---

# 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 SEPTEMBER 29, 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 November 1, 2002.

|Common Stock, par value $.03 1/3(Title of each class) | 51,208,774(Number of shares)
|----------------------------------------------------- | ----------------------------

---

# 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 September 29, 2002
             and December 31, 2001.................................................................       3

         Condensed Consolidated Statements of Operations for the Quarters
             ended September 29, 2002 and September 30, 2001.......................................       5

         Condensed Consolidated Statements of Operations for the Nine Months
             ended September 29, 2002 and September 30, 2001.......................................       6

         Condensed Consolidated Statements of Cash Flows for the Nine Months
             ended September 29, 2002 and September 30, 2001.......................................       7

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

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk................................      75

Item 4. Controls and Procedures....................................................................      76

                                                      PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.........................................................................      76

Item 2.  Changes in Securities and Use of Proceeds.................................................      76

Item 6.  Exhibits and Reports on Form 8-K..........................................................      76

Signatures.........................................................................................      77

Certification - Werner T. Heid, President and Chief Executive Officer..............................      78

Certification - Barry Zwarenstein, Vice President, Finance and Chief Financial Officer.............      79

Exhibit Index......................................................................................      80`

---

Copyright © 2002 Iomega Corporation. All rights reserved. Iomega, Zip, Jaz, Peerless, Predator,
PocketZip, HipZip, FotoShow, HotBurn 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 procurement costs; the effects of
the divestment and outsourcing of the Companys Penang Manufacturing
Subsidiary; 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 legal proceedings, including the
resolution of the adverse judgments in the Nomai litigation, as 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 other than the sale of the Companys Penang Manufacturing
Subsidiary discussed in Note 6 of the notes to condensed consolidated financial
statements in Part I of this Quarterly Report on Form 10-Q. 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)

`September 29,        December 31,
                                                                                  2002                 2001
                                                                             -------------        ------------
                                                                              (Unaudited)
Current Assets:
   Cash and cash equivalents                                                  $ 266,500             $ 219,949
   Restricted cash                                                                4,550                 4,144
   Temporary investments                                                        119,297               104,953
   Trade receivables, less allowance for doubtful accounts of
     $8,430 and $11,559, respectively                                            50,842                89,396
   Inventories                                                                   35,160                56,336
   Deferred income taxes                                                         32,484                39,978
   Income taxes receivable                                                       14,883                 4,025
   Other current assets                                                          13,332                15,742
   Current assets held for sale (Note 6)                                          4,104                     -
                                                                              ---------             ---------
      Total Current Assets                                                      541,152               534,523
                                                                              ---------             ---------

Property, plant and equipment, at cost                                          179,024               266,634
Accumulated depreciation and amortization                                      (158,547)             (211,437)
                                                                              ---------             ---------
      Net property, plant and equipment                                          20,477                55,197
                                                                              ---------             ---------

Non-current assets held for sale (Note 6)                                        16,426                     -
                                                                              ---------             ---------
Goodwill                                                                         11,691                11,691
                                                                              ---------             ---------
Other intangibles, net                                                            7,435                 9,744
                                                                              ---------             ---------
Other assets                                                                        129                 2,820
                                                                              ---------             ---------
    Total Assets                                                              $ 597,310             $ 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)

`September 29,        December 31,
                                                                                 2002                 2001
                                                                             -------------        ------------
                                                                              (Unaudited)
Current Liabilities:
   Accounts payable                                                           $   27,267            $  68,550
   Other current liabilities (Note 1)                                            108,770              151,095
   Current liabilities held for sale (Note 6)                                     14,638                    -
                                                                              ----------            ---------
      Total Current Liabilities                                                  150,675              219,645
                                                                              ----------            ---------

Other long-term liabilities                                                        2,188                3,018
                                                                              ----------            ---------

Deferred income taxes                                                             51,220               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 54,635,062 and 54,572,019 shares,
      respectively                                                                 1,822                1,819
   Additional paid-in capital                                                    307,704              307,413
   Less: 3,426,288 and 3,085,888 Common Stock treasury
      shares, respectively, at cost                                              (33,791)             (30,867)
   Retained earnings                                                             117,492              100,573
                                                                              ----------            ---------
      Total Stockholders' Equity                                                 393,227              378,938
                                                                              ----------            ---------
         Total Liabilities and Stockholders' Equity                           $  597,310            $ 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
                                                                            -----------------------------------
                                                                            September 29,         September 30,
                                                                                 2002                  2001
                                                                            -------------         -------------
                                                                                        (Unaudited)
Sales                                                                         $ 136,416             $ 181,965
Cost of sales                                                                    90,407               149,859
                                                                              ---------             ---------
Gross margin                                                                     46,009                32,106
                                                                              ---------             ---------

Operating Expenses:
   Selling, general and administrative                                           31,550                54,362
   Research and development                                                       9,072                12,476
   Restructuring charges (reversals)                                               (217)               33,266
   Bad debt expense (credit)                                                       (272)                5,509
                                                                              ---------             ---------
      Total Operating Expenses                                                   40,133               105,613
                                                                              ---------             ---------

Operating income (loss)                                                           5,876               (73,507)
Interest income                                                                   1,978                 3,419
Interest and other expense                                                         (581)                 (216)
                                                                              ----------            ---------

Income (loss) before income taxes                                                 7,273               (70,304)
Provision for income taxes                                                      (33,020)                 (848)
                                                                              ----------            ---------

Net loss                                                                      $ (25,747)            $ (71,152)
                                                                              =========             =========


Net loss per basic and diluted common share                                   $   (0.50)            $   (1.32)
                                                                              =========             =========

Weighted average common shares outstanding                                       51,195                53,848
                                                                              =========             =========`

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 Nine Months Ended
                                                                             ----------------------------------
                                                                             September 29,        September 30,
                                                                                2002                   2001
                                                                             -------------        ------------- 
                                                                                        (Unaudited)
Sales                                                                         $ 460,521             $ 642,664
Cost of sales                                                                   287,040               519,082
                                                                              ---------             ---------
Gross margin                                                                    173,481               123,582
                                                                              ---------             ---------

Operating Expenses:
   Selling, general and administrative                                          102,819               168,156
   Research and development                                                      26,601                39,793
   Restructuring charges (reversals)                                             (2,398)               34,352
   Bad debt expense (credit)                                                     (2,203)                6,102
                                                                              ---------             ---------
      Total Operating Expenses                                                  124,819               248,403
                                                                              ---------             ---------

Operating income (loss)                                                          48,662              (124,821)
Interest income                                                                   6,704                13,067
Interest and other expense                                                       (3,726)                 (535)
                                                                              ---------             ---------

Income (loss) before income taxes                                                51,640              (112,289)
Benefit (provision) for income taxes                                            (34,721)               15,114
                                                                              ---------             ---------

Net income (loss)                                                             $  16,919             $ (97,175)
                                                                              ==========            =========

Net income (loss) per common share:
   Basic                                                                      $    0.33             $   (1.80)
                                                                              =========             =========
   Diluted                                                                    $    0.33             $   (1.80)
                                                                              =========             =========

Weighted average common shares outstanding                                       51,215                53,974
                                                                              =========             =========
Weighted average common shares outstanding -
   assuming dilution                                                             51,398                53,974
                                                                              =========             =========`

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 Nine Months Ended
                                                                             ---------------------------------
                                                                             September 29,        September 30,
                                                                                 2002                  2001
                                                                             -------------        ------------
                                                                                         (Unaudited)
   Cash Flows from Operating Activities:
      Net income (loss)                                                       $  16,919             $ (97,175)
      Non-cash revenue and expense adjustments:
         Depreciation and amortization                                           17,693                39,336
         Deferred income taxes                                                   46,340               (16,170)
         Non-cash inventory write-offs                                            3,752                29,314
         Restructuring charges (reversals)                                         (600)                9,787
         Non-cash impairment charges                                             10,681                     -
         Loss on fixed assets                                                       490                14,164
         Bad debt expense (credit)                                               (2,203)                6,102
         Other                                                                    1,557                   202
                                                                              ---------             ---------
                                                                                 94,629               (14,440)
      Changes in Assets and Liabilities:
         Trade receivables                                                       40,757                36,352
         Inventories                                                             19,001                 3,139
         Other current assets                                                       833                 4,310
         Accounts payable                                                       (41,283)              (40,390)
         Other current liabilities                                              (32,736)              (19,459)
         Accrued restructuring                                                  (10,020)               17,492
         Current assets/liabilities held for sale                                10,534                     -
         Restricted cash                                                           (406)               (4,117)
         Income taxes                                                           (10,858)                 (831)
                                                                              ---------             ---------
      Net cash provided by (used in) operating activities                        70,451               (17,944)
                                                                              ---------             ---------

   Cash Flows from Investing Activities:
      Purchase of property, plant and equipment                                  (6,670)              (15,680)
      Purchase of temporary investments                                        (157,058)             (126,898)
      Sale of temporary investments                                             142,714               156,320
      Net change in other assets/liabilities                                        370                (4,199)
                                                                              ---------             ---------
   Net cash (used in) provided by investing activities                          (20,644)                9,543
                                                                              ---------             ---------

   Cash Flows from Financing Activities:
      Proceeds from sales of Common Stock                                           237                 1,034
      Purchases of Common Stock                                                  (2,924)               (8,258)
      Payments on capitalized lease and other obligations                          (569)                 (943)
                                                                              ---------             ---------
   Net cash used in financing activities                                         (3,256)               (8,167)
                                                                              ---------             ---------
   Net increase (decrease) in cash and cash equivalents                          46,551               (16,568)
   Cash and cash equivalents at beginning of period                             219,949               255,572
                                                                              ---------             ---------
   Cash and cash equivalents at end of period                                 $ 266,500             $ 239,004
                                                                              =========             =========`

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 September 29, 2002 and
December 31, 2001, the results of operations for the quarters and nine months
ended September 29, 2002 and September 30, 2001 and cash flows for the nine
months ended September 29, 2002 and September 30, 2001.

The results of operations
for the quarter and nine months ended September 29, 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.

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. Typically, 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
$5.1 million and $6.2 million at September 29, 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 $13.4 million and $12.8
million at September 29, 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 in the
customers inventories on the date of the price decrease not to exceed 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 $41.2 million and $45.8 million at
September 29, 2002 and December 31, 2001, respectively and are netted against
trade receivables in the accompanying condensed consolidated balance sheets.

Restricted Cash

During the third quarter of
2002, the Company replaced a prior letter of credit and classified $4.5 million
of cash as restricted cash to secure this new letter of credit. Per the
agreement associated with this letter of credit, 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 December 2002. 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:

`September 29,       December 31,
                                                                       2002               2001
                                                                  -------------       ------------
                                                                           (In thousands)
              Raw materials                                         $  2,444            $ 15,836
              Work-in-process                                             23               3,739
              Finished goods                                          32,693              36,761
                                                                    --------            --------
                                                                    $ 35,160            $ 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 (See note 6
Penang Manufacturing Subsidiary Sales Agreement for more information
about the Penang impairment charges). These reserves are included with
accumulated depreciation and amortization in the accompanying condensed
consolidated balance sheets.

Other Current Liabilities

Other current liabilities consist of the following:

`September 29,      December 31,
                                                                     2002              2001
                                                                -------------      -----------
                                                                         (In thousands)
Accrued marketing (a)                                             $  24,442          $  36,608
Accrued payroll, vacation and bonus                                  11,118             10,197
Margin on deferred sales                                             14,616             13,813
Accrued warranty                                                      8,227             10,856
Accrued restructuring                                                 5,150             15,770
Accrued litigation                                                      821              5,937
Purchase commitments                                                  2,310             13,555
Other accrued liabilities (b)                                        42,086             44,359
                                                                  ---------          ---------
                                                                  $ 108,770          $ 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 (Loss) Per Common Share

Basic net income (loss) per
common share (Basic EPS) excludes dilution and is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding during the period. Diluted net income (loss) 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 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:
         September 29, 2002:
         Basic EPS                                                $ (25,747)           51,195           $ (0.50)
            Effect of options                                             -                -                  -
                                                                  ---------            ------           -------
         Diluted EPS                                              $ (25,747)           51,195           $ (0.50)
                                                                  =========            ======           =======

         September 30, 2001:
         Basic EPS                                                $ (71,152)           53,848           $ (1.32)
            Effect of options                                             -                -                  -
                                                                  ---------            ------           -------
         Diluted EPS                                              $ (71,152)           53,848           $ (1.32)
                                                                  =========            ======           =======

         For the Nine Months Ended:
         September 29, 2002:
         Basic EPS                                                $  16,919            51,215           $  0.33
            Effect of options                                             -               183                 -
                                                                  ---------            ------           -------
         Diluted EPS                                              $  16,919            51,398           $  0.33
                                                                  =========            ======           =======

         September 30, 2001:
         Basic EPS                                                $ (97,175)           53,974           $ (1.80)
            Effect of options                                             -                -                  -
                                                                  ---------            ------           -------
         Diluted EPS                                              $ (97,175)           53,974           $ (1.80)
                                                                  =========            ======           =======`

For the quarters ended
September 29, 2002 and September 30, 2001, there were outstanding options to
purchase 1,584,725 and 2,293,210 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 nine months ended
September 29, 2002 and September 30, 2001, there were outstanding options to
purchase 1,674,259 and 2,183,374 shares, respectively, that had an exercise
price greater than the average market price of the common shares for the
respective nine 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, made by the
Company in 1999, was the potential collaboration in the development of optical
technologies. The Company has no other venture investments.

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 an 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 plans on adopting SFAS 146 beginning on January 1, 2003.
The Company is unable to determine the effect of SFAS 146 on the Companys
results of operations, financial position or liquidity as the impact would be
determined by the nature of any future restructuring charges.

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
September 29, 2002, the Company recorded an income tax provision of $33.0
million on pre-tax income of $7.3 million, which reflected an income tax
provision of $6.2 million and a net provision of $26.8 million related to the
Companys agreement to sell all of the stock of Iomega Malaysia Sdn. Bhd.
(the Penang Manufacturing Subsidiary) (see note 6 Penang
Manufacturing Subsidiary Sales Agreement for more details of the sales
agreement). The $26.8 million net provision related to the Penang Manufacturing
Subsidiary was comprised of a $39.6 million increase associated with foreign
earnings for which no U.S. tax provision had previously been provided and a
$12.8 million decrease in the valuation allowance for net deferred tax assets.
Excluding the increased provision related to the provision on foreign earnings
and the valuation allowance release, the adjusted effective tax rate for the
third quarter of 2002 was 84.9%. This compares to an income tax provision of
$0.8 million on a pre-tax loss of $70.3 million reflecting a $28.7 million
increase in the valuation allowance for net deferred tax assets for the third
quarter of 2001. Excluding the $28.7 million increase in the valuation
allowance, the adjusted effective tax benefit for the third quarter of 2001 was
approximately 39.7%. The increase in the adjusted effective tax rate, from 39.7%
in the third quarter of 2001 to 84.9% in the third quarter of 2002 resulted primarily from
the fact that the $10.7 million impairment charges related to the Companys agreement to
sell the Penang Manufacturing Subsidiary is not deductible for tax purposes.

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:

`September 29,     December 31,
                                                                                    2002             2001
                                                                               -------------     ------------
                                                                                       (In thousands)
              Deferred Tax Assets (Liabilities):
              Current Deferred Tax Assets:
                 Trade receivable reserves                                       $  16,991         $  19,099
                 Inventory reserves                                                  2,530             6,498
                 Accrued expense reserves                                           12,852            28,043
                 Other                                                                 111               191
                                                                                 ---------         ---------
              Total current deferred tax assets                                     32,484            53,831
                                                                                 ---------         ---------

              Non-Current Deferred Tax Assets:
                 Fixed asset reserves                                                1,894             4,729
                 Tax credit carryforwards                                           18,551            13,100
                 Accelerated depreciation/amortization                               4,437             2,307
                 Foreign net operating loss carryforwards                           15,313            15,956
                 U.S. net operating loss carryforwards                              34,135            37,233
                 Other                                                                 880               250
                                                                                 ---------         ---------
              Total non-current deferred tax assets                                 75,210            73,575
                                                                                 ---------         ---------
              Total deferred tax assets                                            107,694           127,406
                                                                                 ---------         ---------

              Non-Current Deferred Tax Liabilities:
                 Tax on unremitted foreign earnings                               (106,084)          (50,006)
                 Nomai goodwill and intangible asset                                (5,033)           (5,159)
                                                                                 ---------         ---------
              Total non-current deferred tax liabilities                          (111,117)          (55,165)
                                                                                 ---------         ---------
              Current valuation allowance                                                -           (13,853)
              Non-current valuation allowance                                      (15,313)          (30,784)
                                                                                 ---------         ---------
                 Net deferred tax assets (liabilities)                           $ (18,736)        $  27,604
                                                                                 =========         =========

              As Reported on the Balance Sheet:
                 Current deferred tax assets                                     $  32,484         $  39,978
                                                                                 =========         =========
                 Non-current deferred tax liabilities                            $ (51,220)        $ (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 September 29, 2002, the
Company had $34.1 million of deferred tax assets related to U.S. federal and
state net operating loss carryforwards, which reflect a tax benefit of
approximately $87.5 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 $15.3 million for deferred tax assets
related to foreign net operating loss carryforwards, which reflect the tax
benefit of approximately $35.0 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
liabilities for the Company at September 29, 2002 were $18.7 million. As of
September 29, 2002, deferred tax liabilities for estimated U.S. federal and
state taxes of $106.1 million have been accrued on unremitted foreign earnings
of $272.0 million. During Q3 2002, taxes were provided on all earnings
previously considered to be permanently invested in non-U.S. operations.

The Companys decision
to sell its Penang Manufacturing Subsidiary necessitated the recording of a tax
provision for the Companys foreign earnings that were previously
considered permanently invested. This resulted in an additional deferred U.S.
tax liability of $39.6 million. This provision was partially offset by the
release of $12.8 million of valuation allowance for a net provision of $26.8
million. The Company does not expect that it will be liable, as a result of the
tax provision, to make cash payments for U.S. taxes unless the Company were to
repatriate these foreign earnings to the United States.

For the nine months ended
September 29, 2002, the Company recorded an income tax provision of $34.7
million on pre-tax income of $51.6 million, which reflected an income tax
provision of $24.4 million, an additional tax provision of $39.6 million related
to the Companys earnings previously considered to be permanently invested
in non-U.S. operations and a $29.3 million decrease in the valuation allowance
for net deferred tax assets. The $39.6 million provision was a result of an
agreement to sell the Companys Penang Manufacturing Subsidiary. Excluding
the $39.6 million increase related to the agreement to sell the Penang
Manufacturing Subsidiary and the $29.3 million decrease in the valuation
allowance, the adjusted effective tax rate for the nine months ended September
29, 2002 was 47.3%. This compares to an income tax benefit of $15.1 million on a
pre-tax loss of $112.3 million which reflected a $29.1 million increase in the
valuation allowance for net deferred tax assets for the nine months ended
September 30, 2001. Excluding the $29.1 million increase in the valuation
allowance for foreign net deferred tax assets, the adjusted effective tax
benefit for the nine months ended September 30, 2001 was 39.4%. The increase in
the effective tax rate, excluding adjustments to the valuation allowances and
increased provision on foreign earnings, from 39.4% in the first nine months of
2001 to 47.3% in the first nine months of 2002 resulted primarily from the fact that
the $10.7 million impairment charges related to the Companys agreement to sell
the Penang Manufacturing Subsidiary is not deductible for tax purposes
and 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 $29.3 million decrease
in the valuation allowance for net deferred tax assets during the nine months
ended September 29, 2002, resulted primarily from the Company no longer being in
a net deferred tax asset position as a result of the agreement to sell the
Penang Manufacturing Subsidiary and from a reduction in net deferred tax assets
associated with net operating loss carryforwards. The net operating loss
deferred tax asset reduction was primarily the result of 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 CD-RW segment also includes the sales of Hotburn software which
is bundled with CD-RW drives and sold on a stand-alone basis on the
Companys website. 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; FotoShow digital image centers
(previously shown in the third quarter and the first nine months of 2001 as a
part of the Zip segment); sourced products such as portable and desktop 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 and Iomega Automatic Backup 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 2001 Zip and Other
segment amounts have been reclassified to show the current classification of
FotoShow in Other). The information for the third quarter and first nine months
of 2001 have been reclassified to show the effects of Emerging Issues Task Force
Issue No. 00-25, Vendor Income Statement Characterization of Consideration
Paid to a Reseller of the Vendors Products (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 $0.2 million and $1.7 million
for the third quarter of 2001 and the first nine months of 2001, respectively.
The EITF 00-25 reclassification did not impact PPM.

## Reportable
Operating Segment Information:

`For the Quarter Ended                For the Nine Months Ended
                                                  ----------------------------          -----------------------------
                                                  Sept. 29,          Sept. 30,          Sept. 29,           Sept. 30,
                                                    2002               2001                2002                2001
                                                  ---------          ---------          ---------           ---------
                                                         (In thousands)                         (In thousands)
Sales:
   Zip                                            $ 110,726          $ 142,673          $ 368,073           $ 489,181
   CD-RW                                             14,203             17,607             57,077              79,914
   Jaz                                                2,621             13,647             11,733              53,431
   PocketZip                                            423              2,063                335               5,645
   Other                                              8,443              5,975             23,303              14,493
                                                  ---------          ---------          ---------           ---------
      Total sales                                 $ 136,416          $ 181,965          $ 460,521           $ 642,664
                                                  =========          =========          =========           =========

PPM (Product Loss) Before Charges/Reversals:
   Zip                                            $  42,007          $  34,472          $ 139,803           $ 124,566
   CD-RW                                             (2,980)            (9,556)            (4,017)            (26,466)
   Jaz                                                1,237              3,490              4,188              15,655
   PocketZip                                            497             (1,692)               819             (14,843)
   Other                                             (1,940)           (11,450)            (9,434)            (25,885)
                                                  ---------          ---------          ---------           ---------
      Total PPM                                      38,821             15,264            131,359              73,027

Common Operating Expenses
   Without (Charges)/Reversals
   Allocated to PPM:
   General corporate expenses                       (22,481)           (24,372)           (74,414)            (86,377)
   Non-restructuring and impairment
      charges                                       (10,681)           (31,133)           (10,681)            (77,119)
   Restructuring (charges) reversals                    217            (33,266)             2,398             (34,352)
   Interest and other income, net                     1,397              3,203              2,978              12,532
                                                  ---------          ---------          ---------           ---------
      Income (loss) before
         income taxes                             $   7,273          $ (70,304)         $  51,640           $(112,289)
                                                  =========          =========          =========           =========`

`For the Quarter Ended                For the Nine Months Ended
                                                  ----------------------------          -----------------------------
                                                  Sept. 29,          Sept. 30,          Sept. 29,           Sept. 30,
                                                     2002               2001              2002                2001
                                                  -----------        ---------          ---------           ---------
                                                          (In thousands)                        (In thousands)
Non-Restructuring and Impairment Charges:
   Zip                                            $ (10,581)         $  (7,553)         $ (10,581)          $ (12,021)
   CD-RW                                                  -             (7,466)                 -             (17,443)
   Jaz                                                 (100)                -                (100)                  -
   PocketZip                                              -             (3,643)                 -             (21,569)
   Other                                                  -             (7,853)                 -             (20,418)
   Common                                                 -             (4,618)                 -              (5,668)
                                                  ---------          ---------          ---------           ---------
                                                  $ (10,681)         $ (31,133)         $ (10,681)          $ (77,119)
                                                  =========          =========          =========           =========

Restructuring (Charges)/Reversals:
   CD-RW                                          $       -          $  (1,347)         $       -           $  (1,347)
   Common                                               217            (31,919)             2,398             (33,005)
                                                  ---------          ---------          ---------           ---------
                                                  $     217          $ (33,266)         $   2,398           $ (34,352)
                                                  =========          =========          =========           =========

PPM (Product Loss) After Charges/Reversals:
   Zip                                            $  31,426          $  26,919          $ 129,222           $ 112,545
   CD-RW                                             (2,980)           (18,369)            (4,017)            (45,256)
   Jaz                                                1,137              3,490              4,088              15,655
   PocketZip                                            497             (5,335)               819             (36,412)
   Other                                             (1,940)           (19,303)            (9,434)            (46,303)
                                                  ---------          ---------          ---------           ---------
      Total PPM (Product Loss)                       28,140            (12,598)           120,678                 229

Common Operating Expenses With
(Charges)/Reversals Allocated to
   PPM (Product Loss):
   General corporate expenses                       (22,481)           (24,372)           (74,414)            (86,377)
   Non-restructuring charges                              -             (4,618)                 -              (5,668)
   Restructuring (charges) reversals                    217            (31,919)             2,398             (33,005)
   Interest and other income, net                     1,397              3,203              2,978              12,532
                                                  ---------          ---------          ---------           ---------
      Income (loss) before
        income taxes                              $   7,273          $(70,304)          $  51,640           $(112,289)
                                                  =========          =========          =========           =========`

## (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 2001 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 third quarter of
2002, $0.2 million of severance and benefits reserves associated with the third
quarter 2001 restructuring actions were reversed. 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 September 29, 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. During the third
quarter of 2002, $0.2 million of severance and benefits reserves were reversed
as a result of outplacement services not being utilized as estimated.

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 of 2001, 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 of 2001, 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 of 2001, 28 individuals
continued to work on a transition basis through June 30, 2002 to manage
operations that were outsourced effective April 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 September 29, 2002,
the Company had terminated the employment of all affected employees, except for
one employee offered a retention package through the first quarter of 2003 and
vacated all facilities in connection with the third quarter 2001 restructuring
actions. The remaining severance and benefits are expected to be paid in 2003
for the one remaining employee. During the third quarter of 2002, $0.2 million
of severance related charges were reversed due to outplacement services not
being utilized as estimated. 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
fourth 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 $3.7 million and $0.9 million were
included in the Companys other current liabilities and fixed asset
reserves, respectively, as of September 29, 2002. Utilization of the third
quarter 2001 restructuring reserves during the quarter ended September 29, 2002
is summarized below:

`Utilized
                                                           ----------------------------------
Third Quarter 2001                            Balance                                              Balance
Restructuring Actions                         6/30/02       Cash       Non-Cash     Reversals      9/29/02
----------------------                        -------      ------      -------      ---------      -------
                                                                    (In thousands)

North America Reorganization:
   Severance and benefits (a)                 $   216      $   (1)     $     -       $ (115)       $   100
   Lease cancellations (a)                      4,192        (637)           -            -          3,555
   Leasehold improvements and
      furniture (b)                               841           -          (75)           -            766
   Information technology assets (b)               55           -            -            -             55
                                              -------      ------      -------       ------        -------
                                                5,304        (638)         (75)        (115)         4,476
                                              -------      ------      -------       ------        -------

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

Europe Reorganization:
   Severance and benefits (a)                      54         (36)           -            -             18
   Lease cancellations (a)                        116        (114)           -            -              2
   Leasehold improvements and
      furniture (b)                               132           -          (26)           -            106
                                              -------      ------      -------       ------        -------
                                                  302        (150)         (26)           -            126
                                              -------      ------      -------       ------        -------
                                              $ 5,679      $ (788)     $  (101)      $ (188)       $ 4,602
                                              =======      ======      =======       ======        =======

Balance Sheet Breakout:
   Other current liabilities (a)              $ 4,651      $ (788)     $     -       $ (188)       $ 3,675
   Fixed asset reserves (b)                     1,028           -         (101)           -            927
                                              -------      ------      -------       ------        -------
                                              $ 5,679      $ (788)     $  (101)      $ (188)       $ 4,602
                                              =======      ======      =======       ======        =======

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

Utilization of the third quarter 2001 restructuring reserves during the nine months ended September 29, 2002 is summarized below:

`Utilized
                                                         -----------------------------------
Third Quarter 2001                           Balance                                               Balance
Restructuring Actions                        12/31/01      Cash       Non-Cash     Reversals       9/29/02
----------------------                       --------    --------     --------     ---------       -------
                                                                    (In thousands)
North America Reorganization:
   Severance and benefits (a)                $  2,194    $ (1,979)    $      -       $ (115)       $   100
   Lease cancellations (a)                      5,823      (2,268)           -            -          3,555
   Leasehold improvements and
      furniture (b)                             2,102           -         (736)        (600)           766
   Information technology assets (b)            1,216           -       (1,161)           -             55
                                             --------    --------     --------       ------        -------
                                               11,335      (4,247)      (1,897)        (715)         4,476
                                             --------    --------     --------       ------        -------

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        (314)           -            -             18
   Lease cancellations (a)                        390        (388)           -            -              2
   Leasehold improvements and
      furniture (b)                               235           -         (129)           -            106
   Information technology assets (b)               26           -          (26)           -              -
                                             --------    --------     --------       ------        -------
                                                  983        (702)        (155)           -            126
                                             --------    --------     --------       ------        -------
                                             $ 12,468    $ (5,026)    $ (2,052)      $ (788)       $ 4,602
                                             ========    ========     ========       ======        =======

Balance Sheet Breakout:
   Other current liabilities (a)             $  8,889      (5,026)           -         (188)       $ 3,675
   Fixed asset reserves (b)                     3,579           -       (2,052)        (600)           927
                                             --------    --------     --------       ------        -------
                                             $ 12,468    $ (5,026)    $ (2,052)      $ (788)       $ 4,602
                                             ========    ========     ========       ======        =======

(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. 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 worked 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 were disposed of in the third quarter of
2002.

At September 29, 2002, the
Company had terminated the employment of all affected employees. All severance
payments have been made. Benefit reserves remain for those employees terminated
during the second and third quarters. Leasehold improvements, furniture and
equipment were disposed of during 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. Remaining reserves of
less than $0.1 million are included in the Companys other current
liabilities as of September 29, 2002. Utilization of the fourth quarter 2001
restructuring reserves during the quarter ended September 29, 2002 is summarized
below:

`Utilized
                                                           ----------------------------------
Fourth Quarter 2001                          Balance                                               Balance
Restructuring Actions                        6/30/02        Cash      Non-Cash      Reversals      9/29/02
----------------------                       -------       ------     --------      ---------      -------
                                                                   (In thousands)

North America Reorganization:
   Severance and benefits (a)                 $ 276        $ (227)     $    -         $ (29)         $ 20
                                              -----        ------      ------         -----          ----

Europe Reorganization:
   Severance and benefits (a)                    33           (33)          -             -             -
   Lease cancellations (a)                       28             -           -             -            28
   Leasehold improvements,
      furniture and equipment (b)                16             -         (16)            -             -
                                              -----        ------      ------         -----          ----
                                                 77           (33)        (16)            -            28
                                              -----        ------      ------         -----          ----
                                              $ 353        $ (260)     $  (16)        $ (29)         $ 48
                                              =====        ======      ======         =====          ====

Balance Sheet Breakout:
   Other current liabilities (a)              $ 337        $ (260)     $    -         $ (29)         $ 48
   Fixed asset reserves (b)                      16             -         (16)            -             -
                                              -----        ------      ------         -----          ----
                                              $ 353        $ (260)     $  (16)        $ (29)         $ 48
                                              =====        ======      ======         =====          ====

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

Utilization of the fourth quarter 2001 restructuring reserves during the nine months ended September 29, 2002 is summarized below:

`Utilized
                                                           ----------------------------------
Fourth Quarter 2001                          Balance                                               Balance
Restructuring Actions                        12/31/01        Cash      Non-Cash     Reversals      9/29/02
----------------------                       --------      --------    --------     ---------      -------
                                                                    (In thousands)

North America Reorganization:
   Severance and benefits (a)                 $ 1,503      $ (1,454)    $    -        $ (29)         $ 20
                                              -------      --------     ------        -----          ----

Europe Reorganization:
   Severance and benefits (a)                     591          (591)         -            -             -
   Lease cancellations (a)                      1,698        (1,670)         -            -            28
   Leasehold improvements, furniture and
      equipment (b)                               983             -       (983)           -             -
                                              -------      --------     ------        -----          ----
                                                3,272        (2,261)      (983)           -            28
                                              -------      --------     ------        -----          ----
                                              $ 4,775      $ (3,715)    $ (983)       $ (29)         $ 48
                                              =======      ========     ======        =====          ====

Balance Sheet Breakout:
   Other current liabilities (a)              $ 3,792      $ (3,715)    $    -        $ (29)         $ 48
   Fixed asset reserves (b)                       983             -       (983)           -             -
                                              -------      --------     ------        -----          ----
                                              $ 4,775      $ (3,715)    $ (983)       $ (29)         $ 48
                                              =======      ========     ======        =====          ====

(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 September 29, 2002 in other current
liabilities. There was no utilization of the reserves during the third quarter
of 2002. Utilization of 1999 restructuring reserves during the nine months ended
September 29, 2002 is summarized below:

`Utilized
                                                            ---------------------------------
                                              Balance                                              Balance
     1999 Restructuring Actions               12/31/01      Cash       Non-Cash     Reversals      9/29/02
  ---------------------------------           --------      ----       --------     ---------      -------
                                                                    (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 Reports on Form 10-Q for the quarters
ended March 31, 2002 and June 30, 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 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 Reports on Form 10-Q for the quarters ended March 31,
2002 and June 30, 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 $15,400) until
Nomai invests FF 48 million (approximately $7.4 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 $15,400) 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 $7,700) 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. Meanwhile, on October 11, 2002, the commercial court of Albi
(Tribunal de Commerce of Albi) issued a ruling in connection with the prior
complaint by the bankruptcy trustee for RPS Media, finding that Iomega
Corporation, Iomega International and AMM are liable in connection with
Nomais failure to make investments in Albi. The Tribunal de Commerce
assessed damages of 8.5 million Euros (approximately $8.6 million). This ruling
is subject to appeal to the Toulouse Court of Appeals and Iomega is pursuing an
appeal. The judgment will not be stayed by the appeal, however, the plaintiffs
have not taken any action to enforce the judgment and the parties are engaged in
settlement discussions. If the parties are unable to reach a reasonable
settlement, the Company intends to vigorously pursue the appeal.

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 $ 19.9 million). This
case was subsequently consolidated with the case by the AMM trustee mentioned
immediately above. On October 11, 2002, the Tribunal de Commerce of Albi issued
a ruling that Iomega International and Iomega Corporation are liable to AMM in
the amount of 1.9 million Euros (approximately $1.9 million). This amount is in
addition to the 8.5 million Euro amount discussed in the foregoing paragraph.
This ruling is subject to appeal to the Toulouse Court of Appeals and the
Company is pursuing an appeal. The judgment will not be stayed by the appeal,
however, the plaintiffs have not taken any action to enforce the judgment. The
Company intends to vigorously pursue the appeal.

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, enforcement of the 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)        
Penang Manufacturing Subsidiary Sales Agreement

During the third quarter of
2002, the Company entered into a definitive agreement to sell all of the stock
of Iomega Malaysia Sdn. Bhd. (the Penang Manufacturing Subsidiary)
to Venture Corporation Limited (Venture), an unaffiliated third
party. This transaction closed on November 1, 2002 at which time Venture made a
cash payment to Iomega of $10.2 million for the Penang Manufacturing Subsidiary.
The value of the Penang Manufacturing Subsidiary was based on the estimated net
asset value on November 1, 2002. The final amount of the payment is subject to
change based on a post-closing balance sheet audit.

At the closing, Iomega also
entered into a five-year manufacturing services agreement with Venture and
Iomegas former Penang Manufacturing Subsidiary for the manufacture and
supply of Zip drives and certain other products. Under the manufacturing
services agreement, Venture will manufacture Zip drives and other products for
Iomega utilizing the Penang Manufacturing Subsidiarys operations and
employee workforce.

As a result of the sales agreement entered into during the
third quarter of 2002, the Company determined under Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, that the net assets owned by the Penang Manufacturing
Subsidiary were impaired, as the sales price was below the carrying value of the
net assets on the Penang Manufacturing Subsidiarys books. During the third
quarter of 2002, the Company recorded impairment charges of $10.7 million,
(reported in cost of sales in the accompanying condensed consolidated statements
of operations and reflected in the table below) for the impairment of the Penang
Manufacturing Subsidiarys net assets to their fair value as determined by
the sales price. Of the $10.7 million in impairment charges, $10.6 million was
attributable to the Zip product line and $0.1 million was attributable to the
Jaz product line. The majority of the fixed assets and inventory are
attributable to the Zip product line.

In addition to the $10.7
million of impairment charges, as a result of this divestiture, the Company also
recorded a U.S. tax liability of $39.6 million relating to past foreign earnings
that will no longer be considered to be permanently invested abroad. This
additional tax liability was partially offset by a reduction in the
Companys tax valuation allowance of $12.8 million for net deferred tax
assets, resulting in an increase in the net tax provision of $26.8 million. The
Company does not expect that it will be liable, as a result of the tax
provision, to make cash payments for U.S. taxes unless the Company were to
repatriate these foreign earnings to the United States.

The major groups of assets
and liabilities of Iomega Malaysia (which were considered to be held for sale as
of September 29, 2002) included in the accompanying condensed consolidated
balance sheets are as follows:

`September 29,          December 31,
                                                                                 2002                  2001
                                                                            -------------          ------------
                                                                                       (In thousands)
       Assets held for sale:
       Current assets:
          Restricted cash                                                      $    171              $      -
          Inventories                                                             3,792                10,445
          Other current assets                                                      141                   179
                                                                               --------              --------
             Total current assets held for sale                                $  4,104              $ 10,624
                                                                               ========              ========
       Non-current assets:
          Net property, plant and equipment                                    $ 16,426              $ 31,221
                                                                               ========              ========

       Current liabilities held for sale:
          Accounts payable                                                     $ 11,875              $ 27,007
          Other current liabilities                                               2,763                 2,677
                                                                               --------              --------
             Total current liabilities held for sale                           $ 14,638              $ 29,684
                                                                               ========              ========`

## (7)        
 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 third quarter of 2002, whereas the Company had recorded pre-tax
goodwill amortization expense of $0.9 million in the third quarter of 2001.
Without this goodwill amortization, pro forma net loss for the third quarter of
2001 would have been $70.6 million, a decrease of $0.6 million over the reported
net loss of $71.2 million and pro forma earnings per share would have been a
loss of $1.31 per share, a decrease of $0.01 per share over the reported loss of
$1.32 per share.

For the first nine months
of 2001, the Company recorded pre-tax goodwill amortization expense of $2.8
million. Without this goodwill amortization, pro forma net loss for the first
nine months of 2001 would have been $95.5 million, a decrease of $1.7 million
over the reported net loss of $97.2 million and pro forma earnings per share
would have been a loss of $1.77 per share, a decrease of $0.03 per share over
the reported loss of $1.80 per share.

At September 29, 2002, the
Company had $7.4 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
September 29, 2002, amortization expense was $0.7 million. Amortization expense
for the first nine months of 2002 was $2.3 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 September 29, 2002, the weighted average useful life of
the Companys intangible assets is approximately 4 1/4 years. At September
29, 2002, the gross value and accumulated amortization of the Companys
intangible assets were $12.9 million and $5.5 million, respectively. At December
31, 2001, the gross value and accumulated amortization of the Companys
intangible assets were $20.4 million and $10.7 million, respectively. The change
in gross values of intangible assets between December 31, 2001 and September 29,
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
September 29, 2002, sales to Ingram Micro, Inc. accounted for 17.1% of
consolidated sales. Ingram Micro, Inc. and Dell Computer Corporation accounted
for 17.0% and 11.1% of consolidated sales, respectively, for the quarter ended
September 30, 2001. No other single customer accounted for more than 10% of
consolidated sales for these periods.

During the nine months ended September 29, 2002,  sales to Ingram Micro,  Inc.  accounted for 17.2% of consolidated
sales.  Ingram Micro,  Inc.,  accounted for 15.3%,  of  consolidated  sales for the nine months ended September 30,
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
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 that 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 September 29, 2002,
outstanding forward exchange buy/(sell) contracts, which all mature in October
2002, were as follows (rates are quoted as United States dollar per other
currency unit):

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

      British Pound                             (600,000)                  0.6329              0.6316
      European Currency Unit                 (34,100,000)                  1.0230              1.0219
      Singapore Dollar                           600,000                   1.7835              1.7840
      Swiss Franc                              3,800,000                   1.4904              1.4920`

The contracts are revalued
at the month-end 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:

## 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. EITF
00-25 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 $0.2 million for the third
quarter of 2001 and $1.7 million for the first nine months of 2001. The adoption
of EITF 00-25 had no impact on operating income, PPM, 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
and the Companys Form 10-Q for the quarterly period ended June 30, 2002.

## 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 CD-RW segment
also includes the sales of Hotburn software which is bundled with CD-RW drives
and sold on a stand-alone basis on the Companys website. 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; FotoShow digital image centers
(previously shown in the third quarter and the first nine months of 2001 as a
part of the Zip segment); sourced products such as portable and desktop 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 and Iomega Automatic Backup 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 2001 Zip and Other
segment amounts have been reclassified to show the current classification of
FotoShow in Other). The information for the third quarter and first nine months
of 2001 have been reclassified 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 $0.2 million and $1.7 million for the third quarter
of 2001 and the first nine months of 2001, respectively. The EITF 00-25
reclassification did not impact PPM.

## Reportable
Operating Segment Information:

`For the Quarter Ended                For the Nine Months Ended
                                                  ----------------------------          -----------------------------
                                                  Sept. 29,          Sept. 30,          Sept. 29,           Sept. 30,
                                                    2002               2001                2002                2001
                                                  ---------          ---------          ---------           ---------
                                                         (In thousands)                         (In thousands)
Sales:
   Zip                                            $ 110,726          $ 142,673          $ 368,073           $ 489,181
   CD-RW                                             14,203             17,607             57,077              79,914
   Jaz                                                2,621             13,647             11,733              53,431
   PocketZip                                            423              2,063                335               5,645
   Other                                              8,443              5,975             23,303              14,493
                                                  ---------          ---------          ---------           ---------
      Total sales                                 $ 136,416          $ 181,965          $ 460,521           $ 642,664
                                                  =========          =========          =========           =========

PPM (Product Loss) Before Charges/Reversals:
   Zip                                            $  42,007          $  34,472          $ 139,803           $ 124,566
   CD-RW                                             (2,980)            (9,556)            (4,017)            (26,466)
   Jaz                                                1,237              3,490              4,188              15,655
   PocketZip                                            497             (1,692)               819             (14,843)
   Other                                             (1,940)           (11,450)            (9,434)            (25,885)
                                                  ---------          ---------          ---------           ---------
      Total PPM                                      38,821             15,264            131,359              73,027

Common Operating Expenses
   Without (Charges)/Reversals
   Allocated to PPM:
   General corporate expenses                       (22,481)           (24,372)           (74,414)            (86,377)
   Non-restructuring and impairment
      charges                                       (10,681)           (31,133)           (10,681)            (77,119)
   Restructuring (charges) reversals                    217            (33,266)             2,398             (34,352)
   Interest and other income, net                     1,397              3,203              2,978              12,532
                                                  ---------          ---------          ---------           ---------
      Income (loss) before
         income taxes                             $   7,273          $ (70,304)         $  51,640           $(112,289)
                                                  =========          =========          =========           =========`

`For the Quarter Ended                For the Nine Months Ended
                                                  ----------------------------          -----------------------------
                                                  Sept. 29,          Sept. 30,          Sept. 29,           Sept. 30,
                                                     2002               2001              2002                2001
                                                  -----------        ---------          ---------           ---------
                                                          (In thousands)                        (In thousands)
Non-Restructuring and Impairment Charges:
   Zip                                            $ (10,581)         $  (7,553)         $ (10,581)          $ (12,021)
   CD-RW                                                  -             (7,466)                 -             (17,443)
   Jaz                                                 (100)                -                (100)                  -
   PocketZip                                              -             (3,643)                 -             (21,569)
   Other                                                  -             (7,853)                 -             (20,418)
   Common                                                 -             (4,618)                 -              (5,668)
                                                  ---------          ---------          ---------           ---------
                                                  $ (10,681)         $ (31,133)         $ (10,681)          $ (77,119)
                                                  =========          =========          =========           =========

Restructuring (Charges)/Reversals:
   CD-RW                                          $       -          $  (1,347)         $       -           $  (1,347)
   Common                                               217            (31,919)             2,398             (33,005)
                                                  ---------          ---------          ---------           ---------
                                                  $     217          $ (33,266)         $   2,398           $ (34,352)
                                                  =========          =========          =========           =========

PPM (Product Loss) After Charges/Reversals:
   Zip                                            $  31,426          $  26,919          $ 129,222           $ 112,545
   CD-RW                                             (2,980)           (18,369)            (4,017)            (45,256)
   Jaz                                                1,137              3,490              4,088              15,655
   PocketZip                                            497             (5,335)               819             (36,412)
   Other                                             (1,940)           (19,303)            (9,434)            (46,303)
                                                  ---------          ---------          ---------           ---------
      Total PPM (Product Loss)                       28,140            (12,598)           120,678                 229

Common Operating Expenses With
(Charges)/Reversals Allocated to
   PPM (Product Loss):
   General corporate expenses                       (22,481)           (24,372)           (74,414)            (86,377)
   Non-restructuring charges                              -             (4,618)                 -              (5,668)
   Restructuring (charges) reversals                    217            (31,919)             2,398             (33,005)
   Interest and other income, net                     1,397              3,203              2,978              12,532
                                                  ---------          ---------          ---------           ---------
      Income (loss) before
        income taxes                              $   7,273          $(70,304)          $  51,640           $(112,289)
                                                  =========          =========          =========           =========`

`For the Quarter Ended                For the Nine Months Ended
                                                  ----------------------------          -----------------------------
                                                  Sept. 29,          Sept. 30,          Sept. 29,           Sept. 30,
                                                   2002                2001               2002                 2001
                                                  ---------          ---------          ---------           ---------
                                                         (In thousands)                         (In thousands)
Drive units:
   Zip                                              1,015              1,280              3,100               4,134
   CD-RW                                              128                147                461                 561
   Jaz                                                  -                 24                  2                  93
   PocketZip                                            -                 41                 12                  88
   Other (Peerless, HDD, NAS)                          29                 19                 72                  30

Disk units:
   Zip                                              6,789              6,678             22,150              27,031
   Jaz                                                 34                104                160                 467
   PocketZip                                           11                 57                 38                 213
   Other (Peerless)                                    13                 18                 56                  32`

## 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 HDD line of portable
and desktop hard drives 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 groups of
enterprise markets. Management believes the markets for the Companys
products are generally seasonal. In the past, a higher proportion of total sales
typically occurred in the first and fourth quarters, 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 a net
loss of $25.7 million, or ($0.50) per share, for the quarter ended September 29,
2002. This net loss included charges relating to the Companys agreement to
sell all of the stock of Iomega Malaysia Sdn. Bhd. (Penang Manufacturing
Subsidiary) to Venture Corporation Limited, consisting of $10.7 million in
impairment charges and an additional $39.6 million in tax provisions partially
offset by a $12.8 million decrease in the valuation allowance for net deferred
tax assets and a $0.2 million reversal of pre-tax restructuring charges. This
compares to a third quarter 2001 net loss of $71.2 million, or $1.32 per diluted
share. The third quarter 2001 net loss included pre-tax restructuring charges of
$33.3 million, pre-tax non-restructuring charges of $31.1 million and an income
tax charge of $28.7 million relating to an increase in the valuation allowance
for net deferred tax assets.

For the nine months ended
September 29, 2002, the Company reported net income of $16.9 million, or $0.33
per diluted share. This net income included charges relating to the
Companys agreement to sell its Penang Manufacturing Subsidiary, consisting
of $10.7 million in impairment charges and an additional $39.6 million in tax
provisions. These charges were partly offset by a $29.3 million decrease in the
Companys valuation allowance for net deferred tax assets and a $2.4
million reversal of pre-tax restructuring charges. This compares to a net loss
for the nine months ended September 30, 2001 of $97.2 million, or ($1.80) per
share. The net loss for the nine months ended September 30, 2001 included
pre-tax non-restructuring totaling $77.1 million, pre-tax restructuring charges
of $34.4 million and income tax charges of $29.1 million relating to increases
in the valuation allowance for net deferred tax assets.

## Penang
Manufacturing Subsidiary Impairment Charges

During the third quarter of
2002, the Company entered into a definitive agreement to sell all of the stock
of Iomega Malaysia Sdn. Bhd. (the Penang Manufacturing Subsidiary)
to Venture Corporation Limited (Venture), an unaffiliated third
party. This transaction closed on November 1, 2002 at which time Venture made a
cash payment to Iomega of $10.2 million for the Penang Manufacturing Subsidiary.
The value of the Penang Manufacturing Subsidiary was based on the estimated net
asset value on November 1, 2002. The final amount of the payment is subject to
change based on a post-closing balance sheet audit.

At the closing, Iomega also
entered into a five-year manufacturing services agreement with Venture and
Iomegas former Penang Manufacturing Subsidiary for the manufacture and
supply of Zip drives and certain other products. Under the manufacturing
services agreement, Venture will manufacture Zip drives and other products for
Iomega utilizing the Penang Manufacturing Subsidiarys operations and
employee workforce.

As a result of the sales
agreement entered into during the third quarter of 2002, the Company determined
under Statement of Financial Accounting Standards No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, that the net assets owned
by the Penang Manufacturing Subsidiary were impaired, as the sales price was
below the carrying value of the net assets on the Penang Manufacturing
Subsidiarys books. During the third quarter of 2002, the Company recorded
impairment charges of $10.7 million, (reported in cost of sales in the condensed
consolidated statements of operations and reflected in the table below) for the
impairment of the Penang Manufacturing Subsidiarys net assets to their
fair value as determined by the sales price. Of the $10.7 million in impairment
charges, $10.6 million was attributable to the Zip product line and $0.1 million
was attributable to the Jaz product line. The majority of the fixed assets and
inventory are attributable to the Zip product line.

In addition to the $10.7
million of impairment charges, as a result of this divestiture, the Company also
recorded a U.S. tax liability of $39.6 million relating to past foreign earnings
that will no longer be considered to be permanently invested abroad. This
additional tax liability was partially offset by a reduction in the
Companys tax valuation allowance of $12.8 million for net deferred tax
assets, resulting in an increase in the net tax provision of $26.8 million. The
Company does not expect that it will be liable, as a result of the tax
provision, to make cash payments for U.S. taxes unless the Company were to
repatriate these foreign earnings to the United States.

The major groups of assets
and liabilities of Iomega Malaysia (which were considered to be held for sale as
of September 29, 2002) included in the condensed consolidated balance sheets are
as follows:

`September 29,          December 31,
                                                                                 2002                  2001
                                                                            -------------          ------------
                                                                                       (In thousands)
       Assets held for sale:
       Current assets:
          Restricted cash                                                      $    171              $      -
          Inventories                                                             3,792                10,445
          Other current assets                                                      141                   179
                                                                               --------              --------
             Total current assets held for sale                                $  4,104              $ 10,624
                                                                               ========              ========
       Non-current assets:
          Net property, plant and equipment                                    $ 16,426              $ 31,221
                                                                               ========              ========

       Current liabilities held for sale:
          Accounts payable                                                     $ 11,875              $ 27,007
          Other current liabilities                                               2,763                 2,677
                                                                               --------              --------
             Total current liabilities held for sale                           $ 14,638              $ 29,684
                                                                               ========              ========`

## Non-Restructuring
Charges

During the third quarter of
2001, the Company recorded non-restructuring charges of $31.1 million, primarily
reflecting write-downs of CD-RW, HipZip, FotoShow and other inventory and
equipment and other assets and charges associated with various contractual
arrangements and supplier commitments. 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 is included in the table below:

`Financial
                                                                                             Statement
           Description of Non-Restructuring Charges                      Amount              Category
       -------------------------------------------------                --------            ----------
                                                                     (In millions)
       Q3 2001
       Products:
          Zip                                                             $  7.5            Cost of sales
          CD-RW                                                              7.5            Cost of sales
          HipZip (included in PocketZip segment)                             1.9            Cost of sales
          PocketZip                                                          1.7            Cost of sales
          Peerless (included in Other segment)                               2.4            Cost of sales
          FotoShow (included in Other segment)                               1.8            Cost of sales
          Other (software & sourced products)                                2.4            Cost of sales
                                                                          ------
                                                                            25.2
       Marketing assets and commitments                                      4.0                SG&A
       Excess information technology assets                                  1.3                SG&A
       Other charges                                                         0.6                SG&A
                                                                          ------
                                                                          $ 31.1
                                                                          ======

       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`

2001 Non-Restructuring Charges

Third Quarter 2001

During the third quarter of
2001, the Company recorded non-restructuring charges of $31.1 million, primarily
reflecting write-downs of CD-RW, HipZip, Peerless and FotoShow inventory and
equipment and other assets and charges associated with various contractual
arrangements and supplier commitments.

Inventory reserves recorded
in the third quarter of 2001 totaled $15.1 million. Contract cancellation costs
totaled $9.1 million. The non-restructuring charges also included $6.3 million
primarily reflecting the extent to which undiscounted future cash flows were
expected to be less than the net book value of related manufacturing equipment
and other assets as well as $0.6 million for costs associated with moving the
Corporate Headquarters from Roy, Utah to San Diego, California.

During the third quarter of
2001, due to decreasing sales volumes, the Company entered into a settlement
agreement to terminate a third party manufacturer of Zip disk products and
consolidate this production into the Companys manufacturing facility in
Penang, Malaysia. As a result, during the third quarter of 2001, the Company
recorded contract cancellation costs of $4.8 million. In addition, due to
declining volumes, the Company recorded write-downs of related manufacturing
equipment and miscellaneous supplier commitments amounting to $2.7 million.

During the third quarter of
2001, sales prices for CD-RW products fell short of the Companys
expectations for the quarter, causing the Company to further lower future sale
expectations and sales prices. Also, higher per unit overhead costs associated
with the lower volumes, as well as supplier claims being higher than projected
in the second quarter necessitated additional inventory reserves. As a result,
during the third quarter of 2001, the Company recorded additional inventory
reserves of $7.2 million to cover inventory in the channel as well as inventory
on hand and loss accruals of $0.3 million for contract cancellation costs.

During the third quarter of
2001, sales volumes for the HipZip digital audio player fell short of the
Companys expectations for the quarter, causing the Company to further
lower future revenue expectations and sales prices. As a result, during the
third quarter of 2001, the Company recorded additional inventory reserves of
$1.9 million to cover primarily inventory in the channel.

During the third quarter of
2001, due to decreasing sales volumes for PocketZip products, the Company
recorded $0.5 million of inventory reserves and loss accruals of $1.2 million
for contract cancellation costs.

Late in the second quarter
of 2001, the Company began shipping Peerless drives and disks in both 10GB and
20GB versions. During the third quarter of 2001, the mix of 10GB to 20GB disks
sold was significantly lower than expected, resulting in excess components for
Peerless 10GB disks. As a result, during the third quarter of 2001, the Company
recorded inventory reserves of $2.4 million for the excess components.

During the third quarter of
2001, sales volumes for the FotoShow digital viewer fell short of the
Companys expectations for the quarter, causing the Company to further
lower future volume and sales price expectations. As a result, during the third
quarter of 2001, the Company recorded additional inventory reserves of $1.8
million primarily for inventory on hand.

Charges recorded for Other
products were primarily for Microdrive and software. During the third quarter of
2001, the Company lowered future sales expectations for Microdrive. As a result,
during the third quarter of 2001, the Company recorded additional inventory
reserves of $1.3 million primarily for inventory on hand. Charges taken for
Other products also included write-downs of intangible software assets of $1.1
million.

During the third quarter of
2001, the Company recorded charges of $2.8 million for canceling various
marketing programs as well as write-downs of excess marketing assets of $1.2
million that will no longer be utilized.

During the third quarter of
2001, as a result of the Companys streamlining efforts, the Company
wrote-down $1.3 million of impaired information technology software and incurred
$0.6 million of charges associated with moving the Corporate Headquarters from
Roy, Utah to San Diego, California.

Second Quarter 2001

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.

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 2001 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 third quarter of
2002, $0.2 million of severance and benefits reserves associated with the third
quarter 2001 restructuring actions were reversed. 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 September 29, 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. During the third
quarter of 2002, $0.2 million of severance and benefits reserves were reversed
as a result of outplacement services not being utilized as estimated.

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 of 2001, 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 of 2001, 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 of 2001, 28 individuals
continued to work on a transition basis through June 30, 2002 to manage
operations that were outsourced effective April 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 September 29, 2002,
the Company had terminated the employment of all affected employees, except for
one employee offered a retention package through the first quarter of 2003 and
vacated all facilities in connection with the third quarter 2001 restructuring
actions. The remaining severance and benefits are expected to be paid in 2003
for the one remaining employee. During the third quarter of 2002, $0.2 million
of severance related charges were reversed due to outplacement services not
being utilized as estimated. 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
fourth 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 $3.7 million and $0.9 million were
included in the Companys other current liabilities and fixed asset
reserves, respectively, as of September 29, 2002. Utilization of the third
quarter 2001 restructuring reserves during the quarter ended September 29, 2002
is summarized below:

`Utilized
                                                           ----------------------------------
Third Quarter 2001                            Balance                                              Balance
Restructuring Actions                         6/30/02       Cash       Non-Cash     Reversals      9/29/02
----------------------                        -------      ------      -------      ---------      -------
                                                                    (In thousands)

North America Reorganization:
   Severance and benefits (a)                 $   216      $   (1)     $     -       $ (115)       $   100
   Lease cancellations (a)                      4,192        (637)           -            -          3,555
   Leasehold improvements and
      furniture (b)                               841           -          (75)           -            766
   Information technology assets (b)               55           -            -            -             55
                                              -------      ------      -------       ------        -------
                                                5,304        (638)         (75)        (115)         4,476
                                              -------      ------      -------       ------        -------

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

Europe Reorganization:
   Severance and benefits (a)                      54         (36)           -            -             18
   Lease cancellations (a)                        116        (114)           -            -              2
   Leasehold improvements and
      furniture (b)                               132           -          (26)           -            106
                                              -------      ------      -------       ------        -------
                                                  302        (150)         (26)           -            126
                                              -------      ------      -------       ------        -------
                                              $ 5,679      $ (788)     $  (101)      $ (188)       $ 4,602
                                              =======      ======      =======       ======        =======

Balance Sheet Breakout:
   Other current liabilities (a)              $ 4,651      $ (788)     $     -       $ (188)       $ 3,675
   Fixed asset reserves (b)                     1,028           -         (101)           -            927
                                              -------      ------      -------       ------        -------
                                              $ 5,679      $ (788)     $  (101)      $ (188)       $ 4,602
                                              =======      ======      =======       ======        =======

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

Utilization of the third quarter 2001 restructuring reserves during the nine months ended September 29, 2002 is summarized below:

`Utilized
                                                         -----------------------------------
Third Quarter 2001                           Balance                                               Balance
Restructuring Actions                        12/31/01      Cash       Non-Cash     Reversals       9/29/02
----------------------                       --------    --------     --------     ---------       -------
                                                                    (In thousands)
North America Reorganization:
   Severance and benefits (a)                $  2,194    $ (1,979)    $      -       $ (115)       $   100
   Lease cancellations (a)                      5,823      (2,268)           -            -          3,555
   Leasehold improvements and
      furniture (b)                             2,102           -         (736)        (600)           766
   Information technology assets (b)            1,216           -       (1,161)           -             55
                                             --------    --------     --------       ------        -------
                                               11,335      (4,247)      (1,897)        (715)         4,476
                                             --------    --------     --------       ------        -------

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        (314)           -            -             18
   Lease cancellations (a)                        390        (388)           -            -              2
   Leasehold improvements and
      furniture (b)                               235           -         (129)           -            106
   Information technology assets (b)               26           -          (26)           -              -
                                             --------    --------     --------       ------        -------
                                                  983        (702)        (155)           -            126
                                             --------    --------     --------       ------        -------
                                             $ 12,468    $ (5,026)    $ (2,052)      $ (788)       $ 4,602
                                             ========    ========     ========       ======        =======

Balance Sheet Breakout:
   Other current liabilities (a)             $  8,889      (5,026)           -         (188)       $ 3,675
   Fixed asset reserves (b)                     3,579           -       (2,052)        (600)           927
                                             --------    --------     --------       ------        -------
                                             $ 12,468    $ (5,026)    $ (2,052)      $ (788)       $ 4,602
                                             ========    ========     ========       ======        =======

(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. 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 worked 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 were disposed of in the third quarter of
2002.

At September 29, 2002, the
Company had terminated the employment of all affected employees. All severance
payments have been made. Benefit reserves remain for those employees terminated
during the second and third quarters. Leasehold improvements, furniture and
equipment were disposed of during 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. Remaining reserves of
less than $0.1 million are included in the Companys other current
liabilities as of September 29, 2002. Utilization of the fourth quarter 2001
restructuring reserves during the quarter ended September 29, 2002 is summarized
below:

`Utilized
                                                           ----------------------------------
Fourth Quarter 2001                          Balance                                               Balance
Restructuring Actions                        6/30/02        Cash      Non-Cash      Reversals      9/29/02
----------------------                       -------       ------     --------      ---------      -------
                                                                   (In thousands)

North America Reorganization:
   Severance and benefits (a)                 $ 276        $ (227)     $    -         $ (29)         $ 20
                                              -----        ------      ------         -----          ----

Europe Reorganization:
   Severance and benefits (a)                    33           (33)          -             -             -
   Lease cancellations (a)                       28             -           -             -            28
   Leasehold improvements,
      furniture and equipment (b)                16             -         (16)            -             -
                                              -----        ------      ------         -----          ----
                                                 77           (33)        (16)            -            28
                                              -----        ------      ------         -----          ----
                                              $ 353        $ (260)     $  (16)        $ (29)         $ 48
                                              =====        ======      ======         =====          ====

Balance Sheet Breakout:
   Other current liabilities (a)              $ 337        $ (260)     $    -         $ (29)         $ 48
   Fixed asset reserves (b)                      16             -         (16)            -             -
                                              -----        ------      ------         -----          ----
                                              $ 353        $ (260)     $  (16)        $ (29)         $ 48
                                              =====        ======      ======         =====          ====

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

Utilization of the fourth quarter 2001 restructuring reserves during the nine months ended September 29, 2002 is summarized below:

`Utilized
                                                           ----------------------------------
Fourth Quarter 2001                          Balance                                               Balance
Restructuring Actions                        12/31/01        Cash      Non-Cash     Reversals      9/29/02
----------------------                       --------      --------    --------     ---------      -------
                                                                    (In thousands)

North America Reorganization:
   Severance and benefits (a)                 $ 1,503      $ (1,454)    $    -        $ (29)         $ 20
                                              -------      --------     ------        -----          ----

Europe Reorganization:
   Severance and benefits (a)                     591          (591)         -            -             -
   Lease cancellations (a)                      1,698        (1,670)         -            -            28
   Leasehold improvements, furniture and
      equipment (b)                               983             -       (983)           -             -
                                              -------      --------     ------        -----          ----
                                                3,272        (2,261)      (983)           -            28
                                              -------      --------     ------        -----          ----
                                              $ 4,775      $ (3,715)    $ (983)       $ (29)         $ 48
                                              =======      ========     ======        =====          ====

Balance Sheet Breakout:
   Other current liabilities (a)              $ 3,792      $ (3,715)    $    -        $ (29)         $ 48
   Fixed asset reserves (b)                       983             -       (983)           -             -
                                              -------      --------     ------        -----          ----
                                              $ 4,775      $ (3,715)    $ (983)       $ (29)         $ 48
                                              =======      ========     ======        =====          ====

(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 September 29, 2002 in other current
liabilities. There was no utilization of the reserves during the third quarter
of 2002. Utilization of 1999 restructuring reserves during the nine months ended
September 29, 2002 is summarized below:

`Utilized
                                                            ---------------------------------
                                              Balance                                              Balance
     1999 Restructuring Actions               12/31/01      Cash       Non-Cash     Reversals      9/29/02
  ---------------------------------           --------      ----       --------     ---------      -------
                                                                    (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
September 29, 2002 of $136.4 million decreased $45.6 million, or 25.0%, when
compared to sales of $182.0 million for the quarter ended September 30, 2001.
This decrease was primarily a result of lower Zip drive and disk sales and to a
lesser extent, lower Jaz and CD-RW product sales.

Zip product sales for the
third quarter of 2002 totaled $110.7 million, representing a decrease of $32.0
million, or 22.4%, compared to sales of $142.7 million for the third quarter of
2001. Sales of Zip products represented 81.2% of total sales for the third
quarter of 2002, compared to 78.4% for the third quarter of 2001. Zip drive
sales of $67.7 million for the third quarter of 2002 decreased by $24.3 million,
or 26.4%, while Zip drive units decreased by 20.7% from the third quarter of
2001. Zip drive sales decreased more than Zip drive units primarily due to price
reductions on Zip 100MB and Zip 250MB drives and price protection recorded as a
result of pricing actions on those two products following the introduction of
the Zip 750MB drive, partially offset by lower rebates and discounts. Zip OEM
drive units accounted for approximately 56% of total Zip drive units in both the
third quarters of 2002 and 2001. Zip disk sales of $43.0 million for the third
quarter of 2002 decreased by $7.6 million, or 15.1%, while Zip disk units
increased by 1.7% from the third quarter of 2001. Zip disk units increased while
Zip disk sales decreased primarily due to price reductions on Zip 100MB and Zip
250MB disks and price protection recorded as a result of pricing actions on
those two products following the introduction of Zip 750MB disks, partially
offset by lower rebates and discounts. While it is difficult to precisely
calculate the sales 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 third quarter of 2001, the decrease in Zip product sales
resulted primarily from lower drive and disk prices of approximately $17 million
and lower drive unit volumes (net of product mix) of approximately $15 million.

CD-RW product sales for the
third quarter of 2002 totaled $14.2 million, representing a decrease of $3.4
million, or 19.3%, compared to sales of $17.6 million for the third quarter of
2001. Sales of CD-RW products represented 10.4% of total sales for the third
quarter of 2002, compared to 9.7% for the third quarter of 2001. CD-RW units
decreased 12.9% compared to the third quarter of 2001. The decrease in CD-RW
sales was attributable to the continued contraction of the overall external
CD-RW market which management believes is resulting from more personal computers
being purchased with built in CD-RW drives and the end users preference
for less expensive aftermarket internal drives. Both of these factors have
created a downward pressure on prices. While it is difficult to precisely
calculate the sales 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 third quarter of 2001, lower units (net of product mix) of
approximately $2 million and pricing actions of approximately $1 million taken
to meet competitive pressures accounted for the decrease in CD-RW sales.

Jaz product sales for the
third quarter of 2002 totaled $2.6 million, representing a decrease of $11.0
million, or 80.8%, compared to sales of $13.6 million for the third quarter of
2001. Sales of Jaz products represented 1.9% of total sales for the third
quarter of 2002, compared to 7.5% for the third quarter of 2001. Jaz drive and
disk units decreased by 100.0% and 67.3%, respectively, when compared to the
third quarter of 2001. The lower volumes resulted from the Companys
decision in late 2001 to discontinue the Jaz drive.

PocketZip product sales of
$0.4 million for the third quarter of 2002 decreased $1.6 million, compared to
the third quarter of 2001 due to the Companys decision in late 2001 to
discontinue the PocketZip product line.

Other product sales for the
third quarter of 2002 totaled $8.4 million, representing an increase of $2.4
million, compared to Other product sales of $6.0 million for the third quarter
of 2001. The increase in Other product sales resulted primarily from NAS sales
of $2.0 million (the Company has deferred another $1.6 million in NAS shipments
under the Companys revenue recognition policies) and from higher external
hard drive product sales which increased by $1.3 million. The external hard
drive product sales increase was comprised of $4.0 million of the HDD line of
portable and desktop hard drive sales which began shipping during the second
quarter of 2002, partially offset by lower Peerless sales of $2.7 million. These
increases were partially offset by lower CompactFlash, Microdrive, SmartMedia
and FotoShow sales of $1.0 million.

Geographically, sales in
the Americas totaled $93.0 million, or 68.2% of total sales, in the third
quarter of 2002, compared to $132.5 million, or 72.8% of total sales, in the
third quarter of 2001. The decrease in sales dollars was due primarily to lower
Zip sales and to a lesser extent, lower Jaz and CD-RW sales. Sales in Europe
totaled $32.8 million, or 24.1% of total sales, in the third quarter of 2002,
compared to $38.0 million, or 20.9% of total sales, in the third quarter of
2001. The decrease in sales dollars was due primarily to lower Zip and Jaz
sales. Sales in Asia totaled $10.6 million, or 7.7% of total sales, in the third
quarter of 2002, compared to $11.5 million, or 6.3% of total sales, in the third
quarter of 2001. The decrease in sales dollars was due primarily to lower Zip
sales.

Sales for the nine months
ended September 29, 2002 of $460.5 million decreased $182.2 million, or 28.3%,
when compared to sales of $642.7 million for the nine months ended September 30,
2001. This decrease was primarily a result of lower Zip drive and disk sales and
to a lesser extent, lower Jaz and CD-RW product sales.

Zip product sales for the
nine months ended September 29, 2002 totaled $368.1 million, representing a
decrease of $121.1 million, or 24.8%, compared to sales of $489.2 million for
the nine months ended September 30, 2001. Sales of Zip products represented
79.9% of total sales for the nine months ended September 29, 2002, compared to
76.1% for the nine months ended September 30, 2001. Zip drive sales of $215.6
million for the nine months ended September 29, 2002 decreased by $82.0 million,
or 27.6%, while Zip drive units decreased by 25.0%, compared to the nine months
ended September 30, 2001. Zip drive sales decreased more than Zip drive units
primarily due to price reductions on Zip 100MB and Zip 250MB drives and price
protection recorded as a result of pricing actions on those two products
following the introduction of the Zip 750MB drive and a higher mix of OEM
shipments, partially offset by a shift away from lower priced Zip 100MB to Zip
250MB products and lower rebates and discounts for the first nine months of 2002
compared to the first nine months of 2001. Zip OEM drive units accounted for
approximately 54% of total Zip drive units for the nine months ended September
29, 2002, compared to approximately 51% for the nine months ended September 30,
2001. Zip disk sales of $152.0 million for the nine months ended September 29,
2002 decreased by $38.6 million, or 20.3%, while Zip disk units decreased by
18.1% from the nine months ended September 30, 2001. Zip disk sales decreased
more than Zip disk units primarily due to lower prices on Zip 100MB and Zip
250MB disks and price protection recorded as a result of pricing actions on
those two products following the introduction of Zip 750MB disks, partially
offset by lower rebates and discounts. While it is difficult to precisely
calculate the sales 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 nine months ended September 30, 2001, lower drive and disk
units (net of product mix) accounted for approximately $93 million of the
decrease in Zip product sales and pricing actions accounted for approximately
$28 million of the decrease in Zip product sales.

CD-RW product sales for the
nine months ended September 29, 2002 totaled $57.1 million, representing a
decrease of $22.8 million, or 28.6%, compared to sales of $79.9 million for the
nine months ended September 30, 2001. Sales of CD-RW products represented 12.4%
of total sales for both the first nine months of 2002 and 2001. CD-RW units
decreased 17.8% compared to the nine months ended September 30, 2001. While it
is difficult to precisely calculate the sales 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 nine months ended September 30,
2001, pricing actions of approximately $12 million taken to meet competitive
pressures and lower units (net of product mix) of approximately $11million accounted for the lower CD-RW sales. The lower CD-RW units for the
first nine 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.
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 and
the end users preference for less expensive aftermarket internal drives.
Both of these factors have created a downward pressure on prices.

Jaz product sales for the
nine months ended September 29, 2002 totaled $11.7 million, representing a
decrease of $41.7 million, or 78.0%, compared to sales of $53.4 million for the
nine months ended September 30, 2001. Sales of Jaz products represented 2.5% of
total sales for the nine months ended September 29, 2002, compared to 8.3% for
the nine months ended September 30, 2001. Jaz drive and disk units decreased by
97.8% and 65.7%, respectively, when compared to the nine months ended September
30, 2001. The lower volumes resulted from the Companys decision in late
2001 to discontinue the Jaz drive.

PocketZip product sales for
the nine months ended September 29, 2002, decreased $5.3 million, compared to
the nine months ended September 30, 2001 due to the Companys decision in
late 2001 to discontinue the PocketZip product line.

Other product sales for the
nine months ended September 29, 2002 totaled $23.3 million, representing an
increase of $8.8 million, compared to Other product sales of $14.5 million for
the nine months ended September 30, 2001. The increase in Other product sales
resulted primarily from increased external hard drive product sales of $10.0
million, comprised of $7.0 million of the HDD line of portable and desktop hard
drive sales which began shipping during the second quarter of 2002 and higher
Peerless sales of $3.0 million, which began shipping in the second quarter of
2001. NAS sales of $2.6 million (the Company has deferred another $1.6 million
in NAS shipments under the Companys revenue recognition policies) also
added to the increased Other product sales. These increases were partially
offset by lower FotoShow sales of $2.1 million and lower Compact Flash,
Microdrive Smart Media and other sales of $1.7 million.

Geographically, sales in
the Americas totaled $300.8 million, or 65.3% of total sales, in the nine months
ended September 29, 2002, compared to $446.7 million, or 69.5% of total sales,
in the nine months ended September 30, 2001. The decrease in sales dollars was
primarily due to lower Zip sales and to a lesser extent, lower Jaz and CD-RW
sales. Sales in Europe totaled $122.9 million, or 26.7% of total sales, in the
nine months ended September 29, 2002, compared to $149.5 million, or 23.3% of
total sales, in the nine months ended September 30, 2001. The decrease in sales
dollars was primarily due to lower Zip and Jaz sales. Sales in Asia totaled
$36.8 million, or 8.0% of total sales, in the nine months ended September 29,
2002, compared to $46.5 million, or 7.2% of total sales, in the nine months
ended September 30, 2001. The decrease in sales dollars was primarily due to
lower Zip and Jaz sales.

## Gross Margin

The Companys overall
gross margin of $46.0 million, or 33.7%, in the third quarter of 2002 compares
to $32.1 million, or 17.6%, in the third quarter of 2001. The adjusted gross
margin percentage in the third quarter of 2002 excluding $10.7 million of
impairment charges relating to the agreement to sell the Penang Manufacturing
Subsidiary was 41.6%. The adjusted gross margin percentage in the third quarter
of 2001 was 31.5% excluding the non-restructuring charges of $25.2 million. The
improved adjusted gross margin percentage resulted primarily from higher Zip and
CD-RW gross margin percentages and a higher mix of Zip sales compared to sales
of lower margin products. Zip gross margin percentage was 39.8% in the third
quarter of 2002 compared to 35.5% in the third quarter of 2001. Zip gross margin
percentage in the third quarter of 2002 was 49.5%, excluding $10.6 million of
impairment charges resulting from the agreement to sell the Penang Manufacturing
Subsidiary in the third quarter of 2002, compared to 40.8% in the third quarter
2001, excluding Zip non-restructuring charges of $7.5 million in the third
quarter of 2001. This increase resulted from a continuing trend away from Zip
100MB products, a higher mix of Zip disk sales, 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. CD-RW gross margins improved by $3.9 million excluding $7.5
million of non-restructuring CD-RW charges in the third quarter of 2001. The
increase in CD-RW gross margins were due primarily to significantly lower fixed
manufacturing overhead resulting from the change from an in-house assembly model
to a fully sourced model.

For the nine months ended
September 29, 2002, the Companys overall gross margin was $173.5 million,
or 37.7%, compared to $123.6 million, or 19.2%, for the nine months ended
September 30, 2001. The adjusted gross margin percentage in the nine months
ended September 29, 2002 was 40.0% excluding $10.7 million of impairment charges
relating to the agreement to sell the Penang Manufacturing Subsidiary. The
adjusted gross margin percentage in the nine months ended September 30, 2001 was
30.3% excluding non-restructuring charges of $70.1 million recorded in the
second and third quarters of 2001. The 2001 adjusted gross margin also included
$4.2 million of inventory and other reserves recorded through normal operations
in the first quarter of 2001 associated with HipZip and FotoShow. The improved
adjusted gross margin percentage resulted primarily from higher Zip and CD-RW
gross margin percentages and a higher mix of Zip sales compared to sales of
lower margin products. Zip gross margin percentage was 44.9% for the nine months
ended September 29, 2002 compared to 37.3% for the nine months ended September
30, 2001. Zip gross margin percentage improved to 47.7% in the nine months ended
September 29, 2002, excluding $10.6 million of impairment charges resulting from
the agreement to sell the Penang Manufacturing Subsidiary, from 39.8% in the
nine months ended September 30, 2001, excluding Zip non-restructuring charges of
$12.0 million for first nine months of 2001. This increase resulted from a
continuing trend away from Zip 100MB products, a higher mix of Zip disk sales,
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. CD-RW gross margins improved by $16.2 million
excluding $17.5 million of non-restructuring charges in the nine months ended
September 30, 2001. The increase in CD-RW gross margins were due primarily to
significantly lower fixed manufacturing overhead resulting from the change from
an in-house assembly model to a fully sourced model.

Management believes that
the adjusted gross margin percentages reported for the third quarter and the
nine months ended September 29, 2002 will be difficult to achieve in future
periods due to possible changes in the Zip disk and drive mix, possible slower
rate of cost reductions and if the Company adds incremental non-Zip product
sales, such products will likely have lower gross margins.

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, Zip 250MB and Zip 750MB drives and disks, as sales of
Zip 750MB products have higher gross margins than Zip 250MB products which have
higher gross margins than Zip 100MB products; sales volumes of Zip disks, which
generate significantly higher gross margins than the corresponding 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; supply or other disruptions resulting from the sale of the
Penang Manufacturing Subsidiary; the ability to avoid future 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 and Impairment Charges

Zip PPM for the third
quarter of 2002 was $42.0 million and increased by $7.5 million, or 21.9%,
compared to Zip PPM of $34.5 million for the third quarter of 2001. The
increased Zip PPM resulted primarily from higher gross margins and significantly
lower operating expenses reflecting the benefits of the Companys
restructuring and other actions implemented during the second half of 2001.
Lower goodwill amortization expense of $0.9 million in the third 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 37.9% for the
third quarter of 2002, compared to 24.2% for the third quarter of 2001,
primarily from higher gross margin percentages and significantly lower operating
expenses reflecting the benefits of the Companys restructuring and other
actions implemented during the second half of 2001.

CD-RW product loss for the
third quarter of 2002 was $3.0 million and improved by $6.6 million, or 68.8%,
compared to a CD-RW product loss of $9.6 million for the third quarter of 2001.
The improvement in the third quarter was primarily due to higher gross margins
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 third
quarter of 2002 was $1.2 million and decreased by $2.3 million, or 64.6%,
compared to Jaz PPM of $3.5 million for the third 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
47.2% for the third quarter of 2002, compared to 25.6% for the third quarter of
2001, primarily due to no lower margin drive sales in the third quarter of 2002.

PocketZip PPM of $0.5
million improved $2.2 million in the third quarter of 2002, compared to a
PocketZip product loss of $1.7 million in the third 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 loss of $1.9
million improved $9.5 million in the third quarter of 2002, compared to an Other
product loss of $11.4 million in the third quarter of 2001. The decrease in
Other product loss resulted primarily from the elimination of product losses on
FotoShow and Peerless, partially offset by product losses and start-up costs
associated with the HDD line of portable and desktop hard drives (which began
shipping during the second quarter of 2002) and NAS.

General corporate expenses
that were not allocated to PPM of $22.5 million in the third quarter of 2002,
decreased $1.9 million, or 7.8%, compared to $24.4 million for the third quarter
of 2001. The $1.9 million decrease resulted primarily from headcount and other
cost reduction actions taken in the second half of 2001.

Zip PPM for the nine months
ended September 29, 2002 was $139.8 million and increased by $15.2 million, or
12.2%, compared to Zip PPM of $124.6 million for the nine months ended September
30, 2001. The increased Zip PPM resulted primarily from higher gross margins and
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 $2.8 million in the first nine months of 2002 resulted
from the implementation of SFAS 142. Zip PPM as a percentage of Zip sales
increased to 38.0% for the nine months ended September 29, 2002, compared to
25.5% for the nine months ended September 30, 2001. This percentage increase
resulted primarily from higher gross margin percentages and significantly lower
operating expenses reflecting the benefits of the Companys restructuring
and other actions implemented during the second half of 2001.

CD-RW product loss for the
nine months ended September 29, 2002 was $4.0 million and improved by $22.5
million, or 84.8%, compared to a CD-RW product loss of $26.5 million for the
nine months ended September 30, 2001. The lower CD-RW product loss in the nine
months ended September 29, 2002 was primarily due to higher gross margins 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 nine months
ended September 29, 2002 was $4.2 million and decreased by $11.5 million, or
73.2%, compared to Jaz PPM of $15.7 million for the nine months ended September
30, 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 35.7% for the nine months ended September 29, 2002,
compared to 29.3% for the nine months ended September 30, 2001, primarily from a
higher mix of disk to drive sales in the nine months ended September 29, 2002.

PocketZip PPM of $0.8
million increased $15.6 million for the nine months ended September 29, 2002,
compared to a PocketZip product loss of $14.8 million for the nine months ended
September 30, 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 loss of $9.4
million was reduced by $16.5 million in the nine months ended September 29,
2002, compared to an Other product loss of $25.9 million in the nine months
ended September 30, 2001. The decrease in Other product loss 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 nine months of 2001, partially offset by product losses and start-up costs
associated with the HDD line of portable and external hard drives (which began
shipping during the second quarter of 2002) and NAS.

General corporate expenses
that were not allocated to PPM of $74.4 million in the nine months ended
September 29, 2002, decreased $12.0 million, or 13.8%, compared to $86.4 million
for the nine months ended September 30, 2001. The $12.0 million decrease was
comprised primarily of $23.0 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 $6.1 million in bonus and profit sharing costs.

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

Selling, general and administrative
expenses (including bad debt) of $31.3 million for the third quarter of 2002
decreased by $28.6 million, or 47.8%, compared to $59.9 million for the third
quarter of 2001. The decrease in selling, general and administrative expenses
resulted primarily from cost reduction actions taken in the second half of 2001.
The $28.6 million decrease was comprised of a $9.2 million decrease in marketing
expenses (see discussion below), a $6.4 million decrease in depreciation due to
the closure of facilities, a $5.8 million improvement in bad debt, a $5.5
million decrease in professional fees, a $1.3 million decrease in salaries,
benefits and commissions and $0.4 million in other cost reductions. The $5.8
million improvement in bad debt resulted primarily from improved collections and
from lower receivables during 2002 and from the recording of a specific $2.0
million reserve for collection issues with a U.S. customer in the third quarter
of 2001.

Marketing accruals consist
of a variety of programs including various arrangements with customers and
suppliers such as marketing development funds (MDF), 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
September 29, 2002 and released approximately $2.7 million in marketing accruals
in the United States and an additional $0.8 million in Europe, for a total of
$3.5 million, that related primarily to estimates associated with prior period
programs (included in the $9.2 million decrease in marketing expenditures
described above). In addition, the Company revised its estimates of marketing
accruals in the first and second quarters of 2002 and released $1.8 million and
$2.6 million, respectively. These compare to $2.7 million of marketing
accrual adjustments recorded in the first nine months of 2001 ($1.7 million, and
$1.0 million in the first and second quarters of 2001, respectively). Although
the Company has made significant 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 22.9% for the third quarter of 2002, from 32.9% in the third 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 the MDF adjustments and reduction in bad debt
expense as discussed above.

Selling, general and
administrative expenses (including bad debt) of $100.6 million for the nine
months ended September 29, 2002 decreased by $73.7 million, or 42.3%, compared
to $174.3 million for the nine months ended September 30, 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 $73.7
million decrease was comprised of a $23.7 million decrease in marketing expenses
(see marketing accrual discussion above), a $20.0 million decrease in
professional fees, a $16.0 million decrease in salaries, benefits and
commissions, a $14.1 million decrease in depreciation due to the closure of
facilities, an $8.3 million improvement in bad debt and $0.5 million in other
cost reductions partially offset by $4.9 million in litigation expenses and a
$4.0 million increase in bonus and profit sharing costs. The $8.3 million
improvement in bad debt resulted primarily from improved collections and lower
receivables during 2002 and from the recording of a specific $3.5 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 21.8% for the nine months ended September 29, 2002, from 27.1% for the nine
months ended September 30, 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 the MDF
adjustments and reduction in bad debt expense as discussed above.

Selling, general and
administrative expenses are anticipated to increase during the fourth quarter of
2002 due to various initiatives that the Company is undertaking to increase
seasonal product demand.

## Research and
Development Expenses

Research and development expenses
of $9.1 million for the third quarter of 2002 decreased by $3.4 million, or
27.3%, when compared to $12.5 million for the third quarter of 2001. The lower
research and development expenses for the third quarter of 2002 resulted
primarily from headcount reductions and lower project expenses associated with
Peerless and Zip, partially offset by project expenses associated with the
development of advanced technology products and the HDD line of portable and
desktop hard drives. Research and development expenses remained constant as a
percentage of sales at 6.7% in the third quarter of 2002, compared to 6.9% in
the third quarter of 2001.

For the nine months ended
September 29, 2002, research and development expenses of $26.6 million decreased
by $13.2 million, or 33.2%, when compared to $39.8 million for the nine months
ended September 30, 2001. The lower research and development expenses for the
first nine months of 2002 resulted primarily from headcount reductions and lower
project expenses associated with Peerless, Zip and CD-RW, partially offset by
project expenses associated with the development of advanced technology products
and the HDD line of portable and desktop hard drives. Research and development
expenses decreased as a percentage of sales to 5.8% in the nine months ended
September 29, 2002, from 6.2% for the nine months ended September 30, 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 $2.0
million in the third quarter of 2002 decreased $1.4 million from $3.4 million in
the third quarter of 2001. Significantly lower interest rates were partially
offset by higher average cash, cash equivalents and temporary investment
balances.

Interest and other expense
of $0.6 million in the third quarter of 2002 increased $0.4 million from $0.2
million in the third quarter of 2001. This increase resulted primarily from
higher foreign currency losses and higher bank and management fees associated
with the higher average cash, cash equivalent and temporary investment balances.

Interest income of $6.7
million in the nine months ended September 29, 2002, decreased $6.4 million from
$13.1 million in the nine months ended September 30, 2001. Significantly lower
interest rates were partially offset by higher average cash, cash equivalents
and temporary investment balances.

Interest and other expense
of $3.7 million in the nine months ended September 29, 2002, increased $3.2
million from $0.5 million in the nine months ended September 30, 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 higher bank and management fees associated with the higher average
cash, cash equivalent and temporary investment balances.

## Income Taxes

For the quarter ended
September 29, 2002, the Company recorded an income tax provision of $33.0
million on pre-tax income of $7.3 million, which reflected an income tax
provision of $6.2 million and a net provision of $26.8 million related to the
Companys agreement to sell its Penang Manufacturing Subsidiary (see
section above entitled, Penang Manufacturing Subsidiary Impairment
Charges for more details of the sales agreement). The $26.8 million net
provision related to the Penang Manufacturing Subsidiary was comprised of a
$39.6 million increase associated with foreign earnings for which no U.S. tax
provision had previously been provided and a $12.8 million decrease in the
valuation allowance for net deferred tax assets. Excluding the increased
provision related to the provision on foreign earnings and the valuation
allowance release, the adjusted effective tax rate for the third quarter of 2002
was 84.9%. This compares to an income tax provision of $0.8 million on a pre-tax
loss of $70.3 million reflecting a $28.7 million increase in the valuation
allowance for net deferred tax assets for the third quarter of 2001. Excluding
the $28.7 million increase in the valuation allowance, the adjusted effective
tax benefit for the third quarter of 2001 was approximately 39.7%. The increase
in the adjusted effective tax rate, from 39.7% in the third quarter of 2001 to
84.9% in the third quarter of 2002 resulted primarily from the fact that the
$10.7 million impairment charges related to the Companys agreement to sell
the Penang Manufacturing Subsidiary is not deductible for tax purposes.

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 September 29, 2002, the
Company had $34.1 million of deferred tax assets related to U.S. federal and
state net operating loss carryforwards, which reflect a tax benefit of
approximately $87.5 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 $15.3 million for deferred tax assets
related to foreign net operating loss carryforwards, which reflect the tax
benefit of approximately $35.0 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
liabilities for the Company at September 29, 2002 were $18.7 million. As of
September 29, 2002, deferred tax liabilities for estimated U.S. federal and
state taxes of $106.1 million have been accrued on unremitted foreign earnings
of $272.0 million. During Q3 2002, taxes were provided on all earnings
previously considered to be permanently invested in non-U.S. operations.

The Companys decision
to sell its Penang Manufacturing Subsidiary necessitated the recording of a tax
provision for the Companys foreign earnings that were previously
considered permanently invested. This resulted in an additional deferred U.S.
tax liability of $39.6 million. This provision was partially offset by the
release of $12.8 million of valuation allowance for a net provision of $26.8
million. The Company does not expect that it will be liable, as a result of the
tax provision, to make cash payments for U.S. taxes unless the Company were to
repatriate these foreign earnings to the United States.

For the nine months ended
September 29, 2002, the Company recorded an income tax provision of $34.7
million on pre-tax income of $51.6 million, which reflected an income tax
provision of $24.4 million, an additional tax provision of $39.6 million related
to the Companys earnings previously considered to be permanently invested
in non-U.S. operations and a $29.3 million decrease in the valuation allowance
for net deferred tax assets. The $39.6 million provision was a result of an
agreement to sell the Companys Penang Manufacturing Subsidiary. Excluding
the $39.6 million increase related to the agreement to sell the Penang
Manufacturing Subsidiary and the $29.3 million decrease in the valuation
allowance, the adjusted effective tax rate for the nine months ended September
29, 2002 was 47.3%. This compares to an income tax benefit of $15.1 million on a
pre-tax loss of $112.3 million which reflected a $29.1 million increase in the
valuation allowance for net deferred tax assets for the nine months ended
September 30, 2001. Excluding the $29.1 million increase in the valuation
allowance for foreign net deferred tax assets, the adjusted effective tax
benefit for the nine months ended September 30, 2001 was 39.4%. The increase in
the effective tax rate, excluding adjustments to the valuation allowances and
increased provision on foreign earnings, from 39.4% in the first nine months of
2001 to 47.3% in the first nine months of 2002 resulted primarily from the fact
that the $10.7 million impairment charges related to the Companys agreement
to sell the Penang Manufacturing Subsidiary is not deductible for tax purposes
and 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 $29.3 million decrease
in the valuation allowance for net deferred tax assets during the nine months
ended September 29, 2002, resulted primarily from the Company no longer being in
a net deferred tax asset position as a result of the agreement to sell the
Penang Manufacturing Subsidiary and from a reduction in net deferred tax assets
associated with net operating loss carryforwards. The net operating loss
deferred tax asset reduction was primarily the result of 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 September 29, 2002, the
Company had total cash, cash equivalents and temporary investments of $390.3
million, compared to $329.1 million at December 31, 2001, an increase of $61.4
million or 18.7%. At September 29, 2002, $4.5 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 September 29, 2002,
$145.4 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 September 29, 2002, the
remaining $244.9 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 $244.9 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%, but would not impact the statement of
operations as the taxes have already been provided for.

Working capital of $390.5
million at September 29, 2002 increased by $75.6 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 other
current liabilities, lower accounts payable 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 3.6 to 1 at September 29, 2002 from 2.4 to 1 at
December 31, 2001.

For the nine months ended
September 29, 2002, cash provided by operating activities amounted to $70.4
million, an increase of $88.3 million compared to cash used for operating
activities of $17.9 million for the nine months ended September 30, 2001. The
higher cash provided from operating activities resulted primarily from improved
operating results partially offset by changes in current assets and current
liabilities as described below.

Accounts receivable
decreased in the nine months ended September 29, 2002 primarily from lower sales
and improved collections. Days sales outstanding in receivables improved to 34
days at September 29, 2002, compared to 42 days at December 31, 2001. The
Company believes that it will be difficult to maintain days sales outstanding in
receivables at this level. Accounts payable decreased primarily from lower
levels of purchasing resulting from lower sales volumes, lower inventories,
decision to sell the Penang Manufacturing Subsidiary (whose accounts payable
were classified as held for sale) and cost reductions. Other current liabilities
decreased primarily from lower marketing accruals, lower purchase commitments,
lower restructuring accruals and a decrease in litigation reserves. 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 nine months ended
September 29, 2002, the Company made $8.8 million in cash payments related to
the 2001 restructuring actions and made $6.9 million in cash payments related to
the second and third quarter 2001 non-restructuring actions.

During the nine months
ended September 29, 2002, the Company repurchased 340,400 shares of the
Companys Common Stock for $2.9 million. For the nine months ended
September 30, 2001, the Company repurchased 1,270,760 shares of the
Companys Common Stock for $8.3 million. As of September 29, 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.

During the third quarter of
2002, the Company replaced a prior letter of credit and classified $4.5 million
of cash as restricted cash to secure this new letter of credit. Per the
agreement associated with this letter of credit, 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 December 2002. 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 an 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 plans on adopting SFAS 146 beginning on January 1, 2003.
The Company is unable to determine the effect of SFAS 146 on the Companys
results of operations, financial position or liquidity as the impact would be
determined by the nature of any future restructuring charges.

## Factors
Affecting Future Operating Results

Demand for the Company's Products

The Companys future
operating results will depend, in large part, on market demand for its products.
The extent to which the Companys products achieve and maintain a
significant market demand and presence will depend on a number of factors,
including the following:

- Market demand for digital storage products in general;
- The price, performance, quality and other characteristics of the Companys
products and of competing and substitute products 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 success of the Companys efforts to provide and 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;
- Worldwide economic conditions, including overall market demand for personal
computers and other products with which the Companys products can be used;
and
- The ability of the Company to maintain profitable relationships with
distributors, retailers and other resellers of the Companys products.

The Company cannot provide
any assurance that it will be able to successfully manage, satisfy, or influence
any of these factors.

Zip Drives and Disks

Since 1996, sales of Zip
products have accounted for a significant majority of the Companys
revenues and profits. However, these sales have been declining for several
years. For example, during the third quarter of 2002, total Zip sales decreased
$32.0 million, or 22.4%, from third quarter 2001 Zip sales of $142.7 million.
The Companys third quarter 2002 Zip drive units were 1.0 million units, a
decrease of 0.3 million units when compared to third quarter 2001.

The level of future sales
of Zip drives to end user customers will depend in large part on the
Companys ability to maintain market demand for Zip technology. In order to
maintain such demand, the Company must: a) successfully generate and maintain
market demand for removable storage products in general; b) effectively position
the Zip product line against competing products such as CD-RW drives; c) reduce
costs to compete against other substitute technologies; and d) maintain
effective relationships with distributors, retailers and other resellers. There
is no assurance that the Company can accomplish these objectives.

The Companys sales of
its proprietary Zip disks (both in terms of unit volumes and in terms of sales)
have primarily been declining on a year-over-year basis in recent years.
However, the Companys profitability remains dependent on maximizing, to
the extent possible, sales of Zip disks, which generate significantly higher
gross and product profit margins than the related drives or other Company
products. If the Company fails to minimize year-over-year declines in Zip disk
sales, then the Companys profitability and/or results of operations may be
adversely affected. Factors which could lead to continued declines in Zip disk
sales include the following:

- The Company may be unable to stop the decline in Zip drive sales;
- The Company may not
succeed in its strategy to increase Zip disk usage by existing Zip drive
customers;
- The sales mix and tie rate between Zip disks and Zip
drives may fall below levels anticipated by the Company;
- Another party may succeed in producing or marketing disks that are compatible
with the Companys Zip drive products without infringing the Companys
proprietary rights;
- Price reductions or promotions on Zip disks may fail to produce a commensurate
increase in demand, thereby reducing anticipated sales; or
- Disruptions in the supply of Zip drives and disks in the manufacturing
process,in the distribution process, in the Companys relationships
with key retailers, distributors, or resellers, or other factors that could
result in product unavailability.

As the Companys Zip
drive and disk revenues have declined, it has become increasingly difficult for
the Company to maintain its presence and shelf space with its key resellers and
retailers. Management believes that this challenge became more pronounced during
third quarter 2002 as certain customers announced restructurings resulting from
weak business and economic conditions. Although the Company attempts to offer
competitive sales and marketing programs to induce channel partners to continue
to purchase Zip products and other offerings, there is no assurance that the
Company will be successful.

A private label customer is
the Companys largest single purchaser of Zip disks. The Company earns a
lower gross margin on private label disk sales because private label prices
generally provide a functional discount to the private label customer, which in
turn agrees to incur all of the sales, marketing and distribution expenses
associated with reselling the disks under its brand name. In appropriate cases,
the Company may also provide a volume discount to the private label customer. If
the percentage of Zip disks sold to the private label customer materially
increases, the Companys overall gross margin from sales of Zip disks could
decline, due to lower margins and lower prices generally associated with such
sales. A decrease in the amount of Zip disks purchased by the private label
customer would likely result in an overall decrease in Zip disk sales.

The Company sells a
significant volume of Zip drives to a relatively small number of computer OEMs.
The Companys OEM customers are not obligated to purchase any minimum
volume of Zip drives. Moreover, the fact that the number of OEM customers is
relatively small presents a risk that the loss of one or more key OEM accounts
would have an immediate, material, adverse effect upon the Companys
financial condition or operating results. There is a growing trend among
personal computer OEM customers to adopt CD-RW and DVD-RW drives as standard
product features. This trend has adversely impacted the Companys Zip
business and there can be no assurance that the Company will be successful in
mitigating this trend. In order to maintain a profitable level of Zip drive
sales to OEMs, the Company must successfully maintain market demand for Zip
drives and reduce the costs of Zip drives. Again, there can be no assurance that
the Company will be able to do so. The Companys largest OEM customer, Dell
Computer, has not yet qualified the Companys recently announced Zip 750MB
internal drive. Rather, Dell presently carries the external USB product as an
after-market peripheral device and may build it into personal computers on a
special order basis. There can be no assurance that the Company will
successfully encourage Dell to agree to qualify the new internal drive.

Notwithstanding the
foregoing challenges and risks, the Companys ability to stabilize the Zip
products business and to minimize, to the extent possible, the decline in Zip
unit volumes and sales will be critical to the Companys future
profitability. For example, during the third quarter of 2002, the PPM for the
Zip business (including impairment charges) was $31.4 million versus product
losses of $3.3 million on all other product segments. There is no assurance that
the Company will be able to successfully stabilize and maintain its Zip business
and profitability.

CD-RW Drives

The Companys CD-RW
business strategy differs fundamentally from its Zip product strategy. Material
differences between the CD-RW and Zip businesses include the following: a) all
of the Companys CD-RW drives are sourced from suppliers and marketed under
the Iomega brand name; b) the Company has no significant intellectual property
relating to CD-RW drives; c) unlike Zip drives, the CD-RW drives use very
low-cost, non-proprietary disks available from many sources; d) there is intense
competition between different providers of CD-RW drives; and e) the Company
obtains significantly lower overall gross margins on sales of CD-RW drives than
on Zip drives. The overall CD-RW business is characterized by low gross margins,
the frequent introduction of performance upgrades and intense competition from
both brand name and generic, low-cost competitors. In light of these factors,
the Company must closely monitor its inventory levels, product transitions,
sales channel inventory, purchase commitments, advertising and other marketing
expenses in order to compete effectively and profitably. There is no assurance
that the Company can achieve these objectives and historically it has failed to
do so. The Company has reported product losses on its CD-RW business every year
since it entered the CD-RW market in 1999.

In spite of these
challenges, the Company believes it must maintain a presence in the CD-RW market
in order to achieve its overall objective to be viewed as a full line supplier
of digital storage solutions in its retail channels. The Companys current
CD-RW business strategy includes the selection of new suppliers, reduced
operating expenses, improved inventory management processes and revised channel
marketing programs. However, the product line was again unprofitable in the
third quarter of 2002 and there is no assurance that the Companys strategy
will be successful. The suppliers, as the original manufacturers, have 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. In addition, the Company believes that the overall market for
aftermarket external CD-RW drives is no longer expanding, due to factors such as
the following: a) OEMs continue to offer and customers continue to choose,
internal CD-RW drives as a standard product feature, thereby minimizing market
demand for external CD-RW drives; b) customers continue to transition from CD-RW
drives to DVD-Recordable drives; and c) aftermarket internal drives are now
significantly less expensive than external CD-RW drives.

Iomega HDD

During the second quarter
of 2002, the Company began shipping a series of portable and desktop hard disk
drive (HDD) offerings. The Company expects to encounter many of the
same challenges in this market sector as it has in the CD-RW market. For
example, a) all of the Companys HDD drives are sourced from suppliers and
marketed under the Iomega brand name; b) the Company engages in no significant
manufacturing activity with respect to HDD drives; c) the Company has no
significant intellectual property relating to HDD drives; d) there is intense
competition between different providers of HDD drives; and e) there is a need to
continually requalify new drives as existing drives come into short supply or
become obsolete. The overall HDD market is characterized by low gross margins,
the frequent introduction of upgraded products and intense competition from both
brand name and generic, low-cost competitors. In order to successfully compete
in this market, the Company must meet aggressive product price and performance
targets and create market demand for its particular brand of external hard disk
drives. There is no assurance that the Company can or will do so.

Iomega NAS Products

In 2001, the Company began
selling network attached storage (NAS) devices. Through introduction
of this product line, the Company is attempting to leverage the Iomega brand
name 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 providers (including 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 has little historic expertise
in these areas and is developing a strategy to address these requirements and
challenges. The NAS market is an emerging market and there is no assurance that
the market will develop as anticipated. Moreover, there can be no assurance that
the Company will successfully develop the necessary core competencies to compete
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 that the Company will achieve profitability on this product line in
2002 or thereafter.

Development and Introduction of New Products

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 any of these products profitably.
Notwithstanding these failures, the Company believes that it must develop or
acquire new product lines in order to remain viable. In addition to NAS products
and new HDD products, as described above, the Company expects to review new
business opportunities in multiple areas including digital storage, software,
disks, drives, networking, services and other related areas. The Company may
spend significant resources a) attempting to develop new technologies, products,
or applications; b) attempting to acquire new technologies, products, or
applications; or c) attempting to market new products incorporating such
products or applications. There is no assurance that the Company will be
successful in any of these endeavors. Moreover, introduction of new products
entails risks relating to factors such as the following:

- Unforeseen manufacturing and technical challenges;
- Performance,  quality,  or other issues that are only  discovered in the context of usage by large numbers
of consumers;
- Lack of defensible intellectual property;
- Lack of relevant core competencies or market expertise;
- Lack of market acceptance; and
- The risk that third
parties may assert intellectual property claims against new products.

General Economic Conditions

The Companys future
operating results are subject to risks associated with general economic
conditions and consumer confidence. An overall decrease in consumer spending
would likely 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 operating
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. The
Company may be required to increase its allowance for doubtful accounts in the
future.

Company Operations

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.

Inventory Management

Management of the
Companys inventory levels is very complex. The Companys customers
frequently adjust their ordering patterns in response to factors such as the
following:

- Customer and market demand for the Company's  products and  perceptions  of the Company's  ability to meet
demand;
- The Company's and competitors' inventory supplies in the retail and distribution channel;
- New product introductions;
- Seasonal fluctuations;
- Company and customer promotions; and
- Consolidation of customer distribution centers.

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.
Excess inventories could force the Company to reduce prices, write down such
inventory or take other actions which in turn could adversely affect the
Companys results of operations.

Product Procurement

The Company recently sold
its Penang Manufacturing Subsidiary to a third party, Venture Corporation
Limited (Venture). The Company expects that this will allow it, over
time to reduce operational overhead and allow for more variable product costing.
The Company has entered into a five-year manufacturing services agreement with
Venture for the manufacture and supply of Zip drives and certain other products.
There is no assurance that this transaction will allow the Company to reduce
costs or otherwise be beneficial to the Company. As a result of this transaction
the Company faces new risks including the following:

- The Company will no longer have direct control over the manufacturing processes
of Zip drives and other products;
- The Companys ability to quickly increase or decrease production rates may be impaired;
- The Company may face product shortages;
- The Company may incur increased product or operational costs, specifically,
the product prices agreed to with Venture are contingent upon the Company purchasing certain volumes;
- The Company has incurred significant charges related to the sale of the facility
and there is no assurance that the benefits of these transactions to the Company
will outweigh such charges;
- The Company will face new
risks related to order management, supply and distribution issues;
- The Companys lack of control over its manufacturing process may increase the
risk that quality or reliability problems may arise with respect to its products;
- Possible 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; and
- Other risks associated with the fact that the Penang Manufacturing Subsidiary 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.

Product Procurement Costs

The Company believes that
it must continue to reduce the procurement costs of its products. However, with
the sale of the Penang Manufacturing Subsidiary, the Company has limited
involvement in the manufacturing of any of the products it sells. Thus, in order
to reduce product costs, the Company believes that it must successfully
negotiate lower product procurement costs from suppliers, including Venture and
certain other key suppliers. There is no assurance that the Company will be able
to do so.

Distribution and Logistics

The Company has outsourced
its distribution and logistics centers and, consequently, has become more
reliant upon the computer systems of its outsourcing partners. The Company faces
risks that these systems may have communication, control, or reliability
problems. 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.

A number of problems may
occur in any distribution outsourcing relationship, including problems relating
to product availability, supply, distribution, handling, shipping, quality or
reliability. Such problems, if they were to arise with respect to the
Companys outsourced operations, could have an adverse effect in the form
of: a) lower Company sales, income and/or gross margin; b) damage to the
Companys reputation in the marketplace, resulting in decreased demand for
or acceptance of the Companys products; or c) damage claims filed against
the Company by customers, contract partners or investors as a result of such
problems.

The Company expects that it
will evaluate and implement additional outsourcings of business functions in the
future. Any such outsourcing initiatives may pose risks of delays and business
disruption including risks similar to those discussed in the foregoing
paragraphs entitled Product Procurement and Distribution and
Logistics.

Obsolescence Risks

The Companys ability
to effectively manage obsolescence risks will affect its operating results. The
Company may terminate its production or marketing of certain products from time
to time in response to market demand, supply, cost, competition or other
factors. This requires the Company to carefully manage a number of issues, such
as: a) maintaining market demand for the terminated product while successfully
selling existing inventories through the channel; b) reserving sufficient, but
not excessive, quantities of product to comply with warranty, customer
satisfaction and legal obligations; c) preventing, to the extent possible, the
return of such products from inventories held by distributors, retailers and
other resellers and d) other associated risks. There is no assurance that the
Company can successfully manage these factors.

Component Supplies

Although the Company has
sold its Penang Manufacturing Subsidiary, the Company has retained
responsibility for the supply of certain key components. 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. 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. In addition, the Company has only one
supplier of certain key products. From time to time, suppliers of critical
components announce their intention to discontinue manufacturing. In such cases,
the Company attempts 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 option will be available from a supplier
who has chosen to discontinue a component. Moreover, there can be no assurance
that the Companys estimates of future requirements will 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 Companys
inability to obtain sufficient components and equipment or to obtain or develop
alternative sources of supply could have a number of adverse consequences, such
as the following:

- The Company might be unable to produce sufficient quantities of its products to satisfy market
demand;
- 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;
- The Company might be forced to delay product shipments;
- The Company's material or manufacturing costs might increase; or
- The Company could experience an imbalance in the inventory levels of certain
components, which could increase costs, slow or stop production, or cause the
Company to modify the design of its products to use a more readily available
component, with uncertain consequences.

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. The Company
has recorded significant charges in the past relating to supplier purchase
commitments and inventory reserves. The Company may be required to take similar
future charges attributable to forecasting inaccuracies in the future.

Intellectual Property Risks

Patent, copyright,
trademark or other intellectual property infringement claims may be asserted
against the Company at any time. Such claims could have a number of adverse
consequences, including:

- An injunction against current or future product shipments;
- A requirement that the Company 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;
- A requirement that the Company pay royalties to third parties for past product shipments;
- A requirement that the Company devote unplanned  resources to developing  modifications to its products or
marketing programs;
- A requirement that the Company indemnify third parties who have distributed the
infringing product with the Companys permission;
- Excessive legal fees incurred by the Company; or
- Other such consequences.

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. Resolution of patent
infringement demand letters and lawsuits can be very costly, with legal fees and
costs running into the millions of dollars.

Legal Risks

The Company has entered
into multiple agreements, including service, supply, resale, distribution,
development and other agreements in multiple jurisdictions throughout the world.
In addition, the Company employs approximately 800 people throughout the world.
Although the Company attempts to fulfill all of its obligations and enforce all
of its rights under these agreements and relationships, there is no assurance
that it will be able to do so. The Company has been sued and may be sued, under
numerous legal theories, including breach of contract, tort, products liability,
intellectual property infringement and other theories. Complaints have been
filed and may be filed, against the Company by contract partners, third parties,
employees and other individuals or entities. Such litigation may have an adverse
effect upon the Companys earnings, profitability or public perception.

Restructuring Activities

The Company recorded
significant restructuring and other charges during the second, third and fourth
quarters of 2001 in connection with restructuring and other actions intended to
reduce the Companys break-even point, improve operating cash flow,
streamline the Companys supply chain and logistics strategy and otherwise
improve Company efficiency, profitability and viability. Additional
restructuring actions may be necessary in the future. There can be no assurance
that any further restructuring activities will have their desired effects.

Although the Company has
reduced operational expenses, there is no assurance that these reductions are
sustainable. Management expects that prior restructuring and other actions will
reduce future operational and manufacturing expenses. However, management
anticipates the need to implement additional operational cost reductions. There
is no assurance that the Company will be successful in this regard. 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. Any such disruption could adversely affect the Companys
financial results.

Retention of Key Employees

The Companys success
depends in large part upon the services of a number of key employees. 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. The Company has had several other
relatively recent 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.

Other Risk Factors

During the third quarter of
1999, the Company announced plans to cease its Nomai manufacturing operations in
Avranches, France and ceased such operations shortly thereafter. In connection
therewith, the Company recorded restructuring charges in 1999. The Company may
be forced to incur additional legal or other costs relating to this matter. 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 invoices 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 U. S., 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.

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.
Adverse events or developments in regard to a particular issuer could 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
September 29, 2002, there were approximately 128,000 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 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. The future impact on net income of such expense has not yet been
determined.

In summary, a number of
factors could adversely affect the Company, or could cause actual events or
results to differ materially from those indicated by any forward-looking
statements. Such factors include the ability of management to manage an
increasingly complex business in a highly competitive environment,
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 and changes or slowdowns in overall market demand for personal
computer products and other consumer products which utilize the Companys
products.

# IOMEGA
CORPORATION

# 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. With the
sale of the Penang Manufacturing Subsidiary, the Companys foreign currency
exposure with respect to the Malaysian Ringgit is no longer material.

When hedging balance sheet
exposure, all gains and losses on forward contracts are recognized in other
income and expense in the same period that 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 $3.1
million at September 29, 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 September 29, 2002, the Companys analysis indicated that
such market movements, given the offsetting foreign currency gains or losses on
the underlying net assets and liabilities, 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 September 29, 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 $2.7 million
in the nine months ended September 29, 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.

## ITEM 4.
CONTROLS AND PROCEDURES

An evaluation was performed
under the supervision and with the participation of the Companys
management, including the President and Chief Executive Officer
(CEO) and the Vice President, Finance and Chief Financial Officer
(CFO), of the effectiveness of the design and operation of the
Companys disclosure controls and procedures. Based on that evaluation, the
Companys management, including the CEO and CFO, concluded that the
Companys disclosure controls and procedures were effective in ensuring
that information required to be disclosed in this report were recorded,
processed, summarized and reported properly and are operating in an effective
manner. There have been no significant changes in the Companys internal
controls or in other factors that could significantly affect internal controls
subsequent to the evaluation date.

## 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 third quarter of 2002 that were not registered
under the Securities Act of 1933.

## 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. No reports on Form 8-K were filed during the quarter for which
this report on Form 10-Q is filed.                               

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: 11/12/02
Dated: 11/12/02 | 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
|------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

CERTIFICATION

I, Werner T. Heid, certify that:

|1. | I have reviewed this quarterly report on Form 10-Q of Iomega Corporation;
|-- | -------------------------------------------------------------------------

|2. | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based on my knowledge, the financial statements, and other financial information
included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this quarterly report;
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a) | designed such disclosure controls and procedures to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this
quarterly report is being prepared;
| |  | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | b) | evaluated the effectiveness of the registrant's disclosure controls and procedures as of
a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date);
and
| |  | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date;
| |  | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a) | all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | b) | any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal controls; and
| |  | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated: November 12, 2002 | /s/ Werner T. Heid
    Werner T. Heid
    President and Chief Executive Officer
|------------------------ | -------------------------------------------------------------------------------

CERTIFICATION

I, Barry Zwarenstein, certify that:

|1. | I have reviewed this quarterly report on Form 10-Q of Iomega Corporation;
|-- | -------------------------------------------------------------------------

|2. | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based on my knowledge, the financial statements, and other financial information
included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this quarterly report;
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a) | designed such disclosure controls and procedures to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this
quarterly report is being prepared;
| |  | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | b) | evaluated the effectiveness of the registrant's disclosure controls and procedures as of
a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date);
and
| |  | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date;
| |  | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a) | all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | b) | any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal controls; and
| |  | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated: November 12, 2002 | /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
|------------- | -----------

|+10.23 | Agreement relating to the sale and purchase of the
issued capital of Iomega (Malaysia) Sdn. Bhd., by and between Iomega Overseas B.V., a wholly-owned indirect
subsidiary of the Company, and Venture Corporation Limited.
+Confidential treatment requested as to certain portions.  Such portions have been omitted and filed separately
with the Securities and Exchange Commission.
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|99.4 | Certification letter from Werner T. Heid, President
and Chief Executive Officer.
|---- | --------------------------------------------------------------------------------

|99.5 | Certification letter from Barry Zwarenstein, Vice President, Finance
and Chief Financial Officer.
|---- | -------------------------------------------------------------------------------------------------