                            =========              =========`

The
accompanying notes to condensed consolidated financial statements are an
integral part of these statements.

# IOMEGA
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

## (1)     
Significant Accounting Policies

In the opinion of the
Companys management, the accompanying unaudited, condensed consolidated
financial statements reflect all adjustments which are necessary to present
fairly the financial position of the Company as of June 30, 2002 and December
31, 2001, the results of operations for the quarters and six months ended June
30, 2002 and July 1, 2001 and cash flows for the six months ended June 30, 2002
and July 1, 2001.

The results of operations
for the quarter and six months ended June 30, 2002 are not necessarily
indicative of the results to be expected for the entire year or for any future
period.

These unaudited, condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes included in the Companys
latest Annual Report on Form 10-K.

Reverse Stock Split

On September 28, 2001, the
Companys shareholders approved a one-for-five reverse stock split
(reverse stock split) of the Companys outstanding Common
Stock. The reverse stock split was effected after the market close on September
28, 2001. All per share amounts and outstanding shares have been retroactively
restated in the accompanying condensed consolidated statements of operations and
notes to condensed consolidated financial statements for all periods presented
to reflect the reverse stock split.

Principles of Consolidation

These unaudited, condensed
consolidated financial statements include the accounts of Iomega Corporation and
its wholly-owned subsidiaries after elimination of all material intercompany
accounts and transactions. All entities of the Company have been consolidated
and there are no special purpose entities.

Pervasiveness of Estimates

The preparation of
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of sales and expenses during the reporting
period. Actual results could differ materially from these estimates.

Revenue Recognition

The Companys
customers include original equipment manufacturers (OEMs),
retailers, distributors and end users. Some retail
and distribution customer agreements have provisions that allow the customer to
return product under certain conditions within specified time periods. Sales,
less reserves for estimated returns, are generally recognized upon shipment to
the customer. The Company has established reserves for estimated returns, which
are reflected as a reduction in trade receivables and sales in the accompanying
condensed consolidated financial statements. The reserve for estimated returns
totaled $7.2 million and $6.2 million at June 30, 2002 and December 31, 2001,
respectively.

In addition to reserves for
estimated returns, the Company defers recognition of revenue on estimated excess
inventory in the distribution and retail channels. For this purpose, excess
inventory is the amount of inventory that exceeds the channels 30-day
requirements as estimated by management. The channels 30-day requirements
are estimated based on inventory and sell-through amounts reported to the
Company by the Companys key customers. The Company defers estimated sales
and cost of sales associated with excess channel inventory in its condensed
consolidated financial statements. The gross margin associated with deferral of
sales for estimated excess channel inventory totaled $10.3 million and $12.8
million at June 30, 2002 and December 31, 2001, respectively and is included in
other current liabilities in the accompanying condensed consolidated
balance sheets.

The Company sells software
that is embedded or bundled with some of its drive products, as well as some
software titles that are downloaded from the Companys website. Sales from
the software embedded or bundled with drive products, less reserves for
estimated returns, are recognized upon shipment to the customer. Sales from
software that is downloaded from the Companys website is recognized at the
time of download. The software sold by the Company does not contain multiple
elements. The Companys software sales are immaterial.

Price Protection and Volume Rebates

The Company has agreements
with certain of its customers which, in the event of a price decrease, allow
those customers (subject to limitations) credit equal to the difference between
the price originally paid and the new decreased price on units either in the
customers inventories on the date of the price decrease or on the number
of units shipped to the customer for a specified time period prior to the price
decrease. When a price decrease is anticipated, the Company establishes reserves
against gross trade receivables with the corresponding reduction in sales for
estimated amounts to be reimbursed to qualifying customers. In addition, the
Company records reserves at the time of shipment for estimated volume rebates
and estimated rebates given to consumers at time of purchase from channel
partners for which sales have been recognized.

Reserves for volume rebates
and price protection credits totaled $36.2 million and $45.8 million at June 30,
2002 and December 31, 2001, respectively and are netted against trade
receivables in the accompanying condensed consolidated balance sheets.

Restricted Cash

In connection with the
class action lawsuit, Rinaldi, et al. v. Iomega Corporation, as part of
the Court approved settlement, the Company agreed to an award of $4.1 million
for plaintiffs attorneys fees (For more information about the
lawsuit, see Note 5 Commitments and Contingencies). Accordingly, the
Company funded $4.1 million into an escrow account. During June 2002, this
escrow account was paid to the plaintiffs attorneys.

During the first quarter of
2002, the Company classified $1.8 million of cash as restricted cash to secure a
bank agreement associated with an outstanding letter of credit. Per the bank
agreement, this cash has been set aside in a certificate of deposit and cannot
be utilized by the Company until after the letter of credit expires in July
2002. Restricted cash could increase in the future as the Company enters into
new letters of credit. The Company also has $0.1 million of restricted cash to
cover foreign bank guarantees for value added taxes (VAT). This cash
is reported separately as restricted cash in the accompanying
condensed consolidated balance sheets.

Inventories

Inventories include direct
materials, direct labor and manufacturing overhead costs and are recorded at the
lower of cost (first-in, first-out) or market and consist of the following:

`June 30,         December 31,
                                                                   2002               2001
                                                                 --------         ------------
                                                                        (In thousands)
      Raw materials                                              $  6,739            $ 15,836
      Work-in-process                                                 897               3,739
      Finished goods                                               24,700              32,256
      Inventory associated with estimated returns                   3,767               4,505
                                                                 --------            --------
                                                                 $ 36,103            $ 56,336
                                                                 ========            ========`

The Company evaluates the
carrying value of inventory on a quarterly basis to determine if the carrying
value is recoverable at estimated selling prices. The Company includes material
costs, manufacturing costs and direct selling expenses in its analysis of
inventory realization. To the extent that estimated selling prices do not exceed
such costs and expenses, valuation reserves are established against inventories.
In addition, the Company generally considers that inventory on hand or committed
with suppliers which is not expected to be sold within the next nine months is
excess and thus appropriate reserves are established through a charge to cost of
sales.

Fixed Asset Impairment

The carrying amounts of
fixed assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. Impairment is recognized when estimated expected future cash flows
(undiscounted and without interest charges) are less than the carrying amount of
the asset.

Fixed asset reserves are
established for those fixed assets that are considered impaired or if a
commitment has been made for the removal of a fixed asset. These reserves are
included with accumulated depreciation and amortization in the accompanying
condensed consolidated balance sheets.

Although the Company has
consolidated its manufacturing operations into its Penang, Malaysia facility
with the goal to increase manufacturing efficiencies, this facility is still
significantly underutilized. The Company is evaluating various alternatives to
resolve this underutilization and transition to a variable cost manufacturing
model, including divestment and outsourcing of its manufacturing operations. The
Company is currently in negotiations with a third party concerning the possible sale of
this facility, however, management has not committed to a plan. The
implementation of any strategy other than the current utilization of the facility would likely result
in charges associated with asset impairments and other transaction related
costs. The net book value of the Penang, Malaysia building and land as of June
30, 2002 was $21.4 million.

Other Current Liabilities

Other current liabilities consist of the following:

`June 30,          December 31,
                                                                          2002                2001
                                                                        ---------         ------------
                                                                                (In thousands)
      Accrued marketing (a)                                             $  26,365          $  36,608
      Accrued payroll, vacation and bonus                                  13,354             10,197
      Margin on deferred sales                                             11,687             13,813
      Accrued warranty                                                      8,995             10,856
      Accrued restructuring                                                 6,415             15,770
      Accrued litigation                                                    6,376              5,937
      Purchase commitments                                                  5,355             13,555
      Other accrued liabilities (b)                                        42,258             44,359
                                                                        ---------          ---------
                                                                        $ 120,805          $ 151,095
                                                                        =========          =========`

| | (a) Includes accruals for marketing development funds committed to the
Companys various channel partners, promotional accruals and advertising
accruals.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) Includes accruals for royalties, professional fees, self-insurance liabilities,
employee relocation costs, capital lease obligations, VAT, sales and other taxes
and other miscellaneous liabilities.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Net Income Per Common Share

Basic net income per common
share (Basic EPS) excludes dilution and is computed by dividing net
income by the weighted average number of common shares outstanding during the
period. Diluted net income per common share (Diluted EPS) reflects
the potential dilution that could occur if stock options or other contracts to
issue common stock were exercised or converted into common stock. The
computation of Diluted EPS does not assume exercise or conversion of securities
that would have an anti-dilutive effect on net income (loss) per common share.
In periods where losses are recorded, common stock equivalents would decrease
the loss per share and therefore are not added to the weighted average shares
outstanding.

Following is a
reconciliation of the numerator and denominator of Basic EPS to the numerator
and denominator of Diluted EPS for all periods presented:

`Net
                                                                 Income (Loss)            Shares       Per Share
                                                                  (Numerator)         (Denominator)      Amount
                                                                 -------------        -------------    --------
                                                                     (In thousands, except per share data)
         For the Quarter Ended:
         June 30, 2002:
         Basic EPS                                                 $  11,457              51,170        $  0.22
            Effect of options                                              -                 259              -
                                                                   ---------              ------        -------
         Diluted EPS                                               $  11,457              51,429        $  0.22
                                                                   =========              ======        =======

         July 1, 2001:
         Basic EPS                                                 $ (35,855)             54,042        $ (0.66)
            Effect of options                                              -                   -              -
                                                                   ---------              ------        -------
         Diluted EPS                                               $ (35,855)             54,042        $ (0.66)
                                                                   =========              ======        =======

         For the Six Months Ended:
         June 30, 2002:
         Basic EPS                                                 $  42,666              51,226        $  0.83
            Effect of options                                              -                 181              -
                                                                   ---------              ------        -------
         Diluted EPS                                               $  42,666              51,407        $  0.83
                                                                   =========              ======        =======

         July 1, 2001:
         Basic EPS                                                 $ (26,023)             54,037        $ (0.48)
            Effect of options                                              -                   -              -
                                                                   ---------              ------        -------
         Diluted EPS                                               $ (26,023)             54,037        $ (0.48)
                                                                   =========              ======        =======`

For the quarters ended June
30, 2002 and July 1, 2001, there were outstanding options to purchase 1,648,838
and 2,159,483 shares, respectively, that had an exercise price greater than the
average market price of the common shares for the respective quarters.
Therefore, these shares would have had an anti-dilutive effect on EPS.

For the six months ended
June 30, 2002 and July 1, 2001, there were outstanding options to purchase
1,650,506 and 2,036,336 shares, respectively, that had an exercise price greater
than the average market price of the common shares for the respective six
months. Therefore, these shares would have had an anti-dilutive effect on EPS.

Venture Investment

During the first quarter of
2002, the Company wrote off $0.5 million of a venture investment and during the
second quarter, the Company wrote off the remaining $1.0 million carrying value
related to this venture investment based on the continued deterioration of its
financial position. These write-offs are included in interest and other
expense in the accompanying condensed consolidated statements of
operations. This asset was included in other assets in the
accompanying condensed consolidated balance sheets and was accounted for under
the cost method as the Company does not have the ability to exercise significant
influence over operations. The objective of this venture investment was the
potential collaboration in the development of optical technologies.

Recent Accounting Pronouncements

In August 2001, the FASB
issued Statement of Financial Accounting Standards No. 143, Accounting for
Asset Retirement Obligations (SFAS 143). SFAS 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS 143 applies to all entities. It applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and (or) the normal operation of a
long-lived asset, except for certain obligations of lessees. SFAS 143 requires
that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. SFAS 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002. The
Company plans on adopting SFAS 143 beginning on January 1, 2003. The Company
believes that SFAS 143 will not have a material effect on the Companys
results of operations, financial position or liquidity.

In July 2002, the FASB
issued Statement of Financial Accounting Standards No. 146, Accounting for
Costs Associated with Exit or Disposal Activities (SFAS 146).
SFAS 146 addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force
(EITF) issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit and Activity (including
Certain Costs Incurred in a Restructuring) (EITF 94-3). SFAS
146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF 94-3, a
liability for an exit cost was recognized at the date of an entitys
commitment to an exit plan. A fundamental conclusion reached by the FASB in SFAS
146 is that an entitys commitment to a plan, by itself, does not create an
obligation that meets the definition of a liability. Therefore, SFAS 146
eliminates the definition and requirements for recognition of exit costs in EITF
94-3. SFAS 146 also establishes that fair value is the objective for initial
measurement of the liability. SFAS 146 is effective for exit or disposal
activities that are initiated after December 31, 2002, with early adoption
encouraged. The Company believes that SFAS 146 will not have a material effect
on the Companys results of operations, financial position or liquidity.

Reclassifications

Certain  reclassifications  were made to the prior periods' unaudited,  condensed consolidated financial statements
and notes to condensed consolidated financial statements to conform to the current period presentation.

## (2)     
Income Taxes

For the quarter ended June
30, 2002, the Company recorded an income tax provision of $6.3 million on
pre-tax income of $17.8 million which reflected an income tax provision of $7.0
million partially offset by a $0.7 million decrease in the valuation allowance
for net deferred tax assets. Excluding the $0.7 million decrease in the
valuation allowance, the effective tax rate for the second quarter of 2002 was
39.3%. This compares to an income tax benefit of $22.3 million on a pre-tax loss
of $58.2 million, or a 38.3% effective tax rate, for the second quarter of 2001.

Deferred tax assets and
liabilities are determined based on the differences between the financial
reporting and tax bases of assets and liabilities. They are measured by applying
the enacted tax rates and laws in effect for the years in which such differences
are expected to reverse. The significant components of the Companys
deferred tax assets and liabilities are as follows:

`June 30,         December 31,
                                                                      2002               2001
                                                                   ---------         ------------
                                                                          (In thousands)
      Deferred Tax Assets:
      Current Deferred Tax Assets:
         Trade receivable reserves                                 $  15,417          $  19,099
         Inventory reserves                                            3,235              6,498
         Accrued expense reserves                                     17,064             28,043
         Other                                                           108                191
                                                                   ---------          ---------
      Total current deferred tax assets                               35,824             53,831
                                                                   ---------          ---------

      Non-Current Deferred Tax Assets:
         Fixed asset reserves                                          2,296              4,729
         Tax credit carryforwards                                     17,667             13,100
         Accelerated depreciation/amortization                         2,318              2,307
         Foreign net operating loss carryforwards                     15,171             15,956
         U.S. net operating loss carryforwards                        33,188             37,233
         Other                                                           789                250
                                                                   ---------          ---------
      Total non-current deferred tax assets                           71,429             73,575
                                                                   ---------          ---------
      Total deferred tax assets                                      107,253            127,406
                                                                   ---------          ---------

      Non-Current Deferred Tax Liabilities:
         Tax on unremitted foreign earnings                          (60,111)           (50,006)
         Nomai goodwill and intangible asset                          (5,075)            (5,159)
                                                                   ---------          ---------
            Total non-current deferred tax liabilities               (65,186)           (55,165)
                                                                   ---------          ---------
      Current valuation allowance                                     (5,053)           (13,853)
      Non-current valuation allowance                                (23,106)           (30,784)
                                                                   ---------          ---------
         Net deferred tax assets                                   $  13,908          $  27,604
                                                                   =========          =========

      As Reported on the Balance Sheet:
         Current deferred tax assets                               $  30,771          $  39,978
                                                                   =========          =========
         Non-current deferred tax liabilities                      $ (16,863)         $ (12,374)
                                                                   =========          =========`

The realizability of the
deferred tax assets is evaluated quarterly in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes,
which requires that a valuation allowance be established when there is
significant uncertainty as to the realizability of the deferred tax assets.

At June 30, 2002, the
Company had $33.2 million of deferred tax assets related to U.S. federal and
state net operating loss carryforwards, which reflected a tax benefit of
approximately $85 million in future U.S. tax deductions. The U.S. federal net
operating loss carryforwards expire at various dates beginning in 2022 and the
state net operating loss carryforwards expire at various dates beginning in
2004.

The Company continues to
maintain a full valuation allowance of $15.2 million for deferred tax assets
related to foreign net operating loss carryforwards, which reflected the tax
benefit of approximately $35 million in future foreign tax deductions. These
carryforwards expire at various dates beginning in 2004. These deferred tax
assets remain fully reserved because their realization is dependent on earning
future foreign taxable income in the tax jurisdictions to which the net
operating loss carryforwards related. The largest of these foreign net operating
loss carryforwards relates to the Companys French subsidiary, Nomai S.A.
This subsidiarys operations have been shut down and therefore, the foreign
net operating loss carryforward related to Nomai S.A. is not likely to be
realized in the future.

Net deferred tax assets for
the Company at June 30, 2002 were $13.9 million. The minimum amount of future
taxable income that would have to be generated to realize the net deferred tax
assets is approximately $36 million. Management believes that the Companys
continued efforts to reduce costs to be more in line with expected sales will
allow the Company to generate sufficient future taxable income to realize its
net deferred tax assets. As such, management believes that it is more likely
than not that the net deferred tax assets will be realized. However, actual
results could differ from those estimates in the near future and therefore,
realization of the net deferred tax assets is not assured.

As of June 30, 2002,  deferred tax  liabilities  for estimated  U.S.  federal and state taxes of $60.1 million have
been accrued on unremitted  foreign  earnings of $154.1  million.  U.S. taxes have not been provided for unremitted
foreign  earnings  of $112.3  million.  These  earnings  are  considered  to be  permanently  invested  in non-U.S.
operations, primarily in the Company's manufacturing operations in Penang, Malaysia.

Although the Company has
consolidated its manufacturing operations into its Penang, Malaysia facility to
increase manufacturing efficiencies, this facility is still significantly
underutilized. The Company is evaluating various alternatives to resolve this
underutilization, including divestment and outsourcing of its manufacturing
operations. The Company is currently in negotiations with a third party
concerning the possible sale of this facility, however, management has not committed to a plan.
If a decision is made to divest of the manufacturing operations in
Penang, it is likely to result in future charges and could affect the status of
the Companys $112.3 million of permanently invested foreign earnings. The
additional unrecorded deferred U.S. tax liability and increased tax provision,
if such amounts were no longer considered permanently invested, would be
approximately $44 million. No cash impact would be incurred unless the cash was
repatriated.

For the six months ended
June 30, 2002, the Company recorded an income tax provision of $1.7 million on
pre-tax income of $44.4 million which reflected an income tax provision of $18.2
million partially offset by a $16.5 million decrease in the valuation allowance
for net deferred tax assets. Excluding the $16.5 million decrease in the
valuation allowance, the effective tax rate for the six months ended June 30,
2002 was 41.0%. This compares to an income tax benefit of $16.0 million on a
pre-tax loss of $42.0 million which reflected an income tax benefit of $16.4
million partially offset by a $0.4 million increase in the valuation allowance
for foreign net deferred tax assets for the six months ended July 1, 2001.
Excluding the $0.4 million increase in the valuation allowance for foreign net
deferred tax assets, the effective tax benefit for the six months ended July 1,
2001 was 39.0%. The increase in the effective tax rate, excluding adjustments to
the valuation allowances, from 39.0% in the first six months of 2001 to 41.0% in
the first six months of 2002 resulted primarily from the expiration of foreign
tax credits due to the carryback of the 2001 net operating loss to 1996, allowed
by the Job Creation and Worker Assistance Act of 2002.

The $16.5 million decrease
in the valuation allowance for net deferred tax assets during the six months
ended June 30, 2002, resulted primarily from a reduction in net deferred tax
assets associated with net operating loss carryforwards. This reduction was
primarily in response to the passage of the Job Creation and Worker Assistance
Act of 2002, which allows for a 5-year carryback and utilization of a portion of
the Companys 2001 tax net operating loss.

## (3)     
Business Segment Information

The accounting policies of
the segments are the same as those described in Note 1 Significant
Accounting Policies. Intersegment sales, eliminated in consolidation, are
not material. The Company evaluates performance based on product profit margin
(PPM) for each segment. PPM is defined as sales and other income
directly related to a segments operations, less both fixed and variable
manufacturing costs, research and development expenses, selling, general and
administrative expenses and amortization of intangibles directly related to a
segments operations. When such costs and expenses exceed sales and other
income, PPM is referred to as product loss. The expenses attributable to
corporate activity are not allocated to the operating segments.

The Company has five
reportable segments based primarily on the nature of the Companys
customers and products: Zip, CD-RW, Jaz, PocketZip and Other (Jaz, PocketZip and
some of the Other products have been discontinued, see below for more
information). The Zip segment involves the development, manufacture,
distribution and sales of personal storage products and applications, including
Zip disk and drive systems to retailers, distributors, resellers and OEMs throughout the
world. The Companys CD-RW segment involves the distribution and sales of
CD-RW drives to retailers, distributors and resellers throughout the world. The
Jaz segment involved the development, manufacture, distribution and sales of
professional storage products and applications, including Jaz disk and drive
systems to resellers, distributors and retailers throughout the world. The
PocketZip segment involved the development, manufacture, distribution and sales
of PocketZip drives and disks for use with portable digital products such as
digital cameras, audio players, handheld personal computers and notebook
computers to retailers, distributors and resellers throughout the world.

The Other
segment includes: Peerless drive systems, which began shipping during the second
quarter of 2001; FotoShow digital image centers (previously shown in the second
quarter and the first six months of 2001 as a part of the Zip segment); sourced
products such as portable and external Hard Disk Drives (HDD), which
began shipping during the second quarter of 2002, network attached storage
(NAS), Iomega Microdrive miniature hard drives, Iomega
CompactFlashand Iomega SmartMedia memory cards; Iomega software
products such as Lifeworks, Hotburn and Iomega QuikSync software; and other
miscellaneous items.

During 2002, the Company
discontinued the Jaz drive and PocketZip product line, including HipZip, which
was being reported in the PocketZip segment. Under the Other
category, the Company discontinued FotoShow, Microdrive, CompactFlash and
SmartMedia. During 2002, the Company plans to continue to sell disks for Jaz and
PocketZip products to support the installed drive base of these products.

The information in the
following table was derived directly from the segments internal financial
information used for corporate management purposes (all Zip and Other segment
amounts have been restated to show the current classification of FotoShow in
Other). The information for the second quarter and first six months of 2001 have
been restated to show the effects of EITF 00-25 which requires, retroactively,
certain consumer and trade sales promotion expenses to be shown as a reduction
of sales. The amount of this reclassification resulted in a reduction to sales
and a corresponding decrease in selling, general and administrative expenses of
$0.4 million and $1.5 million for the second quarter of 2001 and the first six
months of 2001, respectively, with no impact on PPM.

## Reportable
Operating Segment Information:

`For the Quarter Ended              For the Six Months Ended
                                                   ---------------------------          ---------------------------
                                                   June 30,           July 1,           June 30,           July 1,
                                                     2002              2001               2002              2001
                                                   ---------         ---------          ---------         ---------
                                                          (In thousands)                       (In thousands)
Sales:
   Zip                                             $ 114,281         $ 143,434          $ 257,347         $ 346,508
   CD-RW                                              20,277            18,158             42,874            62,307
   Jaz                                                 3,239            13,275              9,112            39,784
   PocketZip                                            (107)            2,311                (88)            3,582
   Other                                               7,518             6,511             14,860             8,518
                                                   ---------         ---------          ---------         ---------
      Total sales                                  $ 145,208         $ 183,689          $ 324,105         $ 460,699
                                                   =========         =========          =========         =========

PPM (Product Loss) Before Charges/Reversals:
   Zip                                             $  40,484         $  34,809          $  97,796         $  90,094
   CD-RW                                              (1,106)          (11,006)            (1,037)          (16,910)
   Jaz                                                 1,007             2,502              2,951            12,165
   PocketZip                                            (415)           (5,098)               322           (13,151)
   Other                                              (2,594)           (7,664)            (7,494)          (14,435)
                                                   ---------         ---------          ---------         ---------
      Total PPM                                       37,376            13,543             92,538            57,763

Common Operating Expenses Without
   (Charges)/Reversals Allocated to PPM:
   General corporate expenses                        (23,153)          (28,713)           (51,933)          (62,005)
   Non-restructuring charges                               -           (45,986)                 -           (45,986)
   Restructuring (charges) reversals                   2,181            (1,086)             2,181            (1,086)
   Interest and other income, net                      1,365             4,068              1,581             9,329
                                                   ---------         ---------          ---------         ---------
      Income (loss) before income taxes            $  17,769         $ (58,174)         $  44,367         $ (41,985)
                                                   =========         =========          =========         =========`

`For the Quarter Ended              For the Six Months Ended
                                                   ---------------------------          ---------------------------
                                                   June 30,            July 1,          June 30,           July 1,
                                                     2002               2001              2002              2001
                                                   ---------         ---------          ---------        ----------
                                                          (In thousands)                       (In thousands)
Non-Restructuring Charges:
   Zip                                             $       -         $  (4,468)         $       -         $  (4,468)
   CD-RW                                                   -            (9,977)                 -            (9,977)
   PocketZip                                               -           (17,926)                 -           (17,926)
   Other                                                   -           (12,565)                 -           (12,565)
   Common                                                  -            (1,050)                 -            (1,050)
                                                   ---------         ---------          ---------         ---------
                                                   $       -         $ (45,986)         $       -         $ (45,986)
                                                   =========         =========          =========         =========

Restructuring (Charges)/Reversals:
   Common                                          $   2,181         $  (1,086)         $   2,181         $  (1,086)
                                                   ---------         ---------          ---------         ---------
                                                   $   2,181         $  (1,086)         $   2,181         $  (1,086)
                                                   =========         =========          =========         =========

PPM (Product Loss) After Charges/Reversals:
   Zip                                             $  40,484         $  30,341          $  97,796         $  85,626
   CD-RW                                              (1,106)          (20,983)            (1,037)          (26,887)
   Jaz                                                 1,007             2,502              2,951            12,165
   PocketZip                                            (415)          (23,024)               322           (31,077)
   Other                                              (2,594)          (20,229)            (7,494)          (27,000)
                                                   ---------         ---------          ---------         ---------
      Total PPM (Product Loss)                        37,376           (31,393)            92,538            12,827

Common Operating Expenses With (Charges)/Reversals
   Allocated to PPM (Product Loss):
   General corporate expenses                        (23,153)          (28,713)           (51,933)          (62,005)
   Non-restructuring charges                               -            (1,050)                 -            (1,050)
   Restructuring (charges)reversals                    2,181            (1,086)             2,181            (1,086)
   Interest and other income, net                      1,365             4,068              1,581             9,329
                                                   ---------         ---------          ---------         ---------
      Income (loss) before income taxes            $  17,769         $ (58,174)         $  44,367         $ (41,985)
                                                   =========         =========          =========         =========`

## (4)     
Restructuring Charges/Reversals

## Restructuring
Charges/Reversals

During 2001, the Company
recorded approximately $39.0 million in net pre-tax restructuring charges. These
charges were comprised of approximately $1.1 million related to restructuring
actions initiated during the second quarter of 2001, $33.1 million (net of a
$0.2 million fourth quarter reversal) related to restructuring actions initiated
during the third quarter of 2001 and $4.8 million related to restructuring
actions initiated during the fourth quarter of 2001. These restructuring charges
consisted of cash and non-cash charges of approximately $28 million and $11
million, respectively.

During the second quarter
of 2002, $0.6 million of fixed asset reserves associated with the third quarter
2001 restructuring actions were reversed and $1.6 million of contract
obligations associated with the 1999 restructuring actions were reversed. The
second quarter 2001 restructuring actions were completed at March 31, 2002. The
detail of each of these restructuring actions follows along with an update on
the current status of each of these actions as of June 30, 2002.

2001 Restructuring Actions

Third Quarter 2001

During the third quarter of
2001, the Company recorded pre-tax restructuring charges of $33.3 million. In
the fourth quarter of 2001, the Company recorded a net reversal of $0.2 million
with respect to the third quarter restructuring actions. The restructuring
charges in the third quarter of 2001 included $17.4 million associated with
exiting lease facilities, of which $9.8 million related to leasehold
improvements, furniture and information technology asset write-downs and $7.6
million was associated with lease termination costs, and $15.9 million related
to the reduction of 1,234 regular and temporary personnel worldwide, or
approximately 37% of the Companys worldwide workforce. During the fourth
quarter of 2001, the Company reversed $0.5 million related to lease termination
costs and recorded additional charges of $0.3 million related to severance and
benefits with respect to employees that were identified as part of the third
quarter 2001 restructuring actions but who were not notified of their
termination of employment until the fourth quarter of 2001. During the second
quarter of 2002, $0.6 million of furniture reserves associated with the
consolidation of the Companys North America facilities were reversed as a
result of the furniture being utilized in another facility.

Of the $33.3 million in
total third quarter 2001 restructuring charges, $27.9 million related to
restructuring activities within North America, $2.6 million for restructuring
activities within the Asia Pacific region (excluding Malaysia), $2.3 million for
restructuring activities within Europe and $0.5 million for restructuring
activities within Malaysia.

The North America
restructuring activities consisted of outsourcing the Companys
distribution center in North Carolina and terminating the related lease, closing
several sales offices in the United States and consolidating operations at the
Companys North America facilities (primarily Roy, Utah), all of which
resulted in a workforce reduction of 760 regular employees and temporary staff
across all business functions and across all levels of the organization. At
September 30, 2001, of the 760 individuals whose positions were identified for
termination in the third quarter, 193 individuals were scheduled to continue to
work on a transition basis through various identified dates ending no later than
December 31, 2001. Transition pay was not a part of the restructuring charges
but rather was reported in normal operations as incurred. In compliance with the
WARN Act, affected employees were given pay in lieu of a 60-day advance notice.
Pay in lieu of notice was paid on a continuous basis for a 60-day notice period
and separation payments were paid in lump sum at the end of the 60-day period or
after the last day of employment for transition employees. Separation pay was
based on years of service, job level and transition time, and included health
insurance continuance payments. This workforce reduction resulted in charges of
$12.7 million for severance and benefit costs. The North America restructuring
actions also resulted in charges of $8.9 million related to asset write-downs
(leasehold improvements, furniture and information technology assets) and $6.3
million related to lease termination costs. Lease termination costs are being
paid on their regular monthly rent payment schedule.

The Asia Pacific
restructuring activities consisted of the closure of several sales offices and
the transfer of certain inventory operations and finance activities from
Singapore to Malaysia, which resulted in a workforce reduction of 85 regular
employees and temporary staff across all business functions and across all
levels of the organization. At September 30, 2001, of the 85 individuals whose
positions were identified for termination in the third quarter, 12 individuals
were scheduled to continue to work on a transition basis through various
identified dates ending no later than December 31, 2001. This workforce
reduction resulted in charges of $0.8 million for severance and benefit costs.
The Asia Pacific restructuring actions also resulted in charges of $0.7 million
related to asset write-downs and $1.1 million related to lease termination
costs.

During the fourth quarter
of 2001, the 12 transition employees in the Asia Pacific region were notified
that their positions were being terminated, resulting in additional charges of
$0.3 million in the fourth quarter of 2001. These employees had been identified
for termination of employment at September 30, 2001. However, since the
employees had not been notified, the Company did not accrue the severance and
benefit costs associated with these individuals in the original third quarter
2001 restructuring charges. Additionally, in the fourth quarter of 2001, $0.7
million of lease termination accruals were reversed due to the Company
unexpectedly locating a tenant for one of the vacated facilities and being
released from future rent obligations. In light of prevailing poor economic
conditions, the Company had originally assumed it would not be able to locate
another tenant for the facility.

The Europe restructuring
activities consisted of the outsourcing of call center activities, closure of
several sales offices and consolidation of operations in Switzerland and the
Netherlands, which resulted in a workforce reduction of 94 regular employees and
temporary staff across all business functions and across all levels of the
organization. At September 30, 2001, of the 94 individuals whose positions were
identified for termination in the third quarter, 28 individuals continued to
work on a transition basis through June 30, 2002 to manage operations that were
outsourced effective July 1, 2002. This workforce reduction resulted in charges
of $1.9 million for severance and benefit costs. The Europe restructuring
actions also resulted in charges of $0.2 million related to asset write-downs
and $0.2 million related to lease termination costs.

During the fourth quarter
of 2001, it was determined that an additional $0.2 million was required for
Europe lease termination costs as a result of the Company not being able to
locate a new tenant in Ireland in the timeframe originally estimated in the
third quarter of 2001.

The Malaysia restructuring
activities consisted of a workforce reduction of 295 regular employees across
almost all business functions (the majority of which were direct labor
employees) at almost all levels of the organization. All of the 295 individuals
whose positions were identified for termination were dismissed in the third
quarter of 2001. This workforce reduction resulted in charges of $0.5 million
for severance and benefit costs, all of which were paid during the third quarter
of 2001.

As of June 30, 2002, the
Company had terminated the employment of all affected employees, except for one
employee offered a retention package through the fourth quarter of 2002 and
vacated all facilities in connection with the third quarter 2001 restructuring
actions. Since some other affected employees were offered retention packages
that extended into the second quarter of 2002, not all outplacement payments
were paid as of June 30, 2002. The remaining outplacement costs are expected to
be paid in the third quarter of 2002. The remaining severance and benefits are
expected to be paid in January 2003 for the one remaining employee. The
information technology assets and furniture included in the restructuring
activities have not been utilized since early in the fourth quarter of 2001 and
are expected to be completely disposed during the third quarter of 2002. As
previously disclosed, lease payments are being made on a continuous monthly
basis.

The third quarter 2001
restructuring charges originally totaled $33.3 million. Third quarter 2001
restructuring reserves in the amount of $4.7 million and $1.0 million were
included in the Companys other current liabilities and fixed asset
reserves, respectively, as of June 30, 2002. Utilization of the third quarter
2001 restructuring reserves during the quarter ended June 30, 2002 is summarized
below:

`Utilized
                                                            ------------------------------------
Third Quarter 2001                               Balance                                              Balance
Restructuring Actions                            3/31/02        Cash       Non-Cash    Reversals      6/30/02
----------------------                           -------    ----------     --------    ---------      -------
                                                                         (In thousands)

North America Reorganization:
     Severance and benefits (a)                  $   349    $   (133)      $    -       $    -        $   216
     Lease cancellations (a)                       4,992        (800)           -            -          4,192
     Leasehold improvements and
        furniture (b)                              1,862           -         (421)        (600)           841
     Information technology assets (b)               469           -         (414)           -             55
                                                 -------    --------       ------       ------        -------
                                                   7,672        (933)        (835)        (600)         5,304
                                                 -------    --------       ------       ------        -------

Asia Pacific Reorganization:
     Severance and benefits (a)                       73         (15)           -            -             58
     Lease cancellations (a)                          15           -            -            -             15
                                                 -------    --------       ------       ------        -------
                                                      88         (15)           -            -             73
                                                 -------    --------       ------       ------        -------

Europe Reorganization:
     Severance and benefits (a)                       54           -            -            -             54
     Lease cancellations (a)                         209         (93)           -            -            116
     Leasehold improvements and
        furniture (b)                                132           -            -            -            132
                                                 -------    --------       ------       ------        -------
                                                     395         (93)           -            -            302
                                                 -------    --------       ------       ------        -------
                                                 $ 8,155    $ (1,041)      $ (835)      $ (600)       $ 5,679
                                                 =======    ========       ======       ======        =======

Balance Sheet Breakout:
    Other current liabilities (a)                $ 5,692    $ (1,041)      $    -       $    -        $ 4,651
    Fixed asset reserves (b)                       2,463           -         (835)        (600)         1,028
                                                 -------    --------       ------       ------        -------
                                                 $ 8,155    $ (1,041)      $ (835)      $ (600)       $ 5,679
                                                 =======    ========       ======       ======        =======

(a)      Amounts represent primarily cash charges.
(b)      Amounts represent primarily non-cash charges.`

Utilization of the third
quarter 2001 restructuring reserves during the six months ended June 30, 2002 is
summarized below:

`Utilized
                                                            ------------------------------------
Third Quarter 2001                              Balance                                               Balance
Restructuring Actions                           12/31/01      Cash       Non-Cash      Reversals      6/30/02
----------------------                          --------    --------     --------      ---------      -------
                                                                    (In thousands)

North America Reorganization:
     Severance and benefits (a)                 $  2,194    $ (1,978)    $      -       $    -        $   216
     Lease cancellations (a)                       5,823      (1,631)           -            -          4,192
     Leasehold improvements and
        furniture (b)                              2,102           -         (661)        (600)           841
     Information technology assets (b)             1,216           -       (1,161)           -             55
                                                --------    --------     --------       ------        -------
                                                  11,335      (3,609)      (1,822)        (600)         5,304
                                                --------    --------     --------       ------        -------

Asia Pacific Reorganization:
     Severance and benefits (a)                       82         (24)           -            -             58
     Lease cancellations (a)                          68         (53)           -            -             15
                                                --------    ---------    --------       ------        -------
                                                     150         (77)           -            -             73
                                                --------    ---------    --------       ------        -------

Europe Reorganization:
     Severance and benefits (a)                      332        (278)           -            -             54
     Lease cancellations (a)                         390        (274)           -            -            116
     Leasehold improvements and
        furniture (b)                                235           -         (103)           -            132
     Information technology assets (b)                26           -          (26)           -              -
                                                --------    --------     --------       ------        -------
                                                     983        (552)        (129)           -            302
                                                --------    --------     --------       ------        -------
                                                $ 12,468    $ (4,238)    $ (1,951)      $ (600)       $ 5,679
                                                ========    ========     ========       ======        =======

Balance Sheet Breakout:
    Other current liabilities (a)               $  8,889    $ (4,238)    $      -       $    -        $ 4,651
    Fixed asset reserves (b)                       3,579           -       (1,951)        (600)         1,028
                                                --------    --------     --------       ------        -------
                                                $ 12,468    $ (4,238)    $ (1,951)      $ (600)       $ 5,679
                                                ========    ========     ========       ======        =======

(a)      Amounts represent primarily cash charges.
(b)      Amounts represent primarily non-cash charges.`

Fourth Quarter 2001

During the fourth quarter
of 2001, the Company recorded net pre-tax restructuring charges of $4.6 million,
comprised of $4.8 million in charges for restructuring actions initiated in the
fourth quarter of 2001 and a net reversal of $0.2 million in adjustments to the
third quarter restructuring charges (see section above entitled Third
Quarter 2001).

The fourth quarter 2001
restructuring charges of $4.8 million included $2.7 million associated with
exiting lease facilities, of which $1.7 million was for lease cancellation costs
and $1.0 million was for leasehold improvements, furniture and equipment, and
$2.1 million for severance and benefit costs associated with the reduction of
105 regular and temporary personnel in North America and Europe.

Of the $4.8 million in
fourth quarter 2001 charges, $1.5 million related to restructuring activities in
North America and $3.3 million related to restructuring activities in Europe.

The North America
restructuring activities consisted primarily of a workforce reduction of 79
individuals, primarily in the operations, and research and development
functions. The majority of the affected employees were located in Roy, Utah. The
employees were notified of the termination of their employment on December 18,
2001. Although the Company was not required to give notice under the WARN Act,
the employees whose employment was terminated were given pay in lieu of notice
through December 31, 2001. At December 31, 2001, of the 79 individuals whose
positions were identified for termination in the fourth quarter, 24 individuals
were to continue to work on a transition basis through various identified dates
ending no later than June 30, 2002, with one individual being extended into the
third quarter of 2002. Transition pay was not a part of the restructuring
charges but rather was reported in normal operations as incurred. Pay in lieu of
notice was paid on a continuous basis and separation payments were/or will be
paid in lump sum after the December 31, 2001 notice date or after the last day
of employment for transition employees. Separation pay was based on years of
service, job level and transition time, and included health insurance
continuance payments. This workforce reduction resulted in charges of $1.5
million for severance and benefit costs.

The restructuring
activities in Europe consisted of outsourcing its distribution and logistics,
resulting in severance and benefits costs of $0.6 million, lease cancellation
costs of $1.7 million and impaired leasehold improvements, excess furniture and
equipment of $1.0 million. The workforce reduction consisted of 26 employees,
primarily in operations. The affected employees were primarily located in the
Netherlands. The majority of the employees continued to work on transition until
March 31, 2002, when the outsourcing project was substantially completed. Two
individuals will work into the third quarter. Transition pay was not a part of
the restructuring charges but rather was reported in normal operations as
incurred. The lease was vacated in the second quarter of 2002. In addition,
leasehold improvements, furniture and equipment are anticipated to be completely
disposed of in the third quarter of 2002.

At June 30, 2002, the
Company had terminated the employment of all affected employees, except for the
three employees offered retention packages into the third quarter of 2002. The
severance and benefits reserves associated with the employees who were provided
retention packages are expected to be paid in the third quarter of 2002.
Remaining leasehold improvements, furniture and equipment are expected to be
disposed of in the third quarter of 2002. As previously disclosed, lease
payments are being made on a continuous monthly basis.

The fourth quarter 2001
restructuring charges originally totaled $4.8 million. Fourth quarter 2001
restructuring reserves in the amount of $0.3 million were included in the
Companys other current liabilities as of June 30, 2002. Utilization of the
fourth quarter 2001 restructuring reserves during the quarter ended June 30,
2002 is summarized below:

`Fourth Quarter 2001                               Balance                Utilized            Balance
                                                                   --------------------
Restructuring Actions                             3/31/02           Cash       Non-Cash      6/30/02
----------------------                            -------          ------      --------      -------
                                                                       (in thousands)
North America Reorganization:
     Severance and benefits (a)                   $   400          $ (124)      $    -         $ 276
                                                  -------          ------       ------         -----

Europe Reorganization:
     Severance and benefits (a)                       105             (72)           -            33
     Lease cancellations (a)                           67             (39)           -            28
     Leasehold improvements, furniture and
        equipment (b)                                 983               -         (967)           16
                                                  -------          ------       -------        -----
                                                    1,155            (111)        (967)           77
                                                  -------          ------       ------         -----
                                                  $ 1,555          $ (235)      $ (967)        $ 353
                                                  =======          ======       ======         =====

Balance Sheet Breakout:
    Other current liabilities (a)                 $   572          $ (235)      $    -         $ 337
    Fixed asset reserves (b)                          983               -         (967)           16
                                                  -------          ------       ------         -----
                                                  $ 1,555          $ (235)      $ (967)        $ 353
                                                  =======          ======       ======         =====

(a)      Amounts represent primarily cash charges.
(b)      Amounts represent primarily non-cash charges.`

Utilization of the fourth
quarter 2001 restructuring reserves during the six months ended June 30, 2002 is
summarized below:

`Fourth Quarter 2001                                 Balance             Utilized              Balance
                                                                 ----------------------
Restructuring Actions                              12/31/01        Cash        Non-Cash       6/30/02
----------------------                             --------      --------      --------       -------
                                                                    (in thousands)

North America Reorganization:
     Severance and benefits (a)                     $ 1,503      $ (1,227)      $    -         $ 276
                                                    -------      --------       ------         -----

Europe Reorganization:
     Severance and benefits (a)                         591          (558)           -            33
     Lease cancellations (a)                          1,698        (1,670)           -            28
     Leasehold improvements, furniture and
        equipment (b)                                   983             -         (967)           16
                                                    -------      --------       ------         -----
                                                      3,272        (2,228)        (967)           77
                                                    -------      --------       ------         -----
                                                    $ 4,775      $ (3,455)      $ (967)        $ 353
                                                    =======      ========       ======         =====

Balance Sheet Breakout:
    Other current liabilities (a)                   $ 3,792      $ (3,455)      $    -         $ 337
    Fixed asset reserves (b)                            983             -         (967)           16
                                                    -------      --------       -------        -----
                                                    $ 4,775      $ (3,455)      $ (967)        $ 353
                                                    =======      ========       ======         =====

     (a) Amounts represent primarily cash charges.
     (b) Amounts represent primarily non-cash charges.`

1999 Restructuring Actions

The Company recorded
pre-tax restructuring charges of $65.8 million (net of a $2.0 million reversal)
during 1999. As disclosed in the Annual Report on Form 10-K filed for the year
ended December 31, 2001, all reserves associated with the 1999 restructuring
actions have been utilized except for $3.0 million associated with
Companys cessation of manufacturing operations in France. This remaining
$3.0 million related to contract obligations that were being litigated. During
the second quarter of 2002, $1.6 million of these litigated contract obligations
were dismissed by the court and therefore were reversed. The Company is unable
to predict when the litigation relating to the remaining obligations will be
resolved. There can be no assurance that the settlement of these contract
obligations will not result in significant legal or other costs that have not
been accrued for in these restructuring charges.

Remaining 1999
restructuring reserves in the amount of $1.4 million were included in the
Companys balance sheet as of June 30, 2002 in other current liabilities.
There was no utilization of the reserves during the first quarter of 2002, thus
the second quarter and year-to-date utilizations are the same.

`Balance                       Utilized                     Balance
                                                                 ------------------------------------
     1999 Restructuring Actions                  3/31/02         Cash        Non-Cash      (Reversals)      6/30/02
  ---------------------------------              -------         ----        --------      -----------     --------
                                                                          (In thousands)
  France/Scotland Consolidation:
     Contract obligations (a)(b)                 $ 1,414         $  -        $    -          $      -       $ 1,414
                                                 -------         ----        ------          --------       -------

  Manufacturing Cessation -
     Avranches, France:
     Other commitments (a)                            16           (3)            -                 -            13
     Contract obligations (a)                      1,581            -             -            (1,581)            -
                                                 -------         ----        ------          --------       -------
                                                   1,597           (3)            -            (1,581)           13
                                                 -------         -----       ------          --------       -------
                                                 $ 3,011         $ (3)       $    -          $ (1,581)      $ 1,427
                                                 =======         ====        ======          ========       =======

  Balance Sheet Breakout:
      Other current liabilities (a)              $ 3,011         $ (3)       $    -          $ (1,581)      $ 1,427
                                                 =======         ====        ======          ========       =======

   (a) Amounts represent primarily cash charges.
   (b) Amounts relate to commitments associated with manufacturing of floppy drives.`

## (5)     
Commitments and Contingencies

## Litigation

Except as set forth below,
in managements opinion, there are no significant legal proceedings to
which the Company or any of its subsidiaries is a party or to which any of their
property is subject. The Company is involved in other lawsuits and claims
generally incidental to its business. It is the opinion of management, after
discussions with legal counsel, that the ultimate dispositions of the lawsuits
and claims discussed below will not have a material adverse effect on the
Companys financial position or results of operations, except that, as
indicated below, the settlement of, or adverse judgment with respect, to certain
of these lawsuits could have a material adverse effect on the operating results
reported by the Company for the period in which any such adverse judgment occurs
or settlement occurs or is implemented.

As previously disclosed in
the Companys Annual Report on Form 10-K for the year ended December 31,
2001 and in the Companys Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002, on September 10, 1998, a purported class action lawsuit,
Rinaldi, et al. v. Iomega Corporation, was filed against the Company in
the Superior Court of Delaware, New Castle County. Effective June 10, 2002, this
Delaware lawsuit was fully settled. The Delaware lawsuit alleged that a defect
in the Companys Zip drives caused an abnormal clicking noise that may have
indicated damage to the Zip drive or disks. The plaintiffs sought relief
pursuant to claims of breach of warranty, violation of the Delaware Consumer
Fraud Act, negligent design and manufacture and failure to warn. On September 3,
1999, the Court dismissed the claims of breach of warranty and violation of the
Consumer Fraud Act, granting the plaintiffs the opportunity to amend the latter
claim. On January 31, 2000, the plaintiffs filed an amended complaint,
reasserting their claim under the Delaware Consumer Fraud Act and; on February
28, 2000, the Company moved to dismiss this amended claim. In connection with
the same matter, on February 28, 2000, two of the plaintiffs served the Company
with a Notice of Claim under Section 17.46(b) of the Texas Deceptive
Trade Practices Act, asserting allegations similar to those made in connection
with the plaintiffs Delaware Consumer Fraud Act claim (the Texas
Claim). The Texas Claim purported to be on behalf of the two plaintiffs
and a class of other consumers similarly situated in the State of Texas. It
demanded relief of $150 for each Zip drive purchased by a class member, $100 for
mental anguish damages to each class member and attorneys fees and costs.
Formal litigation in connection with the Texas Claim was never commenced and was
resolved as part of the final settlement. On March 19, 2001, the parties in the
Delaware lawsuit submitted to the Delaware Superior Court a request for
certification of the class and approval of a settlement of the class action. On
June 29, 2001, the Court issued an order approving the settlement. However, an
objector to the settlement appealed the settlement to the Supreme Court of the
State of Delaware. On January 15, 2002, that Court remanded the matter for
further proceedings in the Delaware Superior Court, so that the Superior Court
could make additional findings and address additional questions concerning the
proposed settlement. Subsequently, the Company, the lawyers for the
plaintiffs and the objector reached agreement on a modified settlement;
and as a result of this revised settlement agreement, the objector requested the
termination of his appeal. The Delaware Supreme Court granted that request,
dismissing the appeal on April 16, 2002. On May 8, 2002, the Superior Court
issued an order approving the settlement and that approval became final on June
10, 2002.

The settlement, the
material terms of which are described in this paragraph, will take months to
fully implement. Under the settlement, class members who have not opted out of
the settlement will release the Company from all claims that were or which could
have been raised in the litigation. For its part, the Company will issue rebates
ranging between $5 and $40 to class members who submit a proof of claim. The
rebates will remain available for six months and will be valid for the purchase
of certain Zip, Peerless, CD-RW and PocketZip products. The level of the rebate
will depend on whether the class members Zip drive manifested a clicking
problem. In addition, the Company may offer a secondary rebate of $4 to $15 on
Zip disks to those class members who make a qualified purchase under the initial
rebate program; this would be available if certain conditions in the settlement
are met. In addition, the Company may offer an additional discount for a 60-day
period for purchases of packs of five or more Zip disks. The exact amount of
this additional discount will be computed based upon the number of class members
submitting proofs of claims. The Company agreed, in the proposed settlement, to
allow class members an additional 30-day period to submit proof of claim forms;
that period began on June 19, 2002. The Company is also providing dedicated
technical assistance personnel to address, free of charge, customer inquiries
regarding alleged clicking Zip drives. It will also make a charitable donation
of Zip drives and related software, disks and services, with a total retail
value of $1.0 million. Finally, the Company agreed to pay $4.1 million for the
plaintiffs attorneys fees and will reimburse certain costs of
notifying class members about the settlement. The Company funded $4.1 million
into an escrow account in 2001 and these funds have been transferred to the
plaintiffs. The accompanying financial statements reflect accruals for the
charitable donations. The settlement is not to be construed as a finding of any
liability on the Companys part.

As previously disclosed in
the Companys Annual Report on Form 10-K for the year ended December 31,
2001 and in the Companys Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002, on June 15, 1999, a patent infringement lawsuit,
Valitek, Inc. v. Iomega Corporation, was filed against the Company in the
United States District Court for the Eastern District of Pennsylvania;
subsequently, upon Iomegas motion, the case was transferred to U.S.
District Court for the District of Utah, Northern Division. Valitek alleged that
the Companys sale of the parallel port version of the Zip and Jaz drives
infringed a Valitek patent. The complaint requested injunctive relief against
the Company, as well as monetary damages. The plaintiff had asserted damages of
approximately $40 million and further asserted willful infringement in order to
seek treble damages. In May 2002, a confidential settlement of this matter was
negotiated. Iomega received an assignment of the patent at issue and the
allegations of infringement were denied. Litigation settlement expenses recorded
in the first and second quarters of 2002, adequately covered this settlement.

As previously disclosed in
the Companys Annual Report on Form 10-K for the year ended December 31,
2001 and in the Companys Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002, on March 23, 2001, the Company initiated litigation
against Advanced Mass Memories, formerly named Albi Media Manufacturing, SARL
(AMM) in the Tribunal de Grande Instance de Paris for infringing
certain Iomega patents and patent applications in connection with AMMs
production and sale of the Swap 100MB disk, a cartridge that AMM claims can be
used with certain of the Companys Zip drives. The complaint requests
monetary damages and other relief against further infringement by AMM. On May
10, 2001, the Company filed a motion for a preliminary injunction against AMM,
which was granted on July 24, 2001, thus restraining AMM from further
manufacturing or commercialization of the Swap 100MB disk. In August 2001, AMM
appealed against the injunction and moved to stay enforcement of the injunction.
On September 17, 2001, AMM filed for bankruptcy protection, while continuing its
appeal. On October 31, 2001, the Paris Appeals Court denied AMMs appeal
and ruled that the injunction shall remain in effect while the underlying
infringement case continues on the merits. The Company intends to vigorously
pursue these claims and to continue the protection of the Companys
intellectual property.

Nomai/AMM Litigation

Nomai S.A.
(Nomai) is a French subsidiary of the Company that was acquired
during the third quarter of 1998. As previously disclosed in the Companys
Annual Report on Form 10-K for the year ended December 31, 2001 and in the
Companys Quarterly Report on Form 10-Q for the quarter ended March 31,
2002, Nomai is currently engaged in several litigation matters that revolve
around (1) Nomais acquisition of certain assets of RPS Media S.A. in
bankruptcy in 1997 and its organization of AMM as a subsidiary to operate such
assets and (2) Nomais subsequent disposition of AMM in September 1999.

On February 18, 2000, the
bankruptcy trustee for RPS Media, S.A. filed a complaint against Nomai. The
trustee claimed that Nomai has not complied with the alleged investment and
employment related commitments made by Nomais former management before the
Commercial Court of Albi, France in connection with Nomais acquisition
during 1997 of certain assets of RPS Media, S.A. in bankruptcy. The action
sought a daily penalty against Nomai of FF 100,000 (approximately $15,100) until
Nomai invests FF 48 million (approximately $7.3 million) and hires 100 people.
On April 18, 2000, the Commercial Court declined, on jurisdictional grounds, to
issue a summary judgment ruling in favor of the trustee. On February 16, 2001,
the trustee filed a new complaint with the Commercial Court, again asking that
the Court order AMM and Nomai to comply with the alleged employment and
investment commitments set forth in the bankruptcy plan or to fine AMM and Nomai
FF 100,000 (approximately $15,100) for each day of noncompliance. On November
23, 2001, the Court ordered Nomai to proceed with the required investments and
to put in place the technical and human means to which it is engaged, subject to
a daily penalty of FF 50,000 (approximately $7,600) for non-compliance. The
Toulouse Court of Appeals issued its ruling on May 2, 2002, upholding the Albi
Court ruling. Nomai filed a notice of appeal of the Toulouse Court of Appeals
ruling to the French Cour de Cassation on June 10, 2002. The trustee has not yet
acted to enforce the daily penalty and it is therefore not yet accumulating,
although this could be enforced in the future and could be made retroactive back
to December 2001.

On May 30, 2001, AMM filed
a lawsuit against Iomega International and Iomega Corporation, before the
Tribunal de Commerce of Albi, claiming that Iomega International and Iomega
Corporation jointly committed fraudulent acts against AMM and that, as a result,
AMM suffered damages of FRF 129 million (approximately USD $ 19.5 million). This
case was subsequently consolidated with the case by the AMM trustee mentioned
immediately above. Iomega International and Iomega Corporation intend to
vigorously defend against these allegations.

On May 18, 2000, Conseil
& Technique, Soterem and IDCC (the plaintiffs) (parties involved
with AMM in a research project called Magic) filed a lawsuit before
the Tribunal de Commerce of Toulouse, France against AMM. Nomai is obligated to
indemnify for and defend against the lawsuit under the agreement whereby Nomai
divested its ownership of AMM to Alain Bouttier. The plaintiffs allege breach of
contract and other claims relating to the Magic project and were seeking damages
of approximately FF 75 million (approximately $11.3 million). On May 15, 2001,
the Court consolidated this lawsuit with the second Magic project lawsuit
referenced immediately below. On June 17, 2002, the Court dismissed the entire,
consolidated lawsuit, without prejudice, due to the failure of the plaintiffs to
diligently pursue the case.The plaintiffs may re-file the case during
the following two years.

In addition, on March 29,
2001, Conseil & Technique filed a second lawsuit before the same court
relating to the Magic project. This second lawsuit was against Iomega
International and Nomai. Conseil & Technique claims that Nomai and Iomega
International sabotaged the Magic project and interfered with AMMs
performance of the agreements underlying the Magic project. The lawsuit asked
the court to recognize Conseil & Technique as the owner of the intellectual
property rights in the Magic project and asked for damages against Nomai and/or
Iomega International totaling approximately FF 8 million (approximately $1.2
million). This action, since it was consolidated with the other Magic action,
was also dismissed, without prejudice, on June 17, 2002, but could be re-filed
during the next two years. Nomai and Iomega International deny liability and
intend to vigorously defend, if the Magic cases are ever re-filed.

Although the Company does
not expect the Nomai/AMM litigation described above to have a material adverse
effect on the Companys ongoing business, results of operations or
financial condition, an adverse judgment or settlement of these claims could
have a material adverse effect on the operating results reported by the Company
for the period in which any such adverse judgment or settlement occurs (or is
implemented).

## (6)     Other
Matters

Goodwill and Other Intangible Assets

The Company adopted
Statement of Financial Accounting Standards No. 142, Accounting for
Goodwill and Intangible Assets (SFAS 142), on January 1, 2002.
Under SFAS 142, goodwill is no longer amortized but rather is tested for
impairment at least annually at the reporting unit level. The Company performed
the impairment test required under SFAS 142 in the first quarter of 2002 and
determined that the Companys goodwill, all of which is associated with the
Zip product line, was not impaired.

As a result of the
implementation of SFAS 142, the Company did not record goodwill amortization
expense in the second quarter of 2002, whereas the Company had recorded pre-tax
goodwill amortization expense of $0.9 million in the second quarter of 2001.
Without this goodwill amortization, pro forma net loss for the second quarter of
2001 would have been $35.3 million, an increase of $0.6 million over the
reported net loss of $35.9 million and pro forma earnings per share would have
been a loss of $0.65 per share, an increase of $0.01 per share over the reported
loss of $0.66 per share.

For the first six months of
2001, the Company recorded pre-tax goodwill amortization expense of $1.9
million. Without this goodwill amortization, pro forma net loss for the first
six months of 2001 would have been $24.9 million, an increase of $1.1 million
over the reported net loss of $26.0 million and pro forma earnings per share
would have been a loss of $0.46 per share, an increase of $0.02 per share over
the reported loss of $0.48 per share.

At June 30, 2002, the
Company had $8.1 million in net intangible assets, all of which are subject to
amortization. The Companys intangible assets all relate to intellectual
property. Intangible assets are amortized using the straight-line method over
the estimated useful life of the asset, subject to periodic review for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. During the quarter ended
June 30, 2002, amortization expense was $0.7 million. Amortization expense for
the first six months of 2002 was $1.6 million. Amortization expense for each of
the next five fiscal years is anticipated to be approximately $3 million in
2002, $2 million in 2003, $2 million in 2004, $2 million in 2005 and $0.5
million in 2006. As of June 30, 2002, the weighted average useful live of the
Companys intangible assets is approximately 4 1/4 years. At June 30, 2002,
the gross value and accumulated amortization of the Companys intangible
assets were $13.0 million and $4.8 million, respectively. At December 31, 2001,
the gross value and accumulated amortization of the Companys intangible
assets were $20.5 million and $10.7 million, respectively. The change in gross
values of intangible assets between December 31, 2001 and June 30, 2002,
resulted from $7.5 million in intellectual property that was fully amortized and
removed from the books during the first quarter of 2002.

Significant Customers

During the quarter ended
June 30, 2002, sales to Ingram Micro, Inc. accounted for 16.1% of consolidated
sales. Ingram Micro, Inc. and Dell Computer Corporation accounted for 16.3% and
10.3% of consolidated sales, respectively, for the quarter ended July 1, 2001.
No other single customer accounted for more than 10% of consolidated sales for
these periods.

During  the six months  ended June 30,  2002,  sales to Ingram  Micro,  Inc.  accounted  for 17.3% of  consolidated
sales.  Ingram Micro,  Inc.,  accounted for 14.7%, of consolidated  sales for the six months ended July 1, 2001. No
other single customer accounted for more than 10% of consolidated sales for these periods.

Forward Exchange Contracts

The Company is exposed to
various foreign currency exchange rate risks that arise in the normal course of
business. The Companys functional currency is the U.S. dollar. The Company
has international operations resulting in receipts and payments in currencies
that differ from the functional currency of the Company. The Company attempts to
reduce foreign currency exchange rate risks by utilizing financial instruments,
including derivative transactions pursuant to Company policies. The Company uses
forward contracts to hedge those net assets and liabilities that, when
remeasured according to accounting principles generally accepted in the United
States of America, impact the condensed consolidated statement of operations.
All forward contracts entered into by the Company are components of hedging
programs and are entered into for the sole purpose of hedging an existing or
anticipated currency exposure, not for speculation or trading purposes.
Currently, the Company is using forward contracts only to hedge balance sheet
exposure. The contracts are primarily in European currencies and the Singapore
dollar. The Company enters into contracts throughout the month as necessary.
These contracts normally have maturities that do not exceed 5 weeks.

When hedging balance sheet
exposure, all gains and losses on forward contracts are recognized in other
income and expense in the same period as the gains and losses on remeasurement
of the foreign currency denominated assets and liabilities occur. All gains and
losses related to foreign exchange contracts are included in cash flows from
operating activities in the condensed consolidated statement of cash flows.

At June 30, 2002,
outstanding forward exchange buy/(sell) contracts, which all mature in August
2002, were as follows (rates are quoted as United States dollar per other
currency unit):

`Contracted
                                                                          Forward                Spot
                                                Amount                      Rate                 Rate
                                             -----------                 ----------             ------

      Australian Dollar                          250,000                   1.7986               1.7746
      British Pound                             (800,000)                   .6556                .6529
      European Currency Unit                 (51,500,000)                  1.0174               1.0089
      Singapore Dollar                           475,000                   1.7671               1.7674
      Swiss Franc                              1,300,000                   1.4918               1.4818`

The contracts are revalued
at the month-end spot rate. The Companys theoretical risk in these
transactions is the cost of replacing, at current market rates, these contracts
in the event of default by the counterparty.

# IOMEGA
CORPORATION

# ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:

## Reverse Stock
Split

On September 28, 2001, the
Companys shareholders approved a one-for-five reverse stock split
(reverse stock split) of the Companys outstanding Common
Stock. The reverse stock split was effected after the market close on September
28, 2001. All per share amounts and outstanding shares have been retroactively
restated in the condensed consolidated statements of operations and notes to
condensed consolidated financial statements for all periods presented to reflect
the reverse stock split.

## EITF 00-25
Reclassification

The Company adopted
Emerging Issues Task Force (EITF) Issue No. 00-25, Vendor
Income Statement Characterization of Consideration Paid to a Reseller of the
Vendors Products (EITF 00-25), on January 1, 2002. This
issue concluded that under specific circumstances, certain consumer and trade
sales promotion expenses are presumed to be a reduction of the selling prices of
the vendors products and therefore, should be characterized as a reduction
of sales when recognized in the vendors income statement. Reclassification
of prior period financial statements is required if practical. The adoption of
this pronouncement resulted in a reduction to sales and a corresponding decrease
in selling, general and administrative expenses of $0.4 million for the second
quarter of 2001 and $1.5 million for the first six months of 2001. The adoption
of EITF 00-25 had no impact on operating income, net income or earnings per
share.

## Critical
Accounting Policies

The Companys
discussion and analysis of its financial condition and results of operations are
based upon the Companys condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
sales and expenses during the reporting periods. Areas where significant
judgments are made include, but are not limited to: revenue recognition, price
protection and volume rebate reserves, marketing programs, allowance for
doubtful accounts, inventory valuation, fixed asset and intangible impairment,
litigation accruals, warranty costs and deferred income tax asset valuation
allowances. Actual results could differ materially from these estimates. For a
more detailed explanation of the judgments included in these areas, refer to the
Companys Annual Report on Form 10-K for the year ended December 31, 2001
(except for marketing programs and litigation accruals which are discussed
below).

Marketing Programs

The Company has entered
into contracts with many of the Companys distribution and retail customers
whereby the customer is allowed to use a set percentage of its purchases of the
Companys products to use for various marketing purposes. The Company also
contracts with various third parties to support these customer programs. The
Company accrues for the estimated cost of these marketing programs with the
customers and third parties in accordance with the contractual percentage of
product sold to the respective customer and the estimated support costs during
the period that the product is sold or the period that the support cost is
incurred. When the Company accrues for these marketing costs, the Company
estimates the portions of the planned marketing programs to be recorded as a reduction in
revenue or as operating expense, respectively, in accordance with EITF 00-25. During the period,
the customer and Company develop and approve specific marketing programs to
utilize the above funds. On a quarterly basis, the Company evaluates the
adequacy of these marketing accruals to cover known marketing programs that the
Company has agreed to pay and/or share costs with the customer. In addition, the
Company evaluates the specific programs upon completion to determine the proper
classification in accordance with EITF 00-25. At June 30, 2002, these accrued
marketing costs totaled $26.4 million, compared to $36.6 million at December 31,
2001.

Litigation Accruals

The Company accrues for
litigation contingencies when it is probable that a legal loss will be incurred
and the amount of the loss can be reasonably estimated. Analysis and legal
judgment are used in determining the probability of a payment in a specific
legal case as well as the amount that the Company may be required to pay, or may
agree to pay in order to settle litigation. Accruals for specific legal cases
are reviewed and adjusted as events warrant. The amount accrued for worldwide
litigation totaled $6.4 million and $6.0 million at June 30, 2002 and December
31, 2001, respectively. The amount accrued at June 30, 2002 was primarily
related to the Valitek litigation, as discussed in Note 5 of the notes to
condensed consolidated financial statements.

## Business
Segment Information

The accounting policies of
the segments are the same as those described in Note 1 of notes to the condensed
consolidated financial statements Significant Accounting Policies.
Intersegment sales, eliminated in consolidation, are not material. The Company
evaluates performance based on product profit margin (PPM) for each
segment. PPM is defined as sales and other income directly related to a
segments operations, less both fixed and variable manufacturing costs,
research and development expenses, selling, general and administrative expenses
and amortization of intangibles directly related to a segments operations.
When such costs and expenses exceed sales and other income, PPM is referred to
as product loss. The expenses attributable to corporate activity are not
allocated to the operating segments.

The Company has five
reportable segments based primarily on the nature of the Companys
customers and products: Zip, CD-RW, Jaz, PocketZip and Other (Jaz, PocketZip and
some of the Other products have been discontinued, see below for more
information). The Zip segment involves the development, manufacture,
distribution and sales of personal storage products and applications, including
Zip disk and drive systems to retailers, distributors, resellers and original equipment
manufacturers (OEMs) throughout the world. The Companys CD-RW
segment involves the distribution and sales of CD-RW drives to retailers,
distributors and resellers throughout the world. The Jaz segment involved the
development, manufacture, distribution and sales of professional storage
products and applications, including Jaz disk and drive systems to resellers,
distributors and retailers throughout the world. The PocketZip segment involved
the development, manufacture, distribution and sales of PocketZip drives and
disks for use with portable digital products such as digital cameras, audio
players, handheld personal computers and notebook computers to retailers,
distributors and resellers throughout the world.

The Other
segment includes: Peerless drive systems, which began shipping during the second
quarter of 2001; FotoShow digital image centers (previously shown in the second
quarter and the first six months of 2001 as a part of the Zip segment); sourced
products such as portable and external Hard Disk Drives (HDD), which
began shipping during the second quarter of 2002, network attached storage
(NAS), Iomega Microdrive miniature hard drives, Iomega
CompactFlash and Iomega SmartMedia memory cards; Iomega software
products such as Lifeworks, Hotburn and Iomega QuikSync software; and other
miscellaneous items.

During 2002, the Company
discontinued the Jaz drive and PocketZip product line, including HipZip, which
was being reported in the PocketZip segment. Under the Other
category, the Company discontinued FotoShow, Microdrive, CompactFlash and
SmartMedia. During 2002, the Company plans to continue to sell disks for Jaz and
PocketZip products to support the installed drive base of these products.

The information in the
following table was derived directly from the segments internal financial
information used for corporate management purposes (all Zip and Other segment
amounts have been restated to show the current classification of FotoShow in
Other). The information for the second quarter and first six months of 2001 have
been restated to show the effects of EITF 00-25 which requires, retroactively,
certain consumer and trade sales promotion expenses to be shown as a reduction
of sales. The amount of this reclassification resulted in a reduction to sales
and a corresponding decrease in selling, general and administrative expenses of
$0.4 million and $1.5 million for the second quarter of 2001 and the first six
months of 2001, respectively, with no impact on PPM.

## Reportable
Operating Segment and Unit Information:

`For the Quarter Ended              For the Six Months Ended
                                                   ---------------------------          ---------------------------
                                                   June 30,           July 1,           June 30,           July 1,
                                                     2002              2001               2002              2001
                                                   ---------         ---------          ---------         ---------
                                                          (In thousands)                       (In thousands)
Sales:
   Zip                                             $ 114,281         $ 143,434          $ 257,347         $ 346,508
   CD-RW                                              20,277            18,158             42,874            62,307
   Jaz                                                 3,239            13,275              9,112            39,784
   PocketZip                                            (107)            2,311                (88)            3,582
   Other                                               7,518             6,511             14,860             8,518
                                                   ---------         ---------          ---------         ---------
      Total sales                                  $ 145,208         $ 183,689          $ 324,105         $ 460,699
                                                   =========         =========          =========         =========

PPM (Product Loss) Before Charges/Reversals:
   Zip                                             $  40,484         $  34,809          $  97,796         $  90,094
   CD-RW                                              (1,106)          (11,006)            (1,037)          (16,910)
   Jaz                                                 1,007             2,502              2,951            12,165
   PocketZip                                            (415)           (5,098)               322           (13,151)
   Other                                              (2,594)           (7,664)            (7,494)          (14,435)
                                                   ---------         ---------          ---------         ---------
      Total PPM                                       37,376            13,543             92,538            57,763

Common Operating Expenses Without
   (Charges)/Reversals Allocated to PPM:
   General corporate expenses                        (23,153)          (28,713)           (51,933)          (62,005)
   Non-restructuring charges                               -           (45,986)                 -           (45,986)
   Restructuring (charges) reversals                   2,181            (1,086)             2,181            (1,086)
   Interest and other income, net                      1,365             4,068              1,581             9,329
                                                   ---------         ---------          ---------         ---------
      Income (loss) before income taxes            $  17,769         $ (58,174)         $  44,367         $ (41,985)
                                                   =========         =========          =========         =========`

`For the Quarter Ended              For the Six Months Ended
                                                   ---------------------------          ---------------------------
                                                   June 30,            July 1,          June 30,           July 1,
                                                     2002               2001              2002              2001
                                                   ---------         ---------          ---------        ----------
                                                          (In thousands)                       (In thousands)
Non-Restructuring Charges:
   Zip                                             $       -         $  (4,468)         $       -         $  (4,468)
   CD-RW                                                   -            (9,977)                 -            (9,977)
   PocketZip                                               -           (17,926)                 -           (17,926)
   Other                                                   -           (12,565)                 -           (12,565)
   Common                                                  -            (1,050)                 -            (1,050)
                                                   ---------         ---------          ---------         ---------
                                                   $       -         $ (45,986)         $       -         $ (45,986)
                                                   =========         =========          =========         =========

Restructuring (Charges)/Reversals:
   Common                                          $   2,181         $  (1,086)         $   2,181         $  (1,086)
                                                   ---------         ---------          ---------         ---------
                                                   $   2,181         $  (1,086)         $   2,181         $  (1,086)
                                                   =========         =========          =========         =========

PPM (Product Loss) After Charges/Reversals:
   Zip                                             $  40,484         $  30,341          $  97,796         $  85,626
   CD-RW                                              (1,106)          (20,983)            (1,037)          (26,887)
   Jaz                                                 1,007             2,502              2,951            12,165
   PocketZip                                            (415)          (23,024)               322           (31,077)
   Other                                              (2,594)          (20,229)            (7,494)          (27,000)
                                                   ---------         ---------          ---------         ---------
      Total PPM (Product Loss)                        37,376           (31,393)            92,538            12,827

Common Operating Expenses With (Charges)/Reversals
   Allocated to PPM (Product Loss):
   General corporate expenses                        (23,153)          (28,713)           (51,933)          (62,005)
   Non-restructuring charges                               -            (1,050)                 -            (1,050)
   Restructuring (charges)reversals                    2,181            (1,086)             2,181            (1,086)
   Interest and other income, net                      1,365             4,068              1,581             9,329
                                                   ---------         ---------          ---------         ---------
      Income (loss) before income taxes            $  17,769         $ (58,174)         $  44,367         $ (41,985)
                                                   =========         =========          =========         =========`

`For the Quarter Ended             For the Six Months Ended
                                           -------------------------           -------------------------
                                            June 30,         July 1,           June 30,          July 1,
                                              2002             2001              2002             2001
                                           ---------         -------           --------          -------
                                                 (In thousands)                    (In thousands)
Drive units:
   Zip                                         969             1,215             2,085            2,854
   CD-RW                                       179               144               333              414
   Jaz                                           -                26                 2               69
   PocketZip                                     -                33                12               47
   Other (Peerless, HDD, NAS)                   27                11                43               11

Disk units:
   Zip                                       6,618             8,621            15,717           20,353
   Jaz                                          54               132               126              363
   PocketZip                                    19                55                27              156
   Other (Peerless, HDD, NAS)                   21                14                43               14`

Seasonality

The Companys Zip
products are targeted primarily to the personal computer, OEM, enterprise and
business professional markets. The Companys CD-RW products are targeted to
the retail consumer and enterprise markets. The Companys Peerless drive
system is targeted to business professional and enterprise markets. The
Companys HDD products are targeted primarily to the retail consumer and
enterprise markets. The Companys NAS products are targeted primarily to
the small office/home office, medium size businesses and work group of
enterprise markets. Management believes the markets for the Companys
products are generally seasonal. In the past, a higher proportional share of
total sales typically occurred in the fourth quarter and to a much lesser
extent, the first quarter, with the second and third quarters typically being
the weakest quarters. There can be no assurance that this historic pattern will
continue and moreover this pattern could be affected by the significant weakness
and uncertainty that currently exists in the United States and global economies
and consumer confidence levels. Accordingly, sales for any prior quarter are not
necessarily indicative of the sales to be expected in any future quarter.

Results of Operations

The Company reported net
income of $11.5 million, or $0.22 per diluted share, for the quarter ended June
30, 2002. This net income included a pre-tax $2.2 million reversal of
restructuring charges as well as a $0.7 million decrease in the Companys
valuation allowance for net deferred tax assets. This compares to a second
quarter 2001 net loss of $35.9 million, or $0.66 per diluted share. The second
quarter 2001 net loss included pre-tax non-restructuring and restructuring
charges of $46.0 million and $1.1 million, respectively.

For the six months ended
June 30, 2002, the Company reported net income of $42.7 million, or $0.83 per
diluted share. This net income included a pre-tax $2.2 million reversal of
restructuring charges as well as a $16.5 million decrease in the Companys
valuation allowance for net deferred tax assets. This compares to a net loss for
the six months ended July 1, 2001 of $26.0 million, or $0.48 per diluted share.
The net loss for the six months ended July 1, 2001 included pre-tax
non-restructuring and restructuring charges of $46.0 million and $1.1 million,
respectively and a $0.4 million increase in the Companys valuation
allowance for foreign net deferred tax assets.

2001 Non-Restructuring Charges

Second Quarter

During the second quarter
of 2001, the Company recorded non-restructuring charges of $46.0 million,
primarily reflecting write-downs of HipZip, CD-RW and FotoShow inventory and
equipment and loss accruals for related supplier purchase commitments. A
breakdown of the charges by product is included in the table below:

`Financial
                                                                                            Statement
           Description of Non-Restructuring Charges                      Amount              Category
       -------------------------------------------------                --------           ----------
                                                                      (In millions)
       Q2 - 2001:
       ----------
       Products:
          Zip                                                             $  4.5            Cost of sales
          CD-RW                                                             10.0            Cost of sales
          HipZip (included in PocketZip segment)                            17.9            Cost of sales
          FotoShow (included in Other segment)                               8.9            Cost of sales
          Other (primarily sourced products)                                 3.6            Cost of sales
                                                                          ------
                                                                            44.9
       Separation agreement                                                  1.1            SG&A
                                                                          ------
                                                                          $ 46.0
                                                                          ======

       SG&A = Selling, general and administrative expenses`

Inventory reserves recorded
in the second quarter of 2001 amounted to $16.8 million. Loss accruals for
related supplier purchase commitments amounted to $18.3 million. Additional
accruals of $2.2 million were recorded to reflect valuation reserves for
inventory in the channel. Also included in the second quarter 2001
non-restructuring charge was $7.6 million reflecting the extent to which
undiscounted future cash flows were estimated to be less than the net book value
of related manufacturing equipment.

The Company began shipping
a USB Zip 100MB drive in the fourth quarter of 2000. This product was scheduled
for replacement by two new lower cost drives in the third quarter of 2001. As a
result of sales of the USB Zip 100MB drive not meeting prior Company forecasts,
which caused the Company to change future expectations and the transition to the
new lower cost drives, the Company recorded inventory reserves of $1.4 million;
loss accruals of $1.3 million for supplier purchase commitments and write-downs
of related manufacturing equipment amounting to $1.8 million.

The Company began shipping
CD-RW products in August 1999. Most of the Companys CD-RW drives are
purchased from suppliers and marketed under the Iomega name without significant
manufacturing activity by the Company. Due to intense competitive pricing
pressures in the CD-RW market, prices fell faster for CD-RW products than the
Company anticipated, particularly during the second quarter of 2001. The Company
was unable to negotiate lower prices with vendors at the same rate as external
prices to its customers declined. As a result, the Company recorded inventory
reserves of $4.4 million; loss accruals of $2.9 million for supplier purchase
commitments; $1.8 million of reserves for channel inventory exposures and
write-downs of related manufacturing equipment amounting to $0.9 million.

The Company began shipping
the HipZip digital audio player late in the third quarter of 2000. Sales volumes
during the first half of 2001 did not meet the Companys expectations,
which caused the Company to change future expectations. The digital audio player
market became saturated with competitive product offerings. As a result, during
the second quarter of 2001, the Company recorded inventory reserves of $4.6
million; loss accruals of $9.1 million for supplier purchase commitments and
write-downs of related manufacturing equipment amounting to $4.2 million.

Charges recorded for Other
products were primarily for the FotoShow digital viewer and sourced products
such as Microdrive, Magneto-Optical drives in Europe, and CompactFlash and
SmartMedia products which the Company began selling in the first quarter of
2001. The Company began shipping the FotoShow digital viewer in the third
quarter of 2000. The target market for this product was digital camera users.
The Company was unsuccessful in its efforts to market the FotoShow digital
viewer to these users through both existing and new channels. As a result, sales
did not meet the Companys prior expectations, which caused the Company to
change future expectations. As a result, the Company recorded inventory reserves
of $3.7 million; loss accruals of $5.0 million for supplier purchase commitments
and write-downs of related manufacturing equipment amounting to $0.2 million
related to the FotoShow digital viewer. As a result of sales not meeting prior
expectations on sourced products such as Microdrive, Magneto-Optical drives in
Europe, and CompactFlash and SmartMedia products, the Company changed future
sales expectations and recorded inventory reserves of $2.7 million and reserves
of $0.4 million for channel inventory exposures on these products. The Company
also wrote-down other excess miscellaneous manufacturing equipment amounting to
$0.5 million.

During the second quarter
of 2001, an accrual of $1.1 million was recorded reflecting the separation
agreement with Mr. Bruce Albertson, the Companys former President and
Chief Executive Officer.

Restructuring Charge Discussions

The following discussions
of the Companys restructuring charges are also found in their entirety in
the notes to the condensed consolidated financial statements.

Restructuring Charges/Reversals

During 2001, the Company
recorded approximately $39.0 million in net pre-tax restructuring charges. These
charges were comprised of approximately $1.1 million related to restructuring
actions initiated during the second quarter of 2001, $33.1 million (net of a
$0.2 million fourth quarter reversal) related to restructuring actions initiated
during the third quarter of 2001 and $4.8 million related to restructuring
actions initiated during the fourth quarter of 2001. These restructuring charges
consisted of cash and non-cash charges of approximately $28 million and $11
million, respectively.

During the second quarter
of 2002, $0.6 million of fixed asset reserves associated with the third quarter
2001 restructuring actions were reversed and $1.6 million of contract
obligations associated with the 1999 restructuring actions were reversed. The
second quarter 2001 restructuring actions were completed at March 31, 2002. The
detail of each of these restructuring actions follows along with an update on
the current status of each of these actions as of June 30, 2002.

2001 Restructuring Actions

Third Quarter 2001

During the third quarter of
2001, the Company recorded pre-tax restructuring charges of $33.3 million. In
the fourth quarter of 2001, the Company recorded a net reversal of $0.2 million
with respect to the third quarter restructuring actions. The restructuring
charges in the third quarter of 2001 included $17.4 million associated with
exiting lease facilities, of which $9.8 million related to leasehold
improvements, furniture and information technology asset write-downs and $7.6
million was associated with lease termination costs, and $15.9 million related
to the reduction of 1,234 regular and temporary personnel worldwide, or
approximately 37% of the Companys worldwide workforce. During the fourth
quarter of 2001, the Company reversed $0.5 million related to lease termination
costs and recorded additional charges of $0.3 million related to severance and
benefits with respect to employees that were identified as part of the third
quarter 2001 restructuring actions but who were not notified of their
termination of employment until the fourth quarter of 2001. During the second
quarter of 2002, $0.6 million of furniture reserves associated with the
consolidation of the Companys North America facilities were reversed as a
result of the furniture being utilized in another facility.

Of the $33.3 million in
total third quarter 2001 restructuring charges, $27.9 million related to
restructuring activities within North America, $2.6 million for restructuring
activities within the Asia Pacific region (excluding Malaysia), $2.3 million for
restructuring activities within Europe and $0.5 million for restructuring
activities within Malaysia.

The North America
restructuring activities consisted of outsourcing the Companys
distribution center in North Carolina and terminating the related lease, closing
several sales offices in the United States and consolidating operations at the
Companys North America facilities (primarily Roy, Utah), all of which
resulted in a workforce reduction of 760 regular employees and temporary staff
across all business functions and across all levels of the organization. At
September 30, 2001, of the 760 individuals whose positions were identified for
termination in the third quarter, 193 individuals were scheduled to continue to
work on a transition basis through various identified dates ending no later than
December 31, 2001. Transition pay was not a part of the restructuring charges
but rather was reported in normal operations as incurred. In compliance with the
WARN Act, affected employees were given pay in lieu of a 60-day advance notice.
Pay in lieu of notice was paid on a continuous basis for a 60-day notice period
and separation payments were paid in lump sum at the end of the 60-day period or
after the last day of employment for transition employees. Separation pay was
based on years of service, job level and transition time, and included health
insurance continuance payments. This workforce reduction resulted in charges of
$12.7 million for severance and benefit costs. The North America restructuring
actions also resulted in charges of $8.9 million related to asset write-downs
(leasehold improvements, furniture and information technology assets) and $6.3
million related to lease termination costs. Lease termination costs are being
paid on their regular monthly rent payment schedule.

The Asia Pacific
restructuring activities consisted of the closure of several sales offices and
the transfer of certain inventory operations and finance activities from
Singapore to Malaysia, which resulted in a workforce reduction of 85 regular
employees and temporary staff across all business functions and across all
levels of the organization. At September 30, 2001, of the 85 individuals whose
positions were identified for termination in the third quarter, 12 individuals
were scheduled to continue to work on a transition basis through various
identified dates ending no later than December 31, 2001. This workforce
reduction resulted in charges of $0.8 million for severance and benefit costs.
The Asia Pacific restructuring actions also resulted in charges of $0.7 million
related to asset write-downs and $1.1 million related to lease termination
costs.

During the fourth quarter
of 2001, the 12 transition employees in the Asia Pacific region were notified
that their positions were being terminated, resulting in additional charges of
$0.3 million in the fourth quarter of 2001. These employees had been identified
for termination of employment at September 30, 2001. However, since the
employees had not been notified, the Company did not accrue the severance and
benefit costs associated with these individuals in the original third quarter
2001 restructuring charges. Additionally, in the fourth quarter of 2001, $0.7
million of lease termination accruals were reversed due to the Company
unexpectedly locating a tenant for one of the vacated facilities and being
released from future rent obligations. In light of prevailing poor economic
conditions, the Company had originally assumed it would not be able to locate
another tenant for the facility.

The Europe restructuring
activities consisted of the outsourcing of call center activities, closure of
several sales offices and consolidation of operations in Switzerland and the
Netherlands, which resulted in a workforce reduction of 94 regular employees and
temporary staff across all business functions and across all levels of the
organization. At September 30, 2001, of the 94 individuals whose positions were
identified for termination in the third quarter, 28 individuals continued to
work on a transition basis through June 30, 2002 to manage operations that were
outsourced effective July 1, 2002. This workforce reduction resulted in charges
of $1.9 million for severance and benefit costs. The Europe restructuring
actions also resulted in charges of $0.2 million related to asset write-downs
and $0.2 million related to lease termination costs.

During the fourth quarter
of 2001, it was determined that an additional $0.2 million was required for
Europe lease termination costs as a result of the Company not being able to
locate a new tenant in Ireland in the timeframe originally estimated in the
third quarter of 2001.

The Malaysia restructuring
activities consisted of a workforce reduction of 295 regular employees across
almost all business functions (the majority of which were direct labor
employees) at almost all levels of the organization. All of the 295 individuals
whose positions were identified for termination were dismissed in the third
quarter of 2001. This workforce reduction resulted in charges of $0.5 million
for severance and benefit costs, all of which were paid during the third quarter
of 2001.

As of June 30, 2002, the
Company had terminated the employment of all affected employees, except for one
employee offered a retention package through the fourth quarter of 2002 and
vacated all facilities in connection with the third quarter 2001 restructuring
actions. Since some other affected employees were offered retention packages
that extended into the second quarter of 2002, not all outplacement payments
were paid as of June 30, 2002. The remaining outplacement costs are expected to
be paid in the third quarter of 2002. The remaining severance and benefits are
expected to be paid in January 2003 for the one remaining employee. The
information technology assets and furniture included in the restructuring
activities have not been utilized since early in the fourth quarter of 2001 and
are expected to be completely disposed during the third quarter of 2002. As
previously disclosed, lease payments are being made on a continuous monthly
basis.

The third quarter 2001
restructuring charges originally totaled $33.3 million. Third quarter 2001
restructuring reserves in the amount of $4.7 million and $1.0 million were
included in the Companys other current liabilities and fixed asset
reserves, respectively, as of June 30, 2002. Utilization of the third quarter
2001 restructuring reserves during the quarter ended June 30, 2002 is summarized
below:

`Utilized
                                                            ------------------------------------
Third Quarter 2001                               Balance                                              Balance
Restructuring Actions                            3/31/02        Cash       Non-Cash    Reversals      6/30/02
----------------------                           -------    ----------     --------    ---------      -------
                                                                         (In thousands)

North America Reorganization:
     Severance and benefits (a)                  $   349    $   (133)      $    -       $    -        $   216
     Lease cancellations (a)                       4,992        (800)           -            -          4,192
     Leasehold improvements and
        furniture (b)                              1,862           -         (421)        (600)           841
     Information technology assets (b)               469           -         (414)           -             55
                                                 -------    --------       ------       ------        -------
                                                   7,672        (933)        (835)        (600)         5,304
                                                 -------    --------       ------       ------        -------

Asia Pacific Reorganization:
     Severance and benefits (a)                       73         (15)           -            -             58
     Lease cancellations (a)                          15           -            -            -             15
                                                 -------    --------       ------       ------        -------
                                                      88         (15)           -            -             73
                                                 -------    --------       ------       ------        -------

Europe Reorganization:
     Severance and benefits (a)                       54           -            -            -             54
     Lease cancellations (a)                         209         (93)           -            -            116
     Leasehold improvements and
        furniture (b)                                132           -            -            -            132
                                                 -------    --------       ------       ------        -------
                                                     395         (93)           -            -            302
                                                 -------    --------       ------       ------        -------
                                                 $ 8,155    $ (1,041)      $ (835)      $ (600)       $ 5,679
                                                 =======    ========       ======       ======        =======

Balance Sheet Breakout:
    Other current liabilities (a)                $ 5,692    $ (1,041)      $    -       $    -        $ 4,651
    Fixed asset reserves (b)                       2,463           -         (835)        (600)         1,028
                                                 -------    --------       ------       ------        -------
                                                 $ 8,155    $ (1,041)      $ (835)      $ (600)       $ 5,679
                                                 =======    ========       ======       ======        =======

(a)      Amounts represent primarily cash charges.
(b)      Amounts represent primarily non-cash charges.`

Utilization of the third
quarter 2001 restructuring reserves during the six months ended June 30, 2002 is
summarized below:

`Utilized
                                                            ------------------------------------
Third Quarter 2001                              Balance                                               Balance
Restructuring Actions                           12/31/01      Cash       Non-Cash      Reversals      6/30/02
----------------------                          --------    --------     --------      ---------      -------
                                                                    (In thousands)

North America Reorganization:
     Severance and benefits (a)                 $  2,194    $ (1,978)    $      -       $    -        $   216
     Lease cancellations (a)                       5,823      (1,631)           -            -          4,192
     Leasehold improvements and
        furniture (b)                              2,102           -         (661)        (600)           841
     Information technology assets (b)             1,216           -       (1,161)           -             55
                                                --------    --------     --------       ------        -------
                                                  11,335      (3,609)      (1,822)        (600)         5,304
                                                --------    --------     --------       ------        -------

Asia Pacific Reorganization:
     Severance and benefits (a)                       82         (24)           -            -             58
     Lease cancellations (a)                          68         (53)           -            -             15
                                                --------    ---------    --------       ------        -------
                                                     150         (77)           -            -             73
                                                --------    ---------    --------       ------        -------

Europe Reorganization:
     Severance and benefits (a)                      332        (278)           -            -             54
     Lease cancellations (a)                         390        (274)           -            -            116
     Leasehold improvements and
        furniture (b)                                235           -         (103)           -            132
     Information technology assets (b)                26           -          (26)           -              -
                                                --------    --------     --------       ------        -------
                                                     983        (552)        (129)           -            302
                                                --------    --------     --------       ------        -------
                                                $ 12,468    $ (4,238)    $ (1,951)      $ (600)       $ 5,679
                                                ========    ========     ========       ======        =======

Balance Sheet Breakout:
    Other current liabilities (a)               $  8,889    $ (4,238)    $      -       $    -        $ 4,651
    Fixed asset reserves (b)                       3,579           -       (1,951)        (600)         1,028
                                                --------    --------     --------       ------        -------
                                                $ 12,468    $ (4,238)    $ (1,951)      $ (600)       $ 5,679
                                                ========    ========     ========       ======        =======

(a)      Amounts represent primarily cash charges.
(b)      Amounts represent primarily non-cash charges.`

Fourth Quarter 2001

During the fourth quarter of
2001, the Company recorded net pre-tax restructuring charges of $4.6 million,
comprised of $4.8 million in charges for restructuring actions initiated in the
fourth quarter of 2001 and a net reversal of $0.2 million in adjustments to the
third quarter restructuring charges (see section above entitled Third
Quarter 2001).

The fourth quarter 2001
restructuring charges of $4.8 million included $2.7 million associated with
exiting lease facilities, of which $1.7 million was for lease cancellation costs
and $1.0 million was for leasehold improvements, furniture and equipment, and
$2.1 million for severance and benefit costs associated with the reduction of
105 regular and temporary personnel in North America and Europe.

Of the $4.8 million in
fourth quarter 2001 charges, $1.5 million related to restructuring activities in
North America and $3.3 million related to restructuring activities in Europe.

The North America
restructuring activities consisted primarily of a workforce reduction of 79
individuals, primarily in the operations, and research and development
functions. The majority of the affected employees were located in Roy, Utah. The
employees were notified of the termination of their employment on December 18,
2001. Although the Company was not required to give notice under the WARN Act,
the employees whose employment was terminated were given pay in lieu of notice
through December 31, 2001. At December 31, 2001, of the 79 individuals whose
positions were identified for termination in the fourth quarter, 24 individuals
were to continue to work on a transition basis through various identified dates
ending no later than June 30, 2002, with one individual being extended into the
third quarter of 2002. Transition pay was not a part of the restructuring
charges but rather was reported in normal operations as incurred. Pay in lieu of
notice was paid on a continuous basis and separation payments were/or will be
paid in lump sum after the December 31, 2001 notice date or after the last day
of employment for transition employees. Separation pay was based on years of
service, job level and transition time, and included health insurance
continuance payments. This workforce reduction resulted in charges of $1.5
million for severance and benefit costs.

The restructuring
activities in Europe consisted of outsourcing its distribution and logistics,
resulting in severance and benefits costs of $0.6 million, lease cancellation
costs of $1.7 million and impaired leasehold improvements, excess furniture and
equipment of $1.0 million. The workforce reduction consisted of 26 employees,
primarily in operations. The affected employees were primarily located in the
Netherlands. The majority of the employees continued to work on transition until
March 31, 2002, when the outsourcing project was substantially completed. Two
individuals will work into the third quarter. Transition pay was not a part of
the restructuring charges but rather was reported in normal operations as
incurred. The lease was vacated in the second quarter of 2002. In addition,
leasehold improvements, furniture and equipment are anticipated to be completely
disposed of in the third quarter of 2002.

At June 30, 2002, the
Company had terminated the employment of all affected employees, except for the
three employees offered retention packages into the third quarter of 2002. The
severance and benefits reserves associated with the employees who were provided
retention packages are expected to be paid in the third quarter of 2002.
Remaining leasehold improvements, furniture and equipment are expected to be
disposed of in the third quarter of 2002. As previously disclosed, lease
payments are being made on a continuous monthly basis.

The fourth quarter 2001
restructuring charges originally totaled $4.8 million. Fourth quarter 2001
restructuring reserves in the amount of $0.3 million were included in the
Companys other current liabilities as of June 30, 2002. Utilization of the
fourth quarter 2001 restructuring reserves during the quarter ended June 30,
2002 is summarized below:

`Fourth Quarter 2001                               Balance                Utilized            Balance
                                                                   --------------------
Restructuring Actions                             3/31/02           Cash       Non-Cash      6/30/02
----------------------                            -------          ------      --------      -------
                                                                       (in thousands)
North America Reorganization:
     Severance and benefits (a)                   $   400          $ (124)      $    -         $ 276
                                                  -------          ------       ------         -----

Europe Reorganization:
     Severance and benefits (a)                       105             (72)           -            33
     Lease cancellations (a)                           67             (39)           -            28
     Leasehold improvements, furniture and
        equipment (b)                                 983               -         (967)           16
                                                  -------          ------       -------        -----
                                                    1,155            (111)        (967)           77
                                                  -------          ------       ------         -----
                                                  $ 1,555          $ (235)      $ (967)        $ 353
                                                  =======          ======       ======         =====

Balance Sheet Breakout:
    Other current liabilities (a)                 $   572          $ (235)      $    -         $ 337
    Fixed asset reserves (b)                          983               -         (967)           16
                                                  -------          ------       ------         -----
                                                  $ 1,555          $ (235)      $ (967)        $ 353
                                                  =======          ======       ======         =====

(a)      Amounts represent primarily cash charges.
(b)      Amounts represent primarily non-cash charges.`

Utilization of the fourth
quarter 2001 restructuring reserves during the six months ended June 30, 2002 is
summarized below:

`Fourth Quarter 2001                                 Balance             Utilized              Balance
                                                                 ----------------------
Restructuring Actions                              12/31/01        Cash        Non-Cash       6/30/02
----------------------                             --------      --------      --------       -------
                                                                    (in thousands)

North America Reorganization:
     Severance and benefits (a)                     $ 1,503      $ (1,227)      $    -         $ 276
                                                    -------      --------       ------         -----

Europe Reorganization:
     Severance and benefits (a)                         591          (558)           -            33
     Lease cancellations (a)                          1,698        (1,670)           -            28
     Leasehold improvements, furniture and
        equipment (b)                                   983             -         (967)           16
                                                    -------      --------       ------         -----
                                                      3,272        (2,228)        (967)           77
                                                    -------      --------       ------         -----
                                                    $ 4,775      $ (3,455)      $ (967)        $ 353
                                                    =======      ========       ======         =====

Balance Sheet Breakout:
    Other current liabilities (a)                   $ 3,792      $ (3,455)      $    -         $ 337
    Fixed asset reserves (b)                            983             -         (967)           16
                                                    -------      --------       -------        -----
                                                    $ 4,775      $ (3,455)      $ (967)        $ 353
                                                    =======      ========       ======         =====

     (a) Amounts represent primarily cash charges.
     (b) Amounts represent primarily non-cash charges.`

1999 Restructuring Actions

The Company recorded
pre-tax restructuring charges of $65.8 million (net of a $2.0 million reversal)
during 1999. As disclosed in the Annual Report on Form 10-K filed for the year
ended December 31, 2001, all reserves associated with the 1999 restructuring
actions have been utilized except for $3.0 million associated with
Companys cessation of manufacturing operations in France. This remaining
$3.0 million related to contract obligations that were being litigated. During
the second quarter of 2002, $1.6 million of these litigated contract obligations
were dismissed by the court and therefore were reversed. The Company is unable
to predict when the litigation relating to the remaining obligations will be
resolved. There can be no assurance that the settlement of these contract
obligations will not result in significant legal or other costs that have not
been accrued for in these restructuring charges.

Remaining 1999
restructuring reserves in the amount of $1.4 million were included in the
Companys balance sheet as of June 30, 2002 in other current liabilities.
There was no utilization of the reserves during the first quarter of 2002, thus
the second quarter and year-to-date utilizations are the same.

`Balance                       Utilized                     Balance
                                                                 ------------------------------------
     1999 Restructuring Actions                  3/31/02         Cash        Non-Cash      (Reversals)      6/30/02
  ---------------------------------              -------         ----        --------      -----------     --------
                                                                          (In thousands)
  France/Scotland Consolidation:
     Contract obligations (a)(b)                 $ 1,414         $  -        $    -          $      -       $ 1,414
                                                 -------         ----        ------          --------       -------

  Manufacturing Cessation -
     Avranches, France:
     Other commitments (a)                            16           (3)            -                 -            13
     Contract obligations (a)                      1,581            -             -            (1,581)            -
                                                 -------         ----        ------          --------       -------
                                                   1,597           (3)            -            (1,581)           13
                                                 -------         -----       ------          --------       -------
                                                 $ 3,011         $ (3)       $    -          $ (1,581)      $ 1,427
                                                 =======         ====        ======          ========       =======

  Balance Sheet Breakout:
      Other current liabilities (a)              $ 3,011         $ (3)       $    -          $ (1,581)      $ 1,427
                                                 =======         ====        ======          ========       =======

   (a) Amounts represent primarily cash charges.
   (b) Amounts relate to commitments associated with manufacturing of floppy drives.`

## Sales

Sales for the quarter ended
June 30, 2002 of $145.2 million decreased $38.5 million, or 20.9%, when compared
to sales of $183.7 million for the quarter ended July 1, 2001. This decrease was
primarily a result of lower Zip drive and disk sales and lower Jaz drive and
disk sales. Total drive sales of $91.5 million decreased by 19.7%, while total
drive units declined by 17.8% when compared to the second quarter of 2001. Total
disk sales of $52.8 million decreased by 20.0%, while total disk units declined
by 23.9% when compared to the second quarter of 2001.

Zip product sales for the
second quarter of 2002 totaled $114.3 million, representing a decrease of $29.1
million, or 20.3%, compared to sales of $143.4 million for the second quarter of
2001. Sales of Zip products represented 78.7% of total sales for the second
quarter of 2002, compared to 78.1% for the second quarter of 2001. Zip drive
sales of $66.5 million for the second quarter of 2002 decreased by $19.9
million, or 23.1%, while Zip drive units decreased by 20.2% from the second
quarter of 2001. Zip drive sales decreased more than Zip drive units primarily
due to a higher mix of OEM shipments, partially offset by lower rebates and
discounts and an increasing mix of Zip 250MB products for the second quarter of
2002 compared to the second quarter of 2001. Zip OEM drive units accounted for
approximately 57% of total Zip drive units in the second quarter of 2002,
compared to approximately 55% in the second quarter of 2001. Zip disk sales of
$47.7 million for the second quarter of 2002 decreased by $8.7 million, or
15.5%, while Zip disk units decreased by 23.2% from the second quarter of 2001.
Zip disk units decreased more than Zip disk sales primarily due to a higher mix
of the higher priced Zip 250MB disks and to lower rebates and discounts. While
it is difficult to precisely calculate the revenue impact of product mix
changes, price changes and volume changes, the following is the Companys
best estimate of those impacts. When compared to the second quarter of 2001, the
decrease in Zip product sales resulted from lower drive and disk unit volumes,
net of product mix, of approximately $32million, partially offset by
higher prices of approximately $3 million. The higher prices in the second
quarter of 2002 were a result of lower rebates and discounts on both drive and
disk products.

CD-RW product sales for the
second quarter of 2002 totaled $20.3 million, representing an increase of $2.1
million, or 11.7%, compared to sales of $18.2 million for the second quarter of
2001. Sales of CD-RW products represented 14.0% of total sales for the second
quarter of 2002, compared to 9.9% for the second quarter of 2001. CD-RW units
increased 24.3% compared to the second quarter of 2001. The increase in CD-RW
sales was partly attributable to gaining market share after a competitor exited
the external CD-RW drive market; however, the Company believes that the overall
external CD-RW market will continue to contract as more personal computers are
purchased with built in CD-RW drives. While it is difficult to precisely
calculate the revenue impact of product mix changes, price changes and volume
changes, the following is the Companys best estimate of those impacts.
When compared to the second quarter of 2001, higher units (net of product mix)
of approximately $6 million were partially offset by pricing actions of
approximately $4 million taken to meet competitive pressures.

Jaz product sales for the
second quarter of 2002 totaled $3.2 million, representing a decrease of $10.0
million, or 75.6%, compared to sales of $13.3 million for the second quarter of
2001. Sales of Jaz products represented 2.2% of total sales for the second
quarter of 2002, compared to 7.2% for the second quarter of 2001. Jaz drive and
disk units decreased by 100.0% and 59.1%, respectively, when compared to the
second quarter of 2001. While it is difficult to precisely calculate the revenue
impact of product mix changes, price changes and volume changes, the following
is the Companys best estimate of those impacts. When compared to the
second quarter of 2001, the reason for the decline in sales was lower units of
approximately $12 million, partially offset by lower rebates and discounts of
approximately $2 million. The lower volumes resulted from the Companys
decision to discontinue the Jaz drive.

PocketZip product sales for
the second quarter of 2002 decreased $2.4 million, compared to the second
quarter of 2001 due to the Companys decision to discontinue the PocketZip
product line.

Other product sales for the
second quarter of 2002 totaled $7.5 million, representing an increase of $1.0
million, compared to other product sales of $6.5 million for the second quarter
of 2001. The increase in other product sales resulted primarily from $3.0
million of HDD sales which began shipping during the second quarter of 2002 and
NAS sales of $0.5 million (the Company deferred another $1.0 million in NAS
shipments under the Companys revenue recognition policies), partially
offset by lower FotoShow sales of $1.6 million and lower Peerless sales of $0.4
million.

Geographically, sales in
the Americas totaled $97.1 million, or 66.9% of total sales, in the second
quarter of 2002, compared to $124.0 million, or 67.5% of total sales, in the
second quarter of 2001. Sales in Europe totaled $34.1 million, or 23.5% of total
sales, in the second quarter of 2002, compared to $43.7 million, or 23.8% of
total sales, in the second quarter of 2001. Sales in Asia totaled $14.0 million,
or 9.6% of total sales, in the second quarter of 2002, compared to $16.0
million, or 8.7% of total sales, in the second quarter of 2001. These decreases
were primarily due to lower Zip and Jaz sales in all regions.

Sales for the six months
ended June 30, 2002 of $324.1 million decreased $136.6 million, or 29.6%, when
compared to sales of $460.7 million for the six months ended July 1, 2001. This
decrease was primarily a result of lower Zip drive and disk sales, lower Jaz
drive and disk sales and lower CD-RW sales, partially offset by sales from new
products. Total drive sales of $198.6 million decreased by 31.1%, while total
drive units declined by 23.5% when compared to the six months ended July 1,
2001. Total disk sales of $123.0 million decreased by 25.5%, while total disk
units declined by 23.8% when compared to the six months ended July 1, 2001.

Zip product sales for the
six months ended June 30, 2002, totaled $257.3 million, representing a decrease
of $89.2 million, or 25.7%, compared to sales of $346.5 million for the six
months ended July 1, 2001. Sales of Zip products represented 79.4% of total
sales for the six months ended June 30, 2002, compared to 75.2% for the six
months ended July 1, 2001. Zip drive sales of $147.9 million for the six months
ended June 30, 2002 decreased by $57.7 million, or 28.1%, while Zip drive units
decreased by 22.6%, compared to the six months ended July 1, 2001. Zip drive
sales decreased more than Zip drive units primarily due to lower prices and a
higher mix of OEM shipments, partially offset by an increasing mix of Zip 250MB
products for the first six months of 2002 compared to the first six months of
2001. Zip OEM drive units accounted for approximately 54% of total Zip drive
units for the six months ended June 30, 2002, compared to approximately 49% for
the six months ended July 1, 2001. Zip disk sales of $109.0 million for the six
months ended June 30, 2002 decreased by $31.0 million, or 22.1%, while Zip disk
units decreased by 22.8% from the six months ended July 1, 2001. While it is
difficult to precisely calculate the revenue impact of product mix changes,
price changes and volume changes, the following is the Companys best
estimate of those impacts. When compared to the six months ended July 1, 2001,
lower drive and disk units, net of product mix, accounted for approximately $77
million of the decrease in Zip product sales and pricing actions (primarily
relating to Zip drives) accounted for approximately $12 million of the decrease
in Zip product sales.

CD-RW product sales for the
six months ended June 30, 2002 totaled $42.9 million, representing a decrease of
$19.4 million, or 31.2%, compared to sales of $62.3 million for the six months
ended July 1, 2001. Sales of CD-RW products represented 13.2% of total sales for
the six months ended June 30, 2002, compared to 13.5% for the six months ended
July 1, 2001. CD-RW units decreased 19.6% compared to the six months ended July
1, 2001. While it is difficult to precisely calculate the revenue impact of
product mix changes, price changes and volume changes, the following is the
Companys best estimate of those impacts. When compared to the six months
ended July 1, 2001, the lower sales resulted primarily from pricing actions of
approximately $11 million taken to meet competitive pressures, and lower units
(net of product mix) of approximately $8million. The lower CD-RW units
for the first six months of 2002 resulted primarily from the Companys
decision in the second quarter of 2001 to exit the internal CD-RW drive business
and from supply constraints experienced during the early part of the 2002 first
quarter. During the second quarter, the Company gained some market share
following a competitors exit from the CD-RW external market; however, the
Company believes that the overall external CD-RW market will continue to
contract as more personal computers are purchased with built in CD-RW drives.

Jaz product sales for the
six months ended June 30, 2002 totaled $9.1 million, representing a decrease of
$30.7 million, or 77.1%, compared to sales of $39.8 million for the six months
ended July 1, 2001. Sales of Jaz products represented 2.8% of total sales for
the six months ended June 30, 2002, compared to 8.6% for the six months ended
July 1, 2001. Jaz drive and disk units decreased by 97.1% and 65.3%,
respectively, when compared to the six months ended July 1, 2001. While it is
difficult to precisely calculate the revenue impact of product mix changes,
price changes and volume changes, the following is the Companys best
estimate of those impacts. When compared to the six months ended July 1, 2001,
the decline in Jaz sales was a result of lower units of approximately $33
million, partially offset by lower rebates and discounts of approximately $2
million. The lower volumes resulted from the Companys decision to
discontinue the Jaz drive.

PocketZip product sales for
the six months ended June 30, 2002, decreased $3.7 million, compared to the six
months ended July 1, 2001 due to the Companys decision to discontinue the
PocketZip product line.

Other product sales for the
six months ended June 30, 2002 totaled $14.9 million, representing an increase
of $6.4 million, compared to other product sales of $8.5 million for the six
months ended July 1, 2001. The increase in other product sales resulted
primarily from increased Peerless sales of $5.7 million, which began shipping in
the second quarter of 2001, $3.0 million of HDD sales which began shipping
during the second quarter of 2002 and NAS sales of $0.6 million (the Company
deferred another $1.0 million in NAS shipments under the Companys revenue
recognition policies), partially offset by lower FotoShow sales of $1.8 million.

Geographically, sales in
the Americas totaled $207.8 million, or 64.1% of total sales, in the six months
ended June 30, 2002, compared to $314.2 million, or 68.3% of total sales, in the
six months ended July 1, 2001. This decrease was primarily due to lower Zip, Jaz
and CD-RW sales. Sales in Europe totaled $90.0 million, or 27.8% of total sales,
in the six months ended June 30, 2002, compared to $111.5 million, or 24.1% of
total sales, in the six months ended July 1, 2001. This decrease was primarily
due to lower Zip and Jaz sales. Sales in Asia totaled $26.3 million, or 8.1% of
total sales, in the six months ended June 30, 2002, compared to $35.0 million,
or 7.6% of total sales, in the six months ended July 1, 2001. This decrease was
primarily due to lower Zip and Jaz sales.

## Gross Margin

The Companys overall
gross margin was $54.9 million, or 37.8%, in the second quarter of 2002,
compared to $7.0 million, or 3.8%, in the second quarter of 2001. The gross
margin percentage in the second quarter of 2001 was 28.2% excluding
non-restructuring charges of $44.9 million. The improved gross margin percentage
resulted primarily from higher Zip and CD-RW gross margin percentages. Zip gross
margin percentage improved to 45.0% in the second quarter of 2002 from 39.9% in
the second quarter 2001, excluding Zip non-restructuring charges of $4.5 million
in the second quarter of 2001. This increase resulted from a continuing trend
from Zip 100MB to Zip 250MB drives and disks, lower material costs, lower
manufacturing overhead and other cost reductions resulting from the
Companys restructuring and other actions implemented during the second
half of 2001. Excluding $10.0 million of non-restructuring charges in the second
quarter of 2001, CD-RW gross margin percentage improved primarily as a result of
significantly lower fixed manufacturing overhead resulting from the change from
an in-house assembly model to a fully sourced model.

For the six months ended
June 30, 2002, the Companys overall gross margin was $127.5 million, or
39.3%, compared to $91.5 million, or 19.9%, for the six months ended July 1,
2001. The gross margin percentage in the six months ended July 1, 2001 was 29.6%
excluding non-restructuring charges of $44.9 million recorded in the second
quarter of 2001. The 2001 gross margin also included $4.2 million of inventory
and other reserves recorded in the first quarter of 2001 associated with HipZip
and FotoShow. The improved gross margin percentage resulted primarily from
higher Zip and CD-RW gross margin percentages. Zip gross margin percentage
improved to 47.0% in the six months ended June 30, 2002 from 39.3% in the six
months ended July 1, 2001, excluding Zip non-restructuring charges of $4.5
million in 2001. This increase resulted from a continuing trend from Zip 100MB
to Zip 250MB drives and disks, lower material costs, lower manufacturing
overhead and other cost reductions resulting from the Companys
restructuring and other actions implemented during the second half of 2001.
Excluding $10.0 million of non-restructuring charges in the six months ended
July 1, 2001, CD-RW gross margin percentage improved primarily as a result of
significantly lower fixed manufacturing overhead resulting from the change from
an in-house assembly model to a fully sourced model.

The gross margin
percentages reported for the second quarter and the six months ended June 30,
2002 will become difficult to achieve in future periods as the Company adds
non-Zip sales in lower margin products and because future cost reductions are
anticipated to come at a slower rate than was achieved during the second quarter
and the first six months of 2002.

Future gross margin
percentages will depend on a number of factors including: the mix between Zip
products compared to sourced products such as CD-RW, HDD and NAS; sales mix
between aftermarket and OEM or private label channels, as OEM and private label
sales generally provide lower gross margins than sales through other channels;
sales mix of Zip 100MB and Zip 250MB drives and disks, as sales of Zip 250MB
products have higher gross margins; sales volumes of Zip disks, which generate
significantly higher gross margins than the corresponding drives; the mix
between disks and drives; future pricing actions or promotions (including any
pricing actions on Zip drives and/or disks in an attempt to stimulate demand);
the strength or weakness of foreign currencies, especially the Euro; the impact
of any future material cost reductions; the impact of the rebate that will be
implemented as part of the Rinaldi settlement (see Note 5 to the condensed
consolidated financial statements for more information); the ability to avoid
inventory and fixed asset charges; the ability to accurately forecast future
product demand; the ability to cover fixed costs associated with newly
introduced products; potential start-up costs associated with the introduction
of new products; price competition from other substitute third-party storage
products (including CD-RW products); significant price competition given that
CD-R and CD-RW discs are significantly cheaper than Zip disks; possible payment
of license royalties to resolve alleged patent infringement disputes; and
general economic conditions.

## Business
Segment PPM Before Non-Restructuring Charges

Zip PPM for the second
quarter of 2002 was $40.5 million and increased by $5.7 million, or 16.3%,
compared to Zip PPM of $34.8 million for the second quarter of 2001. The
increased Zip PPM resulted primarily from a higher mix of Zip 250MB products to
Zip 100MB products, lower material costs, significantly lower operating expenses
reflecting the benefits of the Companys restructuring and other actions
implemented during the second half of 2001 and lower manufacturing overhead.
Lower goodwill amortization expense of $0.9 million in the second quarter of
2002 resulted from the implementation of Statement of Financial Accounting
Standards No. 142, Accounting for Goodwill and Intangible Assets
(SFAS 142). Zip PPM as a percentage of Zip sales increased to 35.4%
for the second quarter of 2002, compared to 24.3% for the second quarter of
2001, primarily from a higher mix of Zip 250MB products to Zip 100MB products,
lower material costs, significantly lower operating expenses reflecting the
benefits of the Companys restructuring and other actions implemented
during the second half of 2001 and lower manufacturing overhead.

CD-RW product loss for the
second quarter of 2002 was $1.1 million and improved by $9.9 million, or 90%,
compared to a CD-RW product loss of $11.0 million for the second quarter of
2001. The improvement in the second quarter was primarily due to the change from
an in-house assembly model to a fully sourced model, the decision to exit the
internal CD-RW drive business, the introduction of the Companys Hotburn
software, which eliminated third party software license fees, reduced returns
and lowered customer support costs and lower operating expenses reflecting the
benefits of the Companys restructuring and other actions implemented
during the second half of 2001.

Jaz PPM for the second
quarter of 2002 was $1.0 million and decreased by $1.5 million, or 59.8%,
compared to Jaz PPM of $2.5 million for the second quarter of 2001. The lower
Jaz PPM resulted primarily from lower units reflecting the Companys
decision to discontinue the Jaz drive. Jaz PPM as a percentage of Jaz sales
increased to 31.1% for the second quarter of 2002, compared to 18.8% for the
second quarter of 2001, primarily due to no lower margin drive sales in the
second quarter of 2002.

PocketZip product loss of
$0.4 million improved $4.7 million in the second quarter of 2002, compared to a
PocketZip product loss of $5.1 million in the second quarter of 2001. The
improvement resulted primarily from the Companys decision to discontinue
the PocketZip product line which eliminated most ongoing costs.

Other product losses of
$2.6 million improved $5.1 million in the second quarter of 2002, compared to
other product losses of $7.7 million in the second quarter of 2001. The decrease
in other product losses resulted primarily from the elimination of product
losses on FotoShow and lower product losses associated with Peerless and
software, resulting from start-up costs in the second quarter of 2001, partially
offset by product losses and start-up costs associated with HDD and NAS, which
began shipping during the second quarter of 2002.

General corporate expenses
that were not allocated to PPM of $23.2 million in the second quarter of 2002,
decreased $5.5 million, or 19.4%, compared to $28.7 million for the second
quarter of 2001. The $5.5 million decrease was comprised primarily of $9.3
million in headcount and other cost reduction actions taken in the second half
of 2001 partially offset by $2.3 million in bonus and profit sharing costs and
$1.5 million in litigation expense.

Zip PPM for the six months
ended June 30, 2002 was $97.8 million and increased by $7.7 million, or 8.5%,
compared to Zip PPM of $90.1 million for the six months ended July 1, 2001. The
increased Zip PPM resulted primarily from a higher mix of Zip 250MB products to
Zip 100MB products, lower material costs, significantly lower operating expenses
reflecting the benefits of the Companys restructuring and other actions
implemented during the second half of 2001 and lower depreciation and
amortization expenses. Lower goodwill amortization expense of $1.9 million in
the first six months of 2002 resulted from the implementation of SFAS 142. Zip
PPM as a percentage of Zip sales increased to 38.0% for the six months ended
June 30, 2002, compared to 26.0% for the six months ended July 1, 2001. This
percentage increase resulted primarily from a higher mix of Zip 250MB products
to Zip 100MB products, lower material costs, significantly lower operating
expenses reflecting the benefits of the Companys restructuring and other
actions implemented during the second half of 2001 and lower manufacturing
overhead.

CD-RW product loss for the
six months ended June 30, 2002 was $1.0 million and improved by $15.9 million,
or 93.9%, compared to a CD-RW product loss of $16.9 million for the six months
ended July 1, 2001. The lower CD-RW product loss in the six months ended June
30, 2002 was primarily due to significantly lower fixed manufacturing overhead
resulting from the change from an in-house assembly model to a fully sourced
model, the decision to exit the internal CD-RW drive business, the introduction
of the Companys Hotburn software, which eliminated third party software
license fees, reduced returns and lowered customer support costs and lower
operating expenses reflecting the benefits of the Companys restructuring
and other actions implemented during the second half of 2001.

Jaz PPM for the six months
ended June 30, 2002 was $3.0 million and decreased by $9.2 million, or 75.7%,
compared to Jaz PPM of $12.2 million for the six months ended July 1, 2001. The
lower Jaz PPM resulted primarily from lower units reflecting the Companys
decision to discontinue the Jaz drive. Jaz PPM as a percentage of Jaz sales
increased to 32.4% for the six months ended June 30, 2002, compared to 30.6% for
the six months ended July 1, 2001, primarily from a higher mix of disk to drive
sales in the six months ended June 30, 2002.

PocketZip PPM of $0.3
million increased $13.5 million for the six months ended June 30, 2002, compared
to a PocketZip product loss of $13.2 million for the six months ended July 1,
2001. The improved PPM resulted primarily from the Companys decision to
discontinue the PocketZip product line and the favorable settlement of certain
supplier inventory claims.

Other product losses of
$7.5 million were reduced by $6.9 million in the six months ended June 30, 2002,
compared to other product losses of $14.4 million in the six months ended July
1, 2001. The decrease in other product losses resulted primarily from the
elimination of product losses on FotoShow and lower product losses associated
with Peerless and software, resulting from start-up costs in the first six
months of 2001, partially offset by product losses and start-up costs associated with HDD
and NAS, which began shipping during the second quarter of 2002.

General corporate expenses
that were not allocated to PPM of $51.9 million in the six months ended June 30,
2002, decreased $10.1 million, or 16.2%, compared to $62.0 million for the six
months ended July 1, 2001. The $10.1 million decrease was comprised primarily of
$20.3 million in headcount and other cost reduction actions taken in the second
half of 2001 partially offset by $4.9 million in litigation expenses and $5.3
million in bonus and profit sharing costs.

## Selling,
General and Administrative Expenses (Including Bad Debt)

Selling, general and administrative
expenses (including bad debt) of $31.8 million for the second quarter of 2002
decreased by $23.0 million, or 42.0%, compared to $54.9 million for the second
quarter of 2001. The decrease in selling, general and administrative expenses
resulted primarily from headcount and other cost reduction actions taken in the
second half of 2001. The $23.0 million decrease was comprised of a $6.8 million
decrease in professional fees, a $6.1 million decrease in salaries, benefits and
commissions, a $6.0 million decrease in marketing expenses (see discussion
below), a $3.9 million decrease in depreciation due to the closure of
facilities, a $2.1 million improvement in bad debt and $1.1 million in other
cost reductions partially offset by $1.5 million in litigation expense and a
$1.5 million increase in bonus and profit sharing costs. The $2.1 million
improvement in bad debt resulted primarily from improved collections and from
lower receivables during 2002 and from the recording of a specific $1.5 million
reserve for collection issues with a U.S. customer in the second quarter of
2001.

Marketing accruals consist
of a variety of programs including various arrangements with customers and
suppliers such as marketing development funds (MDF), end cap
displays, cooperative advertising and other programs. The customer takes
deductions on its payments for those items that it believes the Company owes the
customer associated with MDF and other programs. As the Company attempted to
reverse the declining trends of revenue in 2000 and 2001, the volume of programs
increased significantly. The Company has undertaken an effort to evaluate the
programs and the related processes, accruals and deductions. Based on the
efforts in 2002, the Company has revised its estimate of required marketing
accruals during the quarter ended June 30, 2002 and released approximately $2.6
million in marketing accruals that related primarily to estimates associated
with prior period programs (included in the $6.0 million decrease in marketing
expenditures described above). In addition, the Company revised its estimates of
marketing accruals in the first quarter of 2002 and released $1.8 million. These
compare to $2.7 million of marketing accrual adjustments recorded in the first
six months of 2001 ($1.7 million and $1.0 million in the first and second
quarters of 2001, respectively). Although the Company has made progress in this
area, it is still an ongoing project and there could be additional positive or
negative adjustments to this estimate in the future.

Selling, general and
administrative expenses (including bad debt) decreased as a percentage of sales
to 21.9% for the second quarter of 2002, from 29.9% in the second quarter of
2001, as overall selling, general and administrative costs declined at a faster
rate than sales declined due primarily to specific restructuring actions and
other cost reduction efforts and from other items as outlined above (MDF
adjustment, litigation expense and reduction in bad debt expense).

Selling, general and
administrative expenses (including bad debt) of $69.3 million for the six months
ended June 30, 2002 decreased by $45.1 million, or 39.4%, compared to $114.4
million for the six months ended July 1, 2001. The decrease in selling, general
and administrative expenses resulted primarily from headcount and other cost
reduction actions taken in the second half of 2001. The $45.1 million decrease
was comprised of a $14.7 million decrease in salaries, benefits and commissions,
a $14.5 million decrease in marketing expenses (see marketing accrual discussion
above), a $9.7 million decrease in professional fees, a $7.7 million decrease in
depreciation due to the closure of facilities, a $2.5 million improvement in bad
debt and $4.6 million in other cost reductions partially offset by $4.9 million
in litigation expenses and a $3.7 million increase in bonus and profit sharing
costs. The $2.5 million improvement in bad debt resulted primarily from improved
collections and lower receivables during 2002 and from the recording of a
specific $1.5 million reserve for collection issues with a U.S. customer in
2001.

Selling, general and
administrative expenses (including bad debt) decreased as a percentage of sales
to 21.4% for the six months ended June 30, 2002, from 24.8% for the six months
ended July 1, 2001, as overall selling, general and administrative costs
declined at a faster rate than sales declined due to specific restructuring
actions and other cost reduction efforts and from other items as outlined above
(MDF adjustment, litigation expenses and reduction in bad debt expense).

Selling, general and
administrative expenses are anticipated to increase in absolute dollars for the
remainder of 2002 due to seasonality and various initiatives that the Company is
undertaking to reverse the sales decline.

## Research and
Development Expenses

Research and development expenses
of $8.9 million for the second quarter of 2002 decreased by $4.3 million, or
32.9%, when compared to $13.2 million for the second quarter of 2001. The lower
research and development expenses for the second quarter of 2002 resulted
primarily from headcount reductions and lower project expenses associated with
Peerless, software and Zip, partially offset by project expenses associated with
the development of higher capacity products. Research and development expenses
decreased as a percentage of sales to 6.1% in the second quarter of 2002, from
7.2% in the second quarter of 2001, as research and development costs declined
at a faster rate than sales declined due to specific restructuring actions and
other cost reduction efforts.

For the six months ended
June 30, 2002, research and development expenses of $17.5 million decreased by
$9.8 million, or 35.8%, when compared to $27.3 million for the six months ended
July 1, 2001. The lower research and development expenses for the first six
months of 2002 resulted primarily from headcount reductions and lower project
expenses associated with Peerless, software, Zip and CD-RW, partially offset by
project expenses associated with the development of higher capacity products.
Research and development expenses decreased as a percentage of sales to 5.4% in
the six months ended June 30, 2002, from 5.9% for the six months ended July 1,
2001, as research and development costs declined at a faster rate than sales
declined due to specific restructuring actions and other cost reduction efforts.

## Interest and
Other Income and Expense

Interest income of $2.4
million in the second quarter of 2002 decreased $1.9 million from $4.3 million
in the second quarter of 2002 primarily due to lower interest rates and lower
average cash, cash equivalents and temporary investment balances.

Interest and other expense
of $1.0 million in the second quarter of 2002 increased $0.8 million from $0.2
million in the second quarter of 2001. The increase resulted primarily from the
write off of the remaining $1 million carrying value of a research and
development venture investment which was included in other assets and from
increased interest expense associated with the amortization of bond holdings in
the Companys temporary investment portfolio. This increase in expenses was
partially offset by higher foreign currency gains.

Interest income of $4.7
million in the six months ended June 30, 2002, decreased $4.9 million from $9.6
million in the six months ended July 1, 2001 primarily due to lower interest
rates and lower average cash, cash equivalents and temporary investment
balances.

Interest and other expense
of $3.1 million in the six months ended June 30, 2002, increased $2.8 million
from $0.3 million in the six months ended July 1, 2001. The increase resulted
primarily from the write off of the $1.5 million carrying value of a research
and development venture investment which was included in other assets. The
remaining amount is primarily interest expense associated with the amortization
of bond holdings in the Companys temporary investment portfolio and bank
fees.

## Income Taxes

For the quarter ended June
30, 2002, the Company recorded an income tax provision of $6.3 million on
pre-tax income of $17.8 million which reflected an income tax provision of $7.0
million partially offset by a $0.7 million decrease in the valuation allowance
for net deferred tax assets. Excluding the $0.7 million decrease in the
valuation allowance, the effective tax rate for the second quarter of 2002 was
39.3%. This compares to an income tax benefit of $22.3 million on a pre-tax loss
of $58.2 million, or a 38.3% effective tax rate, for the second quarter of 2001.

Deferred tax assets and
liabilities are determined based on the differences between the financial
reporting and tax bases of assets and liabilities. They are measured by applying
the enacted tax rates and laws in effect for the years in which such differences
are expected to reverse. The realizability of the deferred tax assets is
evaluated quarterly in accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, which requires that
a valuation allowance be established when there is significant uncertainty as to
the realizability of the deferred tax assets.

At June 30, 2002, the
Company had $33.2 million of deferred tax assets related to U.S. federal and
state net operating loss carryforwards, which reflected a tax benefit of
approximately $85 million in future U.S. tax deductions. The U.S. federal net
operating loss carryforwards expire at various dates beginning in 2022 and the
state net operating loss carryforwards expire at various dates beginning in
2004.

The Company continues to
maintain a full valuation allowance of $15.2 million for deferred tax assets
related to foreign net operating loss carryforwards, which reflected the tax
benefit of approximately $35 million in future foreign tax deductions. These
carryforwards expire at various dates beginning in 2004. These deferred tax
assets remain fully reserved because their realization is dependent on earning
future foreign taxable income in the tax jurisdictions to which the net
operating loss carryforwards related. The largest of these foreign net operating
loss carryforwards relates to the Companys French subsidiary, Nomai S.A.
This subsidiarys operations have been shut down and therefore, the foreign
net operating loss carryforward related to Nomai S.A. is not likely to be
realized in the future.

Net deferred tax assets for
the Company at June 30, 2002 were $13.9 million. The minimum amount of future
taxable income that would have to be generated to realize the net deferred tax
assets is approximately $36 million. Management believes that the Companys
continued efforts to reduce costs to be more in line with expected sales will
allow the Company to generate sufficient future taxable income to realize its
net deferred tax assets. As such, management believes that it is more likely
than not that the net deferred tax assets will be realized. However, actual
results could differ from those estimates in the near future and therefore,
realization of the net deferred tax assets is not assured.

As of June 30, 2002,  deferred tax  liabilities  for estimated  U.S.  federal and state taxes of $60.1 million have
been accrued on unremitted  foreign  earnings of $154.1  million.  U.S. taxes have not been provided for unremitted
foreign  earnings  of $112.3  million.  These  earnings  are  considered  to be  permanently  invested  in non-U.S.
operations, primarily in the Company's manufacturing operations in Penang, Malaysia.

Although the Company has
consolidated its manufacturing operations into its Penang, Malaysia facility to
increase manufacturing efficiencies, this facility is still significantly
underutilized. The Company is evaluating various alternatives to resolve this
underutilization, including divestment and outsourcing of its manufacturing
operations. The Company is currently in negotiations with a third party
concerning the possible sale of this facility, however, management has not committed to a
plan. If a decision is made to divest of the manufacturing operations in Penang,
it is likely to result in future charges and could affect the status of the
Companys $112.3 million of permanently invested foreign earnings. The
additional unrecorded deferred U.S. tax liability and increased tax provision,
if such amounts were no longer considered permanently invested, would be
approximately $44 million. No cash impact would be incurred unless the cash was
repatriated.

For the six months ended
June 30, 2002, the Company recorded an income tax provision of $1.7 million on
pre-tax income of $44.4 million which reflected an income tax provision of $18.2
million partially offset by a $16.5 million decrease in the valuation allowance
for net deferred tax assets. Excluding the $16.5 million decrease in the
valuation allowance, the effective tax rate for the six months ended June 30,
2002 was 41.0%. This compares to an income tax benefit of $16.0 million on a
pre-tax loss of $42.0 million which reflected an income tax benefit of $16.4
million partially offset by a $0.4 million increase in the valuation allowance
for foreign net deferred tax assets for the six months ended July 1, 2001.
Excluding the $0.4 million increase in the valuation allowance for foreign net
deferred tax assets, the effective tax benefit for the six months ended July 1,
2001 was 39.0%. The increase in the effective tax rate, excluding adjustments to
the valuation allowances, from 39.0% in the first six months of 2001 to 41.0% in
the first six months of 2002 resulted primarily from the expiration of foreign
tax credits due to the carryback of the 2001 net operating loss to 1996, allowed
by the Job Creation and Worker Assistance Act of 2002.

The $16.5 million decrease
in the valuation allowance for net deferred tax assets during the six months
ended June 30, 2002, resulted primarily from a reduction in net deferred tax
assets associated with net operating loss carryforwards. This reduction was
primarily in response to the passage of the Job Creation and Worker Assistance
Act of 2002, which allows for a 5-year carryback and utilization of a portion of
the Companys 2001 tax net operating loss.

## Liquidity and
Capital Resources

At June 30, 2002, the
Company had total cash, cash equivalents and temporary investments of $372.1
million, compared to $329.1 million at December 31, 2001, an increase of $43.0
million or 13.1%. At June 30, 2002, $1.9 million of the total cash on deposit
was restricted in its use, compared to $4.1 million at December 31, 2001 (see
below for more details).

At June 30, 2002, $144.9
million of cash, cash equivalents and temporary investments were on deposit in
the U.S., compared to $135.5 million at December 31, 2001.

At June 30, 2002, the
remaining $227.2 million of total cash, cash equivalents and temporary
investments were on deposit in foreign countries (primarily Western Europe),
compared to $193.6 million at December 31, 2001. Cash dividends of foreign
earnings (such as the repatriation of any of the $227.2 million of foreign cash)
to the U.S. would be considered taxable in the U.S. for federal and state tax
purposes at a rate of approximately 39%.

Working capital of $368.6
million at June 30, 2002 increased by $53.7 million, compared to $314.9 million
at December 31, 2001. The increase in working capital resulted primarily from
higher cash, cash equivalents and temporary investments, lower accounts payable,
lower other current liabilities and higher income taxes receivable, partially
offset by lower trade receivables, lower inventories and lower current deferred
income taxes. The Companys ratio of current assets to current liabilities
increased to 3.4 to 1 at June 30, 2002 from 2.4 to 1 at December 31, 2001.

For the six months ended
June 30, 2002, cash provided by operating activities amounted to $54.0 million,
an increase of $57.3 million compared to cash used for operating activities of
$3.3 million for the six months ended July 1, 2001. The higher cash provided
from operating activities resulted primarily from improved operating results and
from changes in current assets and current liabilities as described below.

Accounts receivable
decreased in the six months ended June 30, 2002 primarily from lower sales and
improved collections. Days sales outstanding in receivables improved to 33 days
at June 30, 2002, compared to 42 days at December 31, 2001. Accounts payable
decreased primarily from lower levels of purchasing resulting from lower sales
volumes, lower inventories and cost reductions. Other current liabilities
decreased primarily from lower marketing accruals, lower restructuring accruals
and lower purchase commitments. Income taxes receivable increased primarily from
the passage of the Job Creation and Worker Assistance Act of 2002, which allows
for the 5-year carryback and utilization of a portion of the Companys 2000
and 2001 tax net operating losses. Inventory decreased primarily due to lower
levels of Zip and Peerless inventories and a concentrated effort to improve
inventory turnover.

For the six months ended
June 30, 2002, the Company made $7.8 million in cash payments related to the
2001 restructuring actions and made $5.3 million in cash payments related to the
second and third quarter 2001 non-restructuring actions.

During the six months ended
June 30, 2002, the Company repurchased 340,400 shares of the Companys
Common Stock for $2.9 million. For the six months ended July 1, 2001, the
Company repurchased 20,000 shares of the Companys Common Stock for $0.3
million. As of June 30, 2002, approximately $122.3 million remained available
for future repurchases under the stock repurchase plan authorized by the
Companys Board of Directors on September 8, 2000. Any repurchase of shares
is expected to be funded using the Companys available working capital.

In connection with the
class action lawsuit, Rinaldi, et al. v. Iomega Corporation, as part of
the Court approved settlement, the Company agreed to an award of $4.1 million
for plaintiffs attorneys fees (For more information about the
lawsuit, see Note 5 Commitments and Contingencies in the notes to
condensed consolidated financial statements). Accordingly, the Company funded
$4.1 million into an escrow account. During June 2002, this escrow account was
paid to the plaintiffs attorneys.

During the first quarter of
2002, the Company classified $1.8 million of cash as restricted cash to secure a
bank agreement associated with an outstanding letter of credit. Per the bank
agreement, this cash has been set aside in a certificate of deposit and cannot
be utilized by the Company until after the letter of credit expires in July
2002. Restricted cash could increase in the future as the Company enters into
new letters of credit. The Company also has $0.1 million of restricted cash to
cover foreign bank guarantees for VAT. This cash is reported separately as
restricted cash in the condensed consolidated balance sheets.

The Company believes that
its balance of unrestricted cash, cash equivalents and temporary investments,
together with cash flows from future operations, will be sufficient to fund the
Companys anticipated working capital requirements, capital expenditures,
previously announced stock repurchase program and cash required for
restructuring and non-restructuring actions and other activities during the next
twelve months. However, cash flow from future operations, investing activities
and the precise amount and timing of the Companys future financing needs,
cannot be determined at this time and will depend on a number of factors,
including the market demand for the Companys products, the Companys
ability to stop its sales decline, competitive price pressures, worldwide
economic conditions, the availability of critical components, the progress of
the Companys product development efforts, the financial stability of the
Companys customers, the necessity for future restructuring or other
charges which might consume cash and the success of the Company in managing its
inventory, forecasting accuracy, trade receivables and accounts payable. Should
the Company be unable to meet its cash needs from its balance of unrestricted
cash, cash equivalents and temporary investments and cash flows from future
operations, the Company would most likely seek financing from other sources or
incur additional restructuring charges to adjust the Companys expenditures
to a level that its cash flows could support.

The Companys balance
of unrestricted cash, cash equivalents and temporary investments is its primary
source of liquidity. The Company currently does not have a credit facility in
place and given the status of current capital markets, there is no assurance
that if needed, the Company would be able to obtain financing from external
sources.

## Other Matters

SEC Review

As previously disclosed, in
connection with a review of the Companys periodic SEC reports, the Company
has received comments from the staff of the SEC requesting various supplemental
information and certain additional disclosures. The Company has provided such
disclosures in its subsequent SEC filings as applicable. The staff has also
questioned aspects of the Companys accounting for its 1998 acquisition of
Nomai, the subsequent evaluation of impairment of goodwill relating to the Nomai
acquisition and the restructuring charges recorded by the Company in 1999.

In particular, the staff
has questioned whether: (a) in connection with the Nomai acquisition,
approximately $9.5 million of the acquisition cost should have been recorded as
post-acquisition expenses, rather than as goodwill; (b) any remaining
unamortized goodwill relating to the Nomai acquisition should have been written
off in the third quarter of 1999 when the Company decided to cease manufacturing
at the Nomai facilities in Avranches, France (the amount of unamortized goodwill
reported by the Company at the end of the third quarter of 1999 was $28
million); and (c) the Company had in place a sufficiently detailed plan to
support the restructuring charges which amounted to $41.9 million and $25.9
million in the second quarter and second half of 1999, respectively.

The Companys
management believes that the Companys accounting for each of these
matters, which is described in the Companys 2000 Annual Report on Form
10-K, was in accordance with accounting principles generally accepted in the
United States and applicable accounting literature. However, there can be no
assurance that the Company will prevail in its position. If the Company does not
prevail, the Company may be required to restate its financial statements in
order to adjust the manner in which it has accounted for the Nomai acquisition,
the subsequent evaluation of the impairment of the goodwill relating to the
Nomai acquisition and the 1999 restructuring actions. The Company does not
believe that any such restatement would have a material adverse effect on the
Companys current financial condition or future results of operations.

Recent Accounting Pronouncements

In August 2001, the FASB
issued Statement of Financial Accounting Standards No. 143, Accounting for
Asset Retirement Obligations (SFAS 143). SFAS 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS 143 applies to all entities. It applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and (or) the normal operation of a
long-lived asset, except for certain obligations of lessees. SFAS 143 requires
that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. SFAS 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002. The
Company plans on adopting SFAS 143 beginning on January 1, 2003. The Company
believes that SFAS 143 will not have a material effect on the Companys
results of operations, financial position or liquidity.

In July 2002, the FASB
issued Statement of Financial Accounting Standards No. 146, Accounting for
Costs Associated with Exit or Disposal Activities (SFAS 146).
SFAS 146 addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force
(EITF) issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit and Activity (including
Certain Costs Incurred in a Restructuring) (EITF 94-3). SFAS
146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF 94-3, a
liability for an exit cost was recognized at the date of an entitys
commitment to an exit plan. A fundamental conclusion reached by the FASB in SFAS
146 is that an entitys commitment to a plan, by itself, does not create an
obligation that meets the definition of a liability. Therefore, SFAS 146
eliminates the definition and requirements for recognition of exit costs in EITF
94-3. SFAS 146 also establishes that fair value is the objective for initial
measurement of the liability. SFAS 146 is effective for exit or disposal
activities that are initiated after December 31, 2002, with early adoption
encouraged. The Company believes that SFAS 146 will not have a material effect
on the Companys results of operations, financial position or liquidity.

## Factors
Affecting Future Operating Results

The Companys future
operating results will depend in large part on the success of its product
solutions for personal computers and other devices. Although the Company
believes there is a market demand for its storage devices, there is no assurance
that the Company will be successful in establishing its products as the
preferred solutions for those market needs. The extent to which the
Companys products achieve and maintain a significant market presence will
depend upon a number of factors, including the price, performance, quality and
other characteristics of the Companys products and of competing and
substitute solutions rumored, announced or introduced by other vendors; the
emergence of any competing solutions as industry standards; the success of the
Company in meeting targeted availability dates for new and enhanced products;
the success of the Company in establishing and maintaining OEM arrangements and
meeting OEM quality, supply and other requirements; the willingness of OEMs to
promote computers and other products containing the Companys drives; the
ability of the Company to create demand for its products; the success of the
Companys efforts to maintain customer service and satisfaction; the public
perception of the Company and its products, including statements made by
industry analysts or consumers and adverse publicity resulting from such
statements or from litigation filed against the Company; and worldwide economic
conditions, including overall market demand for personal computers and other
products with which the Companys products can be used.

The Companys business
strategy is dependent on maximizing sales of its proprietary Zip disks, which
generate significantly higher gross and product profit margins than the related
drives or other Company products. If the Companys strategy concerning Zip
disks is not successful, because the Company is unable to stop the decline in
Zip drive sales, because the Company is not successful in its strategy to
increase Zip disk usage by existing Zip drive customers, because the sales mix
between Zip disks and drives is below levels anticipated by the Company, because
another party succeeds in producing or marketing disks that are compatible with
any of the Companys Zip drive products without infringing the
Companys proprietary rights, because any price reductions or promotions on
Zip disks fail to produce a commensurate increase in demand, because planned new
versions of higher capacity Zip drives are not successful or reduce overall Zip
disk sales, because of any disruption in the manufacturing process,or
for any other reason, then the Companys sales would be adversely affected
and its results of operations would be disproportionately adversely affected.

A portion of the
Companys overall Zip disk sales are through private label customers. The
Company generally earns a lower gross margin on private label disk sales. The
reason for this is that private label prices generally provide a functional
discount to the private label customer because they agree to incur all of the
sales, marketing and distribution expenses associated with reselling the disks
under their brand name, and may also provide a volume discount where
appropriate. If this private label portion materially increases, because of the
lower gross profit margins or lower prices associated with private label Zip
disk sales, it would have an adverse impact on the Companys overall gross
margin from sales of Zip disks.

Sales of Zip products have
accounted for a significant majority of the Companys sales and profits
since 1996. However, these sales have been declining and, in the second quarter
of 2002, Zip sales decreased 20.1% from the first quarter of 2002 and 20.3% from
the second quarter of 2001. The level of future sales of Zip drives to end user
customers will depend in large part on the Companys ability to effectively
position the Zip product line features versus CD-RW drives, increase the
capacity of its Zip products and to further reduce costs to compete against
other substitute technologies. The level of future shipments of Zip drives to
OEM customers will depend in large part on the Companys ability to further
reduce the cost of Zip drives, the success of future efforts to supply new
versions of Zip drives and on the extent to which the incorporation of CD-RW or
DVD-Recordable drives into OEM products results in a reduction in the demand for
OEM products also incorporating a built-in Zip drive. There is a trend among
personal computer OEM customers to adopt internal CD-RW drives as a standard
product feature and this trend has adversely impacted the Companys Zip
business. This trend is expected to continue and there can be no assurance that
the Company will be successful in mitigating the adverse impact. The loss of an
OEM customer, such as Dell, would have an immediate, material adverse effect on
the Companys operating results. Notwithstanding the foregoing challenges
and risks, the Companys future operating results are dependent upon its
ability to stabilize the Zip products business and to stop the Zip sales
decline. For example, during the second quarter of 2002, the PPM for the Zip
business was $40.5 million versus a product loss of $3.1 million on all other
product segments. There is no assurance that the Company will be successful in
achieving this critical business objective of stabilizing and improving its Zip
business.

The Companys business
strategy for CD-RW is different from its strategy for its Zip products because
all of the drives are sourced from suppliers and marketed under the Iomega brand
name without any significant manufacturing activity by the Company. The CD-RW
drives do not use proprietary disks and have significantly lower overall gross
margins. Given the low gross margins and frequency of new product introductions,
the Company must closely monitor its inventory levels, product transitions,
sales channel inventory, purchase commitments, advertising and other marketing
expenses in order to sell the product profitably. There is no assurance that the
Company can achieve these objectives. The CD-RW drive market is very competitive
and includes several established participants. Since the Companys
introduction of its CD-RW products in 1999, the Company has reported product
losses on CD-RW each year through 2001. For example, during 2001, the Company
recorded a product loss of $53.0 million (including restructuring and
non-restructuring charges). During the second quarter of 2002, the Company
recorded a product loss of $1.1 million. There is no assurance that the Company
will not incur significant losses associated with the CD-RW platform in the
future. The Company has developed a business strategy around its CD-RW products
including the selection of a new supplier in late 2001, significantly reduced
overhead associated with this segment, improved inventory management processes
and revised channel marketing programs. The Company began implementing this
strategy in the third and fourth quarters of 2001 but there is no assurance that
this strategy or the CD-RW products will be successful or achieve profitability
in the remainder of 2002. The supplier, as the original manufacturer, has
certain competitive advantages over the Company in the marketplace, including
the ability at any time to sell substantially identical drives at lower prices
than the Company. Also, the Company faces competition and price cutting from
other low cost vendors. As discussed above, the Company believes that there is a
trend among personal computer manufacturers to adopt internal CD-RW drives as a
standard product feature. This trend is expected to continue and the Company
expects that this will have an adverse impact on the long-term market demand for
external CD-RW drives. Further, the Company believes that over the long term,
some customers will transition from CD-RW drives to DVD-Recordable drives, and
the Company believes that this transition will have an adverse impact on the
long term external CD-RW market. In addition, the Company has witnessed a trend
of price competition from aftermarket internal drives, which are relatively more
inexpensive compared to external CD-RW drives. The increasing price advantage of
aftermarket internal drives creates a risk for future sales of the
Companys external CD-RW drives. The Company believes that the overall
market for external CD-RW drives is no longer growing, while the market for OEM
internal CD-RW drives, is still expanding, further threatening sales of external
drives.

During the second quarter
of 2002, the Company began shipping a series of external Hard Disk Drive
(HDD) offerings. The Company expects this sector to continue to be
highly price competitive and the Companys success will depend on its
ability to meet aggressive product price and performance targets. The
Companys prior HDD offering, Peerless, faced competitive cost challenges
and the Company was unable to sell this product profitably. There is no
assurance that the HDD products will achieve profitability or significant market
presence or otherwise be successful.

During 2001, the Company
began selling NAS devices. In introducing this product line, the Company is
attempting to leverage the Iomega brand name and its small to medium size
business customer base to expand into the network infrastructure, or back
office market, as opposed to the personal computer desktop/laptop, or
front office market. The NAS market is dominated by large computer
and data storage providers (including Quantum, Maxtor, Dell, IBM and Hewlett
Packard/Compaq), is highly price competitive, primarily relies upon value added
sales channels and requires core competencies in server, software and networking
technologies. The Company is developing a strategy to address these requirements
and challenges. NAS is an emerging category and even more so in the small to
medium size business customer space. With competitive marketing efforts being
focused more on Enterprise solutions, the adoption of NAS into the small to
medium size business customer space may not be as rapid. In March 2002, the
Company announced the launch of four NAS devices. There is no assurance that the
Company will be successful in developing the necessary core competencies in this
market segment, that the Companys NAS products will be successful, that
the Company will be successful in implementing its back office
strategy or will achieve profitability on this product line in 2002 or
thereafter.

During 1999, 2000 and 2001,
the Company invested significant resources in developing and launching new
products, including Peerless, PocketZip, HipZip, FotoShow and Microdrive
products. The Company was unable to sell these products profitably.
Notwithstanding, the Company believes that its future results are further
dependent upon its ability to develop or acquire new product lines while still
maintaining a strong focus on its Zip product line. In addition to NAS products
and new HDD products, as described above, the Company expects to review new
business opportunities in multiple areas including the areas of software, disks,
drives, networking and services. There is no assurance that any new products or
services will achieve profitability or significant market presence or otherwise
be successful.

The Company has experienced
and may in the future experience significant fluctuations in its quarterly
operating results. Moreover, because the Companys expense levels
(including budgeted selling, general and administrative and research and
development expenses) are based in part on expectations of future sales levels,
a shortfall in expected sales could result in a disproportionate adverse effect
on the Companys net income and cash flow.

The Companys future
operating results are subject to risks associated with general economic
conditions and consumer confidence. A decrease in consumer spending could have a
direct impact on the Companys sales. Any disruption in general economic
conditions including those caused by acts of war, terrorism or other factors
could have an adverse impact on the Companys results.

The Company believes that
economic conditions in the personal computer industry have deteriorated and this
downturn has affected the computer resellers, distributors and retailers who
sell the Companys products. Although the Company uses commercially
reasonable steps to manage the credit granted to its customers, certain
receivable balances from one or more of its customers may become uncollectible.
This event could adversely affect the Companys financial results. There is
no assurance that the Company wont be required to increase its allowance
for doubtful accounts in the future.

Management of the
Companys inventory levels is very complex. The Companys customers
frequently adjust their ordering patterns in response to various factors
including: perceptions of the Companys ability to meet demand; the
Companys and competitors inventory supply in the retail and
distribution channel; timing of new product introductions; seasonal
fluctuations; Company and customer promotions; the consolidation of customer
distribution centers; pricing considerations; and the attractiveness of the
Companys products compared with competing products. Customers may increase
orders during times of shortages, cancel orders if the channel is filled with
currently available products, or delay orders in anticipation of new products.
Any excess supply could result in price reductions and/or inventory write-downs,
which in turn could adversely affect the Companys results of operations.
For example, during the second and third quarters of 2001, the Company recorded
inventory reserves of $31.9 million, loss accruals for related supplier purchase
commitments and contract cancellation costs of $27.4 million and accruals of
$2.2 million were recorded to reflect valuation reserves for inventory in the
channel. There is no assurance that there will not be additional charges related
to excess supply in the future.

The Companys business
includes a significant volume of OEM sales. In an OEM business, a high
proportion of sales are concentrated among a small number of customers. Although
the Company believes its relationships with OEM customers are generally good, a
relatively small number of customers represent a business risk that the loss of
one or more accounts could adversely affect the Companys financial
condition or operating results. The Companys customers are generally not
obligated to purchase any minimum volume and are generally able to terminate
their relationship with the Company at will. The Company believes that there is
a trend among personal computer OEM customers to adopt CD-RW drives as a
standard product feature and this trend has adversely impacted the
Companys Zip business. This trend is expected to continue and there can be
no assurance that the Company will be successful in mitigating the adverse
impact.

The Company believes that
in order to compete successfully against current and future sources of
competition, it will be necessary to further reduce the manufacturing costs of
its products. If the lower sales volumes recently reported by the Company result
in less favorable pricing for components purchased from third parties, the
Companys ability to reduce manufacturing costs may be adversely affected.
Although the Company has consolidated its manufacturing operations into its
Penang, Malaysia facility with the goal to increase manufacturing efficiencies,
this facility is still significantly underutilized. The Company is evaluating
various alternatives to resolve this underutilization and transition to a
variable cost manufacturing model, including the divestment and outsourcing of
its manufacturing operations. The Company is currently in negotiations with a
third party concerning the possible sale of this facility, however, management
has not committed to a plan. There is no assurance that the Company will be able
to resolve this issue. The implementation of any strategy other than the current
utilization of the facility would likely result in future charges. The net book
value of the Penang building and land, as of June 30, 2002 was $21.4 million. If
the Company does divest and outsource its Penang manufacturing operations, the
Company could, as a result, face disruption related to that effort, including
but not limited to: loss of control over the manufacturing operations and
supply, and loss of resulting flexibility to adjust or determine plans; loss of
in-house manufacturing capability; possible increased product costs, if volumes
decline, or increased operational costs; the possibility of the purchaser
terminating the arrangement and the Company having to reacquire equipment and
capacity; charges related to the sale of the facility; risks of attempting to
proceed with the divestiture and then failing to obtain needed regulatory
approvals; disruption in order management; risks of an interruption in supply,
or of a decline in quality; turn-over of knowledgeable personnel or loss of
technical skill sets; transition of computer systems or information systems that
impede communication or supply management; distribution risks in the Asia
Pacific region; risks associated with the product return process in the Asia
Pacific region; consumption of management time used to oversee the divestment,
or changes to supply costs. Furthermore, the Penang facility is the only
manufacturing facility producing Zip drives and thus plays a key role in the
Companys supply and sale of Zip drives, increasing the significance of any
difficulties encountered at that facility.

With the Companys
outsourcing of its distribution and logistics centers, the Company is becoming
more reliant on the computer systems of its outsourcing partners. The Company
faces risks that these systems may have communication, control or reliability
issues. In the outsourcing of its European distribution and logistics function,
disparate computer systems between the Company and its outsourcing partner
necessitated the creation of manual processes in order to record certain
transactions. Manual processes may be more prone to error than automated
processes and the Company is working to reautomate these processes but this
effort has not been completed.

The Company faces
development, manufacturing and demand risks with regard to recently introduced
products and future products. Future operating results will also depend on the
Companys ability to effectively manage obsolescence risks associated with
products that are phased out and its success in anticipating and ramping to
volume production of new or enhanced products. The factors described above
relating to the Companys products are, or will be, relevant to any other
products currently sold by the Company or new products introduced by the Company
in the future. For example, the Company expects to introduce new higher capacity
Zip drives in the future. This could result in a decline in demand for current
Zip products, which would require the Company to manage the current inventory of
Zip products, including drives and disks, effectively in the face of reduced
demand, so that the Company would have sufficient volumes of the new products
(disks and drives) and would not have an excess volume of the other products
sold by the Company.

In addition, the
Companys planned introduction of new products may create additional risks
for the Company. New products may experience unforeseen manufacturing and
technical challenges; they may have performance issues that are only discovered
in the context of usage by large numbers of consumers, that did not appear prior
to mass distribution; the products may lack market acceptance; and third party
patent holders may seek to assert patent claims against each new product, so
that every new product creates increased risk that some patent holder will seek
to assert patent infringement, to claim royalties or to limit sales of competing
products.

The Company has experienced
problems and may experience problems in the future, relating to the quality,
reliability and/or availability of certain of its products. For example, the
Company has in the past recalled certain products and experienced manufacturing
interruptions due to quality problems. The Company has substantially completed
the outsourcing of its European product distribution center and logistics. In
any such complex outsourcing project, delays, disruptions and other problems may
occur even after implementation. Any product availability, delays, disruption,
shipping, quality or reliability problems experienced by the Company, or claims
filed against the Company as a result of these problems, could have an adverse
effect on the Companys sales and net income, result in damage to the
Companys reputation in the marketplace and subject the Company to damage
claims from its customers. In addition, component problems, shortages, quality
issues or other factors affecting the supply of the Companys products
could provide an opportunity for competing products to increase their market
share.

Future operating results
also depend on intellectual property and antitrust matters including the
possibility that infringement claims asserted from time to time against the
Company could result in an injunction against future product shipments, require
the Company to pay royalties to a third party in order to continue to market and
distribute one or more of the Companys current or future products and also
include the possibility that the Company would be required to devote unplanned
resources to developing modifications to its products or marketing programs. The
Company must routinely review and respond to claims from third parties for
patent royalties, both on products designed or sold by the Company and products
designed and supplied to the Company by third parties. Patent infringement
demand letters and lawsuits can sometimes be resolved expeditiously, but can
sometimes be very costly, with legal fees and costs running into the millions of
dollars. Patent infringement plaintiffs often request, as damages, either a
royalty off of product sales, or lost profits. Also, where a plaintiff alleges
that infringement of a patent was willful, the plaintiff may seek treble damages
and attorney fees.

The Company has experienced
difficulty in the past and may experience difficulty in the future, in obtaining
a sufficient supply of many key components on a timely and cost effective basis.
Also, many components incorporated or used in the manufacture of the
Companys products are currently available only from single or sole source
suppliers or from a limited number of suppliers and are purchased by the Company
without guaranteed supply arrangements. The Company has entered into an
agreement with Lite-On Corporation where Lite-On has become the provider of
substantially all of the Companys CD-RW drives. Media used in Zip 100MB
and 250MB disks is obtained exclusively from Fuji Photo Film, certain integrated
circuits used in Zip drives are obtained exclusively from Texas Instruments and
head stack assemblies (HSAs) used in Zip notebook drives are
obtained exclusively from SAE Magnetics. Further, the HSAs used in Zip drives
are considered to be mature technologies. A supplier of one of the components
used to produce the HSAs has announced its intention to discontinue
manufacturing. The Company has an agreement in principle with this supplier for
an adequate supply of material for the entire life cycle of this product. Other
suppliers of components of HSAs or other assemblies may discontinue one or more
components. For example, during second quarter 2002, two suppliers announced the
end of life of integrated circuits used in certain Zip drive models. The Company
has already ordered supplies of the integrated circuits, to satisfy its
estimated future needs. In any additional instance of a required product
component ceasing production in the future, the Company would similarly attempt
to make an end-of-life purchase on the required component(s) based on its
estimates of all future requirements. There is no assurance that an end-of-life
purchase would be available. Moreover, there can be no assurance that any
estimate of future requirements would be accurate or that the components
purchased would not be subsequently lost, become defective or be otherwise
damaged. In summary, there can be no assurance that the Company will be able to
obtain a sufficient supply of components on a timely and cost effective basis.
The inability to obtain sufficient components and equipment to obtain or develop
alternative sources of supply at competitive prices and quality or to avoid
manufacturing delays could prevent the Company from producing sufficient
quantities of its products to satisfy market demand (or, in the case of a
component purchased exclusively from one supplier, the Company could be
prevented from producing any quantity of the affected product(s) until such
component becomes available from an alternative source); delay product
shipments; increase the Companys material or manufacturing costs; cause an
imbalance in the inventory levels of certain components and cause the Company to
modify the design of its products to use a more readily available component,
which may result in product performance problems. Any or all of these problems
could in turn result in the loss of customers, provide an opportunity for
competing products to achieve market acceptance and otherwise adversely affect
the Companys business and financial results.

The purchase orders under
which the Company buys many of its components generally extend at most one to
two quarters in the future based on the lead times associated with the specific
component. The quantities on the purchase order are based on estimated sales
requirements. In the case of new products or products with declining sales, it
is difficult to forecast product demand. Any misestimate of demand can result in
either insufficient or excess capacity and/or purchase commitments. During the
second quarter of 2001, the Company recorded charges of $18.3 million for
supplier purchase commitments and $16.8 million for inventory reserves. During
the third quarter of 2001, the Company recorded additional charges of $15.1
million for inventory reserves and $9.1 million for the termination of various
contractual agreements. There is no assurance that the Company will not be
required to take future charges attributable to forecasting inaccuracies.

The Company recorded
restructuring and other charges during the second, third and fourth quarters of
2001 of $47.1 million, $64.4 million and $4.6 million, respectively, in
connection with the following restructuring and other actions: to adjust the
Companys operating structure in accordance with sales expectations, reduce
the Companys break-even point and improve operating cash flow; reduce the
Companys global workforce in all functional areas during 2001 by 1,465
persons or approximately 43% from 3,429 employees at December 31, 2000;
streamline the Companys supply chain and logistics strategy, including the
closure and outsourcing of the Companys distribution facility in North
Carolina; planned closure in 2002 and outsourcing of the Companys
distribution center and logistics in Europe; consolidate labor-intensive tasks
into Malaysia; consolidate the Companys operations and facilities,
including the relocation of Corporate Headquarters to San Diego, California; and
revise the Companys product strategy. There is no assurance that
additional restructuring and other actions will not be necessary in 2002. For
example, although the Company has consolidated its manufacturing operations into
its 376,000 square foot Penang, Malaysia facility to increase manufacturing
efficiencies, this facility is still significantly underutilized. The Company is
evaluating various alternatives to resolve this underutilization, including
divestment and outsourcing of its manufacturing operations. The Company is
currently in negotiations with a third party concerning the possible sale of
this facility, however, management has not committed to a plan. The
implementation of any strategy other than the current utilization of the
facility will likely result in future charges. The net book value of the Penang
building and land, as of June 30, 2002 was $21.4 million.

During the second quarter
of 2002, the Company received from the Malaysian authorities a waiver of minimum
local content requirements, so that the Company continues to qualify for a full
Malaysian tax holiday for the tax years 1997 through 2001. The Company has
applied for a renewal of the tax holiday certificate for the tax years 2002
through 2006. Since the Company has received a waiver of local minimum content
requirements, management believes that it is likely that the Company will
receive a renewal of its tax holiday for the second five year period (2002
through 2006). If the tax holiday certificate for this second five year period
is not approved, there could be a material adverse impact on the Companys
tax provision and net income.

Although the Company has
already reduced operational expenses, there is no assurance that these
reductions are sustainable. Management expects that these restructuring and
other actions will reduce future operational and manufacturing expenses.
Management further expects the need to implement additional operational cost
reductions. However, there is no assurance that the Company will be successful
in its efforts to reduce expenses in future periods. In carrying out these
actions, the Company is at risk that key personnel and experience may be lost.
The Company may experience disruptions of information technology systems and
other business operations or may lose institutional knowledge. The Company may
incur legal liability and claims associated with the restructuring and layoffs.
In consolidating or outsourcing facilities, the Company may experience
disruptions in product shipments. Any disruption could adversely affect the
Companys financial results.

The Companys success
depends in large part upon the services of a number of key employees and the
loss of the services of one or more of these key employees could have a material
adverse effect on the Company. In June 2001, Werner T. Heid joined the Company
as President and Chief Executive Officer replacing Bruce R. Albertson who
resigned as President and Chief Executive Officer in May 2001. With this change
in the Chief Executive Officer, the Company has had several other changes in its
senior management team including the hiring of a new Chief Financial Officer,
General Counsel, Executive Vice President of Operations and Research and
Development, Vice President of Human Resources and Facilities and several other
officers. The Companys success will depend in part on its ability to
attract and retain highly skilled personnel and to maintain continuity and
stability within the Companys senior management team.

During the third quarter of
1999, the Company announced plans to cease its Nomai manufacturing operations in
Avranches, France and ceased operations shortly thereafter. There is no
assurance that the Companys cessation of manufacturing operations in
France will not result in significant additional legal or other costs that have
not already been accrued for in the restructuring charges recorded in 1999. See
Note 5 of the notes to condensed consolidated financial statements for more
information concerning Nomai litigation.

Significant portions of the
Companys sales are generated in Europe and Asia. The Companys
existing infrastructure outside of the United States is less mature and
developed than in the United States. Consequently, future sales and operating
income from these regions are less predictable than in the United States. The
Companys international sales transactions are generally denominated in
U.S. dollars. However, beginning in January 2002, the Company began invoicing
the majority of its European customers in Euros. Fluctuation in the value of
foreign currencies relative to the U.S. dollar that are not sufficiently hedged
by foreign customers could result in lower sales and have an adverse effect on
future operating results (see Quantitative and Qualitative Disclosures
About Market Risk below).

Doing business outside the
United States can be difficult to manage or to properly execute. American
executives may overlook local trends outside the United States, market
ineffectively in a foreign country, institute efforts from an American
perspective that are unsuccessful outside the U.S., or be unaware of customs or
laws in other countries, with resulting legal exposure, complaints, cost
inefficiencies, or weak sales.

At June 30, 2002, net
deferred tax assets not covered by valuation allowances was $13.9 million. The
minimum amount of future taxable income that would have to be generated to
realize these net deferred tax assets is approximately $36 million. As such, as
business conditions change, there is the risk that the Company may not be able
to realize its remaining unreserved net deferred tax assets and may have to
increase the valuation allowance for these assets in the future.

The Company has substantial
balances of cash, cash equivalents and temporary investments. Significant
portions of these balances are invested in investment grade instruments and
securities, including commercial paper and corporate bonds. The Company monitors
these investments in accordance with the Companys investment policies.
There can be no assurance that adverse events or developments in regard to a
corporate or municipal issuer would not have a material adverse affect on the
Companys financial position or operating results.

The Company has issued
stock options that are subject to variable plan accounting in accordance with
FASB Interpretation No. 44 Accounting for Certain Transactions Involving
Stock Compensation (Interpretation 44). Under variable plan
accounting, the Company is required to recognize compensation expense in its
statement of operations for any increase in the market price of the
Companys Common Stock above $20.00 (the market price at July 1, 2000,
which was the effective date of Interpretation 44). This compensation expense
must be recorded on a quarterly basis until the option is exercised, forfeited
or expires unexercised. The impact of the new options granted under the Exchange
Program on the Companys financial statements will depend on quarterly
fluctuations in the Companys Common Stock price and the dates of
exercises, forfeitures or cancellations of the new options by employees. At June
30, 2002, there were approximately 132,000 shares subject to variable plan
accounting. Depending on these factors, the Company could be required to record
significant compensation expense during the life of the options, which expire in
April 2010. Moreover, because the precise amount of compensation expense will
depend on the market price of the Common Stock at the end of each quarterly
period, the Company will not be able to forecast in advance the amount of
compensation expense that it will incur in any future period.

On July 24, 2002, the
Company announced that its Board of Directors has determined that effective
January 1, 2003, the Company will expense the cost of all stock options that the
Company grants to employees. The Board has appointed a committee to provide the
Board with recommendations regarding the method to be used to determine option
expense.

Factors other than those
discussed above that could cause actual events or actual results to differ
materially from those indicated by any forward-looking statements include the
ability of management to manage an increasingly complex business, transportation
issues, product and component pricing, changes in analysts earnings
estimates, competition, technological changes and advances, adoption of
technology or communications standards affecting the Companys products,
intellectual property rights, litigation, general economic conditions,
seasonality (particularly during the first quarter, second quarter and summer
months), changes or slowdowns in overall market demand for personal computer
products and other consumer products which utilize the Companys products.

## ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:

The Company is exposed to
various interest rate risks including foreign currency, interest rate and
securities price risks. The Company is exposed to various foreign currency
exchange rate risks that arise in the normal course of business. The
Companys functional currency is the U.S. dollar. The Company has
international operations resulting in receipts and payments in currencies that
differ from the functional currency of the Company. The Company attempts to
reduce foreign currency exchange rate risks by utilizing financial instruments,
including derivative transactions pursuant to Company policies. The Company uses
forward contracts to hedge those net assets and liabilities that, when
remeasured according to accounting principles generally accepted in the United
States of America, impact the condensed consolidated statement of operations.
All forward contracts entered into by the Company are components of hedging
programs and are entered into for the sole purpose of hedging an existing or
anticipated currency exposure, not for speculation or trading purposes.
Currently, the Company is using forward contracts only to hedge balance sheet
exposure. The contracts are primarily in European currencies and the Singapore
dollar. The Company enters into contracts throughout the month as necessary.
These contracts normally have maturities that do not exceed one month. The
Company has a substantial presence in Malaysia. In September 1998, the ruling
party in Malaysia fixed the Malaysian Ringgit to the U.S. dollar. The Company
has material amounts of accounts payable denominated in Ringgit. Currently, the
foreign currency markets are closed to hedging alternatives in Ringgit. When the
foreign currency markets re-open for the Ringgit, the Company plans to
re-evaluate its hedging strategy for Ringgit exposure.

When hedging balance sheet
exposure, all gains and losses on forward contracts are recognized in other
income and expense in the same period as the gains and losses on remeasurement
of the foreign currency denominated assets and liabilities occur. All gains and
losses related to foreign exchange contracts are included in cash flows from
operating activities in the condensed consolidated statement of cash flows.

The fair value of the
Companys forward contracts is subject to change as a result of potential
changes in market rates and prices. If the United States dollar were to
strengthen or weaken against these foreign currencies by 10%, the hypothetical
value of the contracts would have increased or decreased by approximately $5.1
million at June 30, 2002. However, these forward exchange contracts are hedges,
consequently any market value gains or losses arising from these foreign
exchange contracts should be offset by foreign exchange losses or gains on the
underlying net assets and liabilities. Calculations of the above effects assume
that each rate changed in the same direction at the same time relative to the
U.S. dollar. The calculations reflect only those differences resulting from
mechanically replacing one exchange rate with another. They do not factor in any
potential effects that changes in currency exchange rates may have on income
statement translation, sales volume and prices and on local currency costs of
production. As of June 30, 2002, the Companys analysis indicated that such
market movements would not have a material effect on the Companys
consolidated financial position, results of operations or cash flows. Factors
that could impact the effectiveness of the Companys hedging programs
include volatility of the currency and interest rate markets, availability of
hedging instruments and the Companys ability to accurately project net
asset or liability positions. Actual gains and losses in the future may differ
materially from the Companys analysis depending on changes in the timing
and amount of interest rate and foreign exchange rate movements and the
Companys actual exposures and hedges.

The Company did not have
any significant debt outstanding at June 30, 2002. Should the Company need to
borrow funds in the future, it would be subject to credit based interest rate
risks. The Company is also subject to interest rate risks on its current cash,
cash equivalents and temporary investment balances. For example, if the interest
rate on the Companys interest bearing investments were to change 1%,
interest income would have hypothetically increased or decreased by $1.7 million
in the six months ended June 30, 2002. This hypothetical analysis does not take
into consideration the effects of the economic conditions that would give rise
to such an interest rate change or the Companys response to such
hypothetical conditions.

## PART II -
OTHER INFORMATION

## ITEM 1.   LEGAL PROCEEDINGS:

A discussion of the
Companys legal proceedings appears in Part I, Item 1 of this Form 10-Q
under Note 5 of the notes to condensed consolidated financial statements and is
incorporated herein by reference.

## ITEM 2.  CHANGE IN SECURITIES AND USE OF PROCEEDS:

The Company did not sell
any equity securities during the second quarter of 2002 that were not registered
under the Securities Act of 1933.

## ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:

The Companys 2002
Annual Meeting of Shareholders was held on Wednesday, May 15, 2002. At the
Annual Meeting, the Companys shareholders voted on the election of
Jonathan S. Huberman as a Class II Director of the Company for a term of three
years. The voting was as follows:

`Against/
              Proposal                                                  For             Withheld
              --------------------------------                      ----------          ---------

       1.     Election of Jonathan S. Huberman as a Class II
              Director for a term of three years.                   47,763,697           716,060`

The  incumbent  Class I and Class III  Directors  continued to serve as Directors  after the Annual  Meeting.  Such
continuing Directors are David J. Dunn, Werner T. Heid, Robert P. Berkowitz and John E. Nolan.

## ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K:

|(a) | Exhibits.  The  exhibits  listed on the  Exhibit  Index filed as a part of
this  Quarterly  Report on Form 10-Q are incorporated herein by reference.                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                    
|(b) | Reports on Form 8-K. On May 17, 2002, the Company filed a Form 8-K on
behalf of the Companys Retirement and Investment Savings Plan (the
Plan) under item 4, Changes in Registrants Certifying
Accountant announcing the change in auditors for the Plan from Arthur
Andersen LLP to Ernst & Young LLP. No financial statements were included.

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.

|Dated: 08/13/02
Dated: 08/13/02 | IOMEGA CORPORATION
        (Registrant)/s/ Werner T. Heid
    Werner T. Heid
    President and Chief Executive Officer    /s/ Barry Zwarenstein
Barry Zwarenstein
    Vice President, Finance and
    Chief Financial Officer
|------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## EXHIBIT INDEX

The following exhibits are filed as part of this Quarterly Report on Form 10-Q:

|Exhibit Index | Description
|------------- | -----------

|99.2 | Certification letter from Werner T. Heid, President
and Chief Executive Officer.
|---- | --------------------------------------------------------------------------------

|99.3 | Certification letter from Barry Zwarenstein, Vice President, Finance
and Chief Financial Officer.
|---- | -------------------------------------------------------------------------------------------------