---

# 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 MARCH 31, 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 May 6, 2002.

|Common Stock, par value $.03 1/3(Title of each class) | 51,167,625(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 March 31, 2002
             and December 31, 2001.................................................................       3

         Condensed Consolidated Statements of Operations for the Quarters
             ended March 31, 2002 and April 1, 2001................................................       5

         Condensed Consolidated Statements of Cash Flows for the Quarters
             ended March 31, 2002 and April 1, 2001................................................       6

         Notes to Condensed Consolidated Financial Statements......................................       7

Item 2.  Management's Discussion and Analysis of Financial
             Condition and Results of Operations...................................................      30

Item 3.  Quantitative and Qualitative Disclosures About Market Risk................................      57

                                                      PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.........................................................................      58

Item 2.  Changes in Securities and Use of Proceeds.................................................      58

Item 6.  Exhibits and Reports on Form 8-K..........................................................      58

Signatures.........................................................................................      59

Exhibit Index......................................................................................      60`

Copyright © 2002
Iomega Corporation. All rights reserved. Iomega, the stylized i
logo, Zip, Jaz, PocketZip, HipZip, HotBurn, FotoShow, QuikSync, LifeWorks,
Active Disk, Predator and Peerless 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 goals to achieve sales
growth and to continue 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, as well as any other plans
concerning any product lines; the expectation to continue to lower product
costs; the expected sufficiency of unrestricted cash, cash equivalents and
temporary investment balances and cash flows from 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 realizability of net deferred tax assets; and the possible effects of an
adverse outcome in the legal proceedings described in Note 5 of the notes to
condensed consolidated financial statements in Part I. Any statements contained
herein that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words
believes, anticipates, plans,
expects, intends and similar expressions are intended to
identify forward-looking statements, although not all forward-looking statements
contain these words.

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

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

`March 31,               December 31,
                                                                            2002                     2001
                                                                         ---------               ------------
                                                                        (Unaudited)
Current Assets:
   Cash and cash equivalents                                             $ 232,077                $ 219,949
   Restricted cash                                                           5,907                    4,144
   Temporary investments                                                   103,382                  104,953
   Trade receivables, less allowance for doubtful accounts of
      $10,670 and $11,559, respectively                                     81,947                   89,396
   Inventories                                                              56,197                   56,336
   Deferred income taxes                                                    34,012                   39,978
   Income taxes receivable                                                  14,984                    4,025
   Other current assets                                                     19,286                   15,742
                                                                         ---------                ---------
      Total Current Assets                                                 547,792                  534,523
                                                                         ---------                ---------

Property, plant and equipment, at cost                                     252,524                  266,634
Accumulated depreciation and amortization                                 (201,146)                (211,437)
                                                                         ---------                ---------
      Net property, plant and equipment                                     51,378                   55,197
                                                                         ---------                ---------

Goodwill, net                                                               11,691                   11,691
                                                                         ---------                ---------
Other intangibles, net                                                       8,797                    9,744
                                                                         ---------                ---------
Other assets                                                                 2,040                    2,820
                                                                         ---------                ---------
    Total Assets                                                         $ 621,698                $ 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)

`March 31,          December 31,
                                                                              2002                2001
                                                                          -----------         ------------
                                                                          (Unaudited)
Current Liabilities:
   Accounts payable                                                        $   59,626           $   68,550
   Other current liabilities (Note 1)                                         137,784              150,059
   Capitalized lease obligations                                                  734                1,036
                                                                           ----------           ----------
      Total Current Liabilities                                               198,144              219,645
                                                                           ----------           ----------

Other long-term liabilities                                                     2,074                3,018
                                                                           ----------           ----------

Deferred income taxes                                                          14,161               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 54,593,913 and 54,572,019 shares,
      respectively                                                              1,820                1,819
   Additional paid-in capital                                                 307,508              307,413
   Less: 3,426,288 and 3,085,888 Common Stock treasury
      shares, respectively, at cost                                           (33,791)             (30,867)
   Retained earnings                                                          131,782              100,573
                                                                           ----------           ----------
      Total Stockholders' Equity                                              407,319              378,938
                                                                           ----------           ----------
         Total Liabilities and Stockholders' Equity                        $  621,698           $  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
                                                                       ----------------------------------
                                                                       March 31,                 April 1,
                                                                         2002                      2001
                                                                       ---------                ---------
                                                                                   (Unaudited)
Sales                                                                  $ 178,897                $ 277,010
Cost of sales                                                            106,371                  192,490
                                                                       ---------                ---------
Gross margin                                                              72,526                   84,520
                                                                       ---------                ---------

Operating Expenses:
    Selling, general and administrative                                   38,196                   59,792
    Research and development                                               8,644                   14,076
    Bad debt credit                                                         (696)                    (276)
                                                                       ---------                ---------
       Total Operating Expenses                                           46,144                   73,592
                                                                       ---------                ---------

Operating income                                                          26,382                   10,928
Interest income                                                            2,320                    5,325
Interest and other expense                                                (2,104)                     (64)
                                                                       ---------                ---------

Income before income taxes                                                26,598                   16,189
Benefit (provision) for income taxes                                       4,611                   (6,357)
                                                                       ---------                ---------

Net income                                                             $  31,209                $   9,832
                                                                       =========                =========

Net income per common share:
    Basic                                                              $    0.61                $    0.18
                                                                       =========                =========
    Diluted                                                            $    0.61                $    0.18
                                                                       =========                =========

Weighted average common shares outstanding                                51,281                   54,032
                                                                       =========                =========
Weighted average common shares outstanding -
    assuming dilution                                                     51,375                   54,086
                                                                       =========                =========`

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 Quarter Ended
                                                                            --------------------------------
                                                                            March 31,              April 1,
                                                                               2002                  2001
                                                                            ---------             ----------
                                                                                      (Unaudited)
   Cash Flows from Operating Activities:
       Net income                                                           $  31,209             $    9,832
       Non-cash revenue and expense adjustments:
          Depreciation and amortization                                         7,058                 14,468
          Deferred income taxes                                                 7,753                  5,785
          Bad debt credit                                                        (696)                  (276)
          Other                                                                   799                   (257)
                                                                            ---------             ----------
                                                                               46,123                 29,552
       Changes in Assets and Liabilities:
          Trade receivables                                                     8,145                (23,703)
          Inventories                                                           1,716                 10,002
          Other current assets                                                 (5,121)                 1,261
          Accounts payable                                                     (8,924)                11,960
          Other current liabilities                                            (5,842)               (23,562)
          Accrued restructuring                                                (6,433)                  (768)
          Restricted cash                                                      (1,763)                     -
          Income taxes                                                        (10,959)                    38
                                                                            ---------             ----------
       Net cash provided by operating activities                               16,942                  4,780
                                                                            ---------             ----------

   Cash Flows from Investing Activities:
       Purchase of property, plant and equipment                               (2,590)                (8,357)
       Purchase of temporary investments                                      (59,812)               (49,090)
       Sale of temporary investments                                           61,383                 70,999
       Net change in other assets/liabilities                                    (651)                (1,717)
                                                                            ---------             ----------
   Net cash provided by (used in) investing activities                         (1,670)                11,835
                                                                            ---------             ----------

   Cash Flows from Financing Activities:
       Proceeds from sales of Common Stock                                         82                    606
       Purchases of Common Stock                                               (2,924)                     -
       Payments on capitalized lease obligations                                 (302)                  (313)
                                                                            ---------             ----------
   Net cash (used in) provided by financing activities                         (3,144)                   293
                                                                            ---------             ----------
   Net increase in cash and cash equivalents                                   12,128                 16,908
   Cash and cash equivalents at beginning of period                           219,949                255,572
                                                                            ---------             ----------
   Cash and cash equivalents at end of period                               $ 232,077             $  272,480
                                                                            =========             ==========`

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 March 31, 2002 and December
31, 2001 and the results of operations and cash flows for the quarters ended
March 31, 2002 and April 1, 2001.

The results of operations
for the quarter ended March 31, 2002 are not necessarily indicative of the
results to be expected for the entire year or for any future period.

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

Reverse Stock Split

On September 28, 2001, the
Companys shareholders approved a one-for-five reverse stock split
(reverse stock split) of the Companys outstanding Common
Stock. The reverse stock split was effected after the market close on September
28, 2001, thereby reducing 272.8 million shares of issued Common Stock
(including treasury shares) to 54.6 million shares. All per share amounts and
outstanding shares, including all common stock equivalents (stock options), have
been retroactively restated in the accompanying condensed consolidated financial
statements and notes to condensed consolidated financial statements for all
periods presented to reflect the reverse stock split.

Principles of Consolidation

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

Pervasiveness of Estimates

The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of sales and expenses during the reporting
period. Actual results could differ materially from these estimates.

Revenue Recognition

The Companys
customers include OEMs, retailers, distributors, value-added manufacturers and
end users. Some retail and distribution customer agreements have provisions that
allow the customer to return product under certain conditions within specified
time periods. Sales, less reserves for estimated returns, are generally
recognized upon shipment to the customer. The Company has established reserves
for estimated returns, which are reflected as a reduction in trade receivables
and sales in the accompanying condensed consolidated financial statements. The
reserve for estimated returns totaled $8.0 million and $6.2 million at March 31,
2002 and December 31, 2001, respectively.

In addition to reserves for
estimated returns, the Company defers recognition of revenue on estimated excess
inventory in the distribution and retail channels. For this purpose, excess
inventory is the amount of inventory that exceeds the channels 30-day
requirements as estimated by management. The channels 30-day requirements
are estimated based on inventory and sell-through amounts reported to the
Company by the Companys key customers. The Company defers estimated sales
and cost of sales associated with excess channel inventory in its condensed
consolidated financial statements. The gross margin associated with deferral of
sales for estimated excess channel inventory totaled $10.7 million and $12.8
million at March 31, 2002 and December 31, 2001, respectively, and is included
in Other current liabilities in the accompanying condensed
consolidated balance sheets.

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

Price Protection and Volume Rebates

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

Reserves for volume rebates
and price protection credits totaled $38.3 million and $45.8 million at March
31, 2002 and December 31, 2001, respectively, and are netted against trade
receivables in the accompanying condensed consolidated balance sheets.

Restricted Cash

In connection with the
class action lawsuit, Rinaldi, et al. v. Iomega Corporation, as part of
the Courts June 29, 2001 order, the Court issued an award of $4.1 million
for plaintiffs attorneys fees. The Company has funded $4.1 million
into an escrow account. The Company has title to the escrow account and interest
received on this account becomes part of the escrow balance. However, the
Company is restricted to using this cash only for the payment of
plaintiffs attorneys fees once this lawsuit is settled. This cash is
reported separately as restricted cash in the accompanying condensed
consolidated balance sheets. For more information about the lawsuit, see Note 5
Commitments and Contingencies.

During the first quarter of
2002, the Company classified $1.8 million of cash as restricted cash to cover
the bank agreement associated with an outstanding letter of credit. Per the bank
agreement, this cash has been set aside as a certificate of deposit and cannot
be utilized by the Company until shortly after the letter of credit is no longer
needed.

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:

`March 31,         December 31,
                                                                           2002                2001
                                                                         --------          ------------
                                                                                (In thousands)
              Raw materials                                              $  8,276            $ 15,836
              Work-in-process                                               1,686               3,739
              Finished goods                                               41,033              32,256
              Inventory associated with estimated returns                   5,202               4,505
                                                                         --------            --------
                                                                         $ 56,197            $ 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 as
excess and thus appropriate reserves are established through a charge to cost of
sales.

Fixed Asset Impairment

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

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

Although the Company has
consolidated its manufacturing operations into its Penang, Malaysia facility to
increase manufacturing efficiencies, this facility is still significantly
underutilized, which has an adverse impact on the overhead and burden applied to
the Companys products. The Company is evaluating various alternatives to
resolve this underutilization, including divestment and outsourcing of its
manufacturing operations. The implementation of any of the alternatives being
considered would likely result in future charges. The net book value of the
Penang, Malaysia building and land as of March 31, 2002 was $21.7 million.

Other Current Liabilities

Other current liabilities consist of the following:

`March 31,         December 31,
                                                                              2002                2001 
                                                                            ---------         ------------
                                                                                   (In thousands)

              Accrued marketing (a)                                         $  31,072           $  36,608
              Accrued payroll, vacation and bonus                              12,271              10,150
              Margin on deferred sales                                         12,441              13,813
              Accrued warranty                                                  9,806              10,856
              Accrued restructuring                                             9,275              15,770
              Purchase commitments                                              9,185              13,555
              Accrued litigation                                                9,060               5,937
              Other accrued liabilities (b)                                    44,674              43,370
                                                                            ---------           ---------
                                                                            $ 137,784           $ 150,059
                                                                            =========           =========`

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

| | (b) | Includes accruals for royalty accruals, accrued professional fees,
self-insurance liabilities, profit sharing accruals, relocation accruals,
accruals for value added taxes (VAT) and accruals for sales and
other taxes.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Net Income Per Common Share

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

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              Shares       Per Share
                                                                  (Numerator)         (Denominator)     Amount
                                                                  -----------         -------------     -------
                                                                     (In thousands, except per share data)
         For the Quarter Ended:
         March 31, 2002:
         Basic EPS                                                  $ 31,209              51,281         $ 0.61
            Effect of options                                              -                  94              -
                                                                    --------              ------         ------
         Diluted EPS                                                $ 31,209              51,375         $ 0.61
                                                                    ========              ======         ======

         April 1, 2001:
         Basic EPS                                                  $  9,832              54,032         $ 0.18
            Effect of options                                              -                  54              -
                                                                    --------              ------         ------
         Diluted EPS                                                $  9,832              54,086         $ 0.18
                                                                    ========              ======         ======`

For the quarters ended
March 31, 2002 and April 1, 2001, there were outstanding options to purchase
1,873,707 and 1,487,242 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.

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.

The Company adopted
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), on January 1, 2002. This issue
concluded that under specific circumstances, certain consumer and trade sales
promotion expenses are presumed to be a reduction of the selling prices of the
vendors products and therefore, should be characterized as a reduction of
sales when recognized in the vendors income statement. Reclassification of
prior period financial statements is required if practical. The adoption of this
pronouncement resulted in a reduction to sales and a corresponding decrease in
selling, general and administrative expenses of $1.2 million for the first
quarter of 2001. The adoption of EITF 00-25 had no impact on operating income,
net income or earnings per share.

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 March
31, 2002, the Company recorded an income tax benefit of $4.6 million on pre-tax
income of $26.6 million which reflected a $15.8 million decrease in the
valuation allowance for net deferred tax assets partially offset by an income
tax provision of $11.2 million. Excluding the $15.8 million decrease in the
valuation allowance, the effective tax rate for the first quarter of 2002 was
41.9%. This compares to an income tax provision of $6.4 million on pre-tax
income of $16.2 million for the first quarter of 2001, which included a $0.4
million increase in the valuation allowance for foreign net deferred tax assets.
Excluding the $0.4 million increase in the valuation allowance, the effective
tax rate for the first quarter of 2001 was 36.7%.

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:

`March 31,        December 31,
                                                                              2002              2001
                                                                           ----------        ------------
                                                                                 (In thousands)

              Deferred Tax Assets:
              Current Deferred Tax Assets:
                  Trade receivable reserves                                 $  16,581          $  19,099
                  Inventory reserves                                            3,259              6,498
                  Accrued expense reserves                                     19,399             28,043
                  Other                                                           214                191
                                                                            ---------          ---------
              Total current deferred tax assets                                39,453             53,831
                                                                            ---------          ---------

              Non-Current Deferred Tax Assets:
                  Fixed asset reserves                                          3,265              4,729
                  Tax credit carryforwards                                     17,324             13,100
                  Accelerated depreciation/amortization                         3,023              2,307
                  Foreign net operating loss carryforwards                     15,883             15,956
                  U.S. net operating loss carryforwards                        30,801             37,233
                  Other                                                           305                250
                                                                            ---------          ---------
              Total non-current deferred tax assets                            70,601             73,575
                                                                            ---------          ---------
              Total deferred tax assets                                       110,054            127,406
                                                                            ---------          ---------

              Non-Current Deferred Tax Liabilities:
                  Tax on unremitted foreign earnings                          (56,216)           (50,006)
                  Nomai goodwill and intangible asset                          (5,117)            (5,159)
                                                                            ---------          ---------
                     Total non-current deferred tax liabilities               (61,333)           (55,165)
                                                                            ---------          ---------
              Current valuation allowance                                      (5,441)           (13,853)
              Non-current valuation allowance                                 (23,429)           (30,784)
                                                                            ---------          ---------
                  Net deferred tax assets                                   $  19,851          $  27,604
                                                                            =========          =========

              As Reported on the Balance Sheet:
              Current deferred tax assets                                   $  34,012          $  39,978
                                                                            =========          =========
                  Non-current deferred tax liabilities                      $ (14,161)         $ (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 March 31, 2002, the
Company had $30.8 million of deferred tax assets related to U.S. federal and
state net operating loss carryforwards, which reflected the tax benefit of
approximately $79 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 $15.9 million for deferred tax assets
related to foreign net operating loss carryforwards, which reflected the tax
benefit of approximately $36 million in future foreign tax deductions. These
carryforwards expire at various dates beginning in 2004. These deferred tax
assets remain fully reserved because their realization is dependent on earning
future foreign taxable income in the tax jurisdictions to which the net
operating loss carryforwards related. The largest of these foreign net operating
loss carryforwards relates to the Companys French subsidiary, Nomai S.A.
This subsidiarys operations have been shut down and therefore, the foreign
net operating loss carryforward related to Nomai S.A. is not likely to be
realized in the future.

Net deferred tax assets for
the Company at March 31, 2002 were $19.9 million. The minimum amount of future
taxable income that would have to be generated to realize the net deferred tax
assets is approximately $51 million. Management believes that the Companys
recent restructuring efforts will continue to reduce costs to be more in line
with expected sales and will allow the Company to generate sufficient future
taxable income to realize its net deferred tax assets. As such, management
believes that it is more likely than not that the net deferred tax assets will
be realized. However, actual results could differ from those estimates in the
near future and therefore, realization of the net deferred tax assets is not
assured.

The $15.8 million decrease
in the valuation allowance for net deferred tax assets resulted primarily from a
reduction in net deferred tax assets. This reduction was in response to 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 2001 tax
net operating loss.

As of March 31,  2002,  deferred tax  liabilities  for  estimated  U.S.  federal and state taxes of $56.2  million have been accrued on
unremitted  foreign  earnings of $144.1 million.  U.S. taxes have not been provided for unremitted  foreign earnings of $112.3 million.
These earnings are considered to be permanently invested in non-U.S.  operations,  including the Company's manufacturing  operations in
Penang, Malaysia.

Although the Company has
consolidated its manufacturing operations into its Penang, Malaysia facility to
increase manufacturing efficiencies, this facility is still significantly
underutilized. The Company is evaluating various alternatives to resolve this
underutilization, including divestment and outsourcing of its manufacturing
operations. The resolution of this issue will likely result in future charges
and could affect the Companys status of its $112.3 million of permanently
invested foreign earnings. The additional unrecorded deferred U.S. tax
liability, if such amounts were no longer considered permanently invested, would
be approximately $44 million. No cash impact would be incurred unless the cash were
repatriated.

## (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. 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 and OEMs throughout the world. The Companys CD-RW
segment involves the distribution and sales of CD-RW drives to retailers,
distributors and resellers throughout the world. The Jaz segment involved the
development, manufacture, distribution and sales of professional storage
products and applications, including Jaz disk and drive systems to resellers,
distributors and retailers throughout the world. The PocketZip segment involved
the development, manufacture, distribution and sales of PocketZip drives and
disks for use with portable digital products such as digital cameras, audio
players, handheld personal computers and notebook computers to retailers,
distributors and resellers throughout the world.

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

Subsequent to the end of
2001, 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 will continue to sell
disks for Jaz and PocketZip products to support the installed drive base of
these products.

The information in the
following table was derived directly from the segments internal financial
information used for corporate management purposes (all Zip and Other segment
amounts have been restated to show the current classification of FotoShow in
Other). The information for the first quarter of 2001 has been restated to show
the effects of EITF 00-25 which required, 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 $1.2 million for the
first quarter of 2001, with no impact on operating income, net income or
earnings per share.

Reportable Operating Segment Information:

`For the Quarter Ended
                                                                             ---------------------------
                                                                             March 31,          April 1,
                                                                                2002              2001
                                                                             ---------         ---------
                                                                                     (In thousands)
            Sales:
               Zip                                                           $ 143,066         $ 203,074
               CD-RW                                                            22,597            44,149
               Jaz                                                               5,873            26,509
               PocketZip                                                            19             1,271
               Other                                                             7,342             2,007
                                                                             ---------         ---------
                  Total sales                                                $ 178,897         $ 277,010
                                                                             =========         =========

            Product Profit Margin (Loss):
               Zip                                                           $  57,312         $  55,285
               CD-RW                                                                69            (5,904)
               Jaz                                                               1,944             9,663
               PocketZip                                                           737            (8,053)
               Other                                                            (4,900)           (6,771)
                                                                             ---------         ---------
                  Total product profit margin                                   55,162            44,220

            Common Operating Expenses:
               General corporate expenses                                      (28,780)          (33,292)
               Interest and other income, net                                      216             5,261
                                                                             ---------         ---------
                  Income before income taxes                                 $  26,598         $  16,189
                                                                             =========         =========`

## (4)      
Restructuring Charges/Reversals

## Restructuring
Charges/Reversals

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

2001 Restructuring Actions

Second Quarter 2001

In the second quarter of
2001, the Company recorded pre-tax restructuring charges of $0.8 million related
to the consolidation of manufacturing operations into the Companys Penang,
Malaysia manufacturing facility. The Companys Roy, Utah, manufacturing
facility was transitioning from prototyping and low-volume production of Iomega
drives and removable disks to prototyping and engineering support. As a result
of this shift, the Company implemented a workforce reduction of 112
manufacturing workers at the Roy manufacturing facility in June 2001. This
workforce reduction resulted in charges of $0.8 million for severance and
benefit costs.

During the second quarter
of 2001, the Company also reorganized its Singapore operations, which resulted
in a reduction of 14 employees in sales, marketing, logistics and technical
support. This reduction resulted in charges of $0.3 million for severance and
benefit costs. All of the Singapore severance and benefit reserves were utilized
during 2001.

The second quarter 2001
restructuring charges originally totaled $1.1 million. As of March 31, 2002, the
Company had terminated the employment of all affected employees and paid out all
severance and benefit payments associated with the second quarter 2001
restructuring actions. Utilization of the second quarter 2001 restructuring
reserves during the quarter ended March 31, 2002 is summarized below:

`Second Quarter 2001                               Balance               Utilized           Balance
                                                                   -----------------
Restructuring Actions                            12/31/01          Cash     Non-Cash       03/31/02
----------------------                           --------          ----     --------       --------
                                                                     (in thousands)

U.S. Manufacturing:
    Severance and benefits (a)                     $ 78            $ (78)    $    -         $    -
                                                   ====            =====     ======         ======

Balance Sheet Breakout:
    Other current liabilities (a)                  $ 78            $ (78)    $    -         $    -
                                                   ====            =====     ======         ======


(a) Amounts represent primarily cash charges.`

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.

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

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

The Asia Pacific
restructuring activities consisted of the closure of several sales offices and
the transfer of certain inventory operations and finance activities from
Singapore to Malaysia, which resulted in a workforce reduction of 85 regular
employees and temporary staff across all business functions and across all
levels of the organization. At September 30, 2001, of the 85 individuals whose
positions were identified for termination in the third quarter, 12 individuals
were scheduled to continue to work on a transitions basis through various
identified dated 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,
the 12 transition employees in the Asia Pacific region were notified that their
positions were being terminated, resulting in additional charges of $0.3 million
in the fourth quarter of 2001. These employees had been identified for
termination of employment at September 30, 2001. However, since the employees
had not been notified, the Company did not accrue the severance and benefit
costs associated with these individuals in the original third quarter 2001
restructuring charges. Additionally, in the fourth quarter of 2001, $0.7 million
of lease termination accruals were reversed due to the Company unexpectedly
locating a tenant for one of the vacated facilities and being released from
future rent obligations. In light of prevailing poor economic conditions, the
Company had originally assumed it would not be able to locate another tenant for
the facility.

The Europe restructuring
activities consisted of the outsourcing of call center activities, closure of
several sales offices and consolidation of operations in Switzerland and the
Netherlands, which resulted in a workforce reduction of 94 regular employees and
temporary staff across all business functions and across all levels of the
organization. At September 30, 2001, of the 94 individuals whose positions were
identified for termination in the third quarter, 28 individuals continued to
work on a transition basis through March 31, 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 March 31, 2002, the
Company had terminated the employment of all affected employees, except for one
employee offered a retention package into the second quarter of 2002, and
vacated all facilities in connection with the third quarter 2001 restructuring
actions. Since some affected employees were offered retention packages that
extended to the end of the first quarter and into the second quarter of 2002,
not all severance payments were paid as of March 31, 2002. The remaining
severance and benefits are expected to be paid in the second and third quarters
of 2002. The information technology assets and furniture have not been utilized
since early in the fourth quarter of 2001 and are expected to be disposed during
the second 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 $5.7 million and $2.5 million were
included in the Companys other current liabilities and fixed asset
reserves, respectively, as of March 31, 2002. Utilization of the third quarter
2001 restructuring reserves during the quarter ended March 31, 2002 is
summarized below:

`Utilized
                                                                    ---------------------
        Third Quarter 2001                              Balance                                 Balance
        Restructuring Actions                           12/31/01      Cash       Non-Cash       03/31/02
        ----------------------                          --------    ---------    --------       --------
                                                                      (in thousands)
        North America Reorganization:
             Severance and benefits (a)                 $  2,194    $ (1,845)    $      -       $   349
             Lease cancellations (a)                       5,823        (831)           -         4,992
             Leasehold improvements and
                furniture (b)                              2,102           -         (240)        1,862
             Information technology assets (b)             1,216           -         (747)          469
                                                        --------    --------     --------       -------
                                                          11,335      (2,676)        (987)        7,672
                                                        --------    --------     --------       -------

        Asia Pacific Reorganization:
             Severance and benefits (a)                       82          (9)           -            73
             Lease cancellations (a)                          68         (53)           -            15
                                                        --------    --------     --------       -------
                                                             150         (62)           -            88
                                                        --------    --------     --------       -------
        Europe Reorganization:
             Severance and benefits (a)                      332        (278)           -            54
             Lease cancellations (a)                         390        (181)           -           209
             Leasehold improvements and
                furniture (b)                                235           -         (103)          132
             Information technology assets (b)                26           -          (26)            -
                                                        --------    --------     ---------      -------
                                                             983        (459)        (129)          395
                                                        --------    --------     --------       -------
                                                        $ 12,468    $ (3,197)    $ (1,116)      $ 8,155
                                                        ========    ========     ========       =======

        Balance Sheet Breakout:
            Other current liabilities (a)               $  8,889    $ (3,197)    $      -       $ 5,692
            Fixed asset reserves (b)                       3,579           -       (1,116)        2,463
                                                        --------    --------     --------       -------
                                                        $ 12,468    $ (3,197)    $ (1,116)      $ 8,155
                                                        ========    ========     ========       =======
        (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 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, 25 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.
Transition pay was not a part of the restructuring charges but rather was
reported in normal operations as incurred. The lease is expected to be vacated
in the second quarter of 2002. In addition, leasehold improvements, furniture
and equipment are anticipated to be disposed of in the second quarter of 2002.

At March 31, 2002, the
Company had terminated the employment of all affected employees, except for
those employees offered retention packages into the second and third quarters of
2002. The severance and benefits reserves associated with the employees who were
provided retention packages are expected to be paid in the second and third
quarters of 2002. Leasehold improvements, furniture and equipment are expected
to be disposed of in the second quarter of 2002. As previously disclosed, lease
payments are being made on a continuous monthly basis.

The fourth quarter 2001
restructuring charges originally totaled $4.8 million. Fourth quarter 2001
restructuring reserves in the amount of $0.6 million and $1.0 million were
included in the Companys other current liabilities and fixed asset
reserves, respectively, as of March 31, 2002. Utilization of the fourth quarter
2001 restructuring reserves during the quarter ended March 31, 2002 is
summarized below:

`Fourth Quarter 2001                                 Balance            Utilized                Balance
                                                                 ---------------------
Restructuring Actions                              12/31/01        Cash       Non-Cash         03/31/02
----------------------                             --------      --------    ----------        --------
                                                                    (in thousands)
North America Reorganization:
     Severance and benefits (a)                     $ 1,503      $ (1,103)   $        -         $   400
                                                    -------      --------    ----------         -------

Europe Reorganization:
     Severance and benefits (a)                         591          (486)            -             105
     Lease cancellations (a)                          1,698        (1,631)            -              67
     Leasehold improvements, furniture and
        equipment (b)                                   983             -             -             983
                                                    -------      --------    ----------         -------
                                                      3,272        (2,117)            -           1,155
                                                    -------      --------    ----------         -------
                                                    $ 4,775      $ (3,220)   $        -         $ 1,555
                                                    =======      ========    ==========         =======

Balance Sheet Breakout:
    Other current liabilities (a)                   $ 3,792      $ (3,220)   $        -         $   572
    Fixed asset reserves (b)                            983             -             -             983
                                                    -------      --------    ----------         -------
                                                    $ 4,775      $ (3,220)   $        -         $ 1,555
                                                    =======      ========    ==========         =======

(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 relates to contract obligations that are being litigated and
therefore have not been paid. The Company is unable to predict when the
litigation relating to these obligations will be resolved. Thus, there was no
utilization of the contract obligation reserves during the quarter ended March
31, 2002. 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 $3.0 million were included in the
Companys balance sheet as of March 31, 2002 in other current liabilities.
There was no utilization of the reserves during the first quarter of 2002.

`Balance          Utilized              Balance
                                                              --------------------
  1999 Restructuring Actions                       12/31/01     Cash       Non-Cash       03/31/02
  ---------------------------------                --------   -------      --------       --------
                                                                   (in thousands)
  France/Scotland Consolidation:
     Contract obligations (a)(b)                   $  1,414   $     -      $     -        $ 1,414
                                                   --------   -------      -------        -------

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

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

(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, an adverse judgment in the Valitek case (if it is not settled
or otherwise resolved) could have an adverse effect on the Companys
results of operations or financial position and the settlement of, or adverse
judgment with respect, to certain lawsuits discussed below 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.

On September 10, 1998, a
purported class action lawsuit, Rinaldi, et al. v. Iomega Corporation,
was filed against the Company in the Superior Court of Delaware, New Castle
County. The suit alleged that a defect in the Companys Zip drives caused
an abnormal clicking noise that may have indicated damage to the Zip drive or
disks. The plaintiffs sought relief pursuant to claims of breach of warranty,
violation of the Delaware Consumer Fraud Act, negligent design and manufacture
and failure to warn. On September 3, 1999, the Court dismissed the claims of
breach of warranty and violation of the Consumer Fraud Act, granting the
plaintiffs the opportunity to amend the latter claim. On January 31, 2000, the
plaintiffs filed an amended complaint, reasserting their claim under the
Delaware Consumer Fraud Act and; on February 28, 2000, the Company moved to
dismiss this amended claim. In connection with the same matter, on February 28,
2000, two of the plaintiffs served the Company with a Notice of
Claim under Section 17.46(b) of the Texas Deceptive Trade Practices Act,
asserting allegations similar to those made in connection with the
plaintiffs Delaware Consumer Fraud Act claim (the Texas
Claim). The Texas Claim purported to be on behalf of the two plaintiffs
and a class of other consumers similarly situated in the State of Texas. It
demanded relief of $150 for each Zip drive purchased by a class member, $100 for
mental anguish damages to each class member and attorneys fees and costs.
Formal litigation in connection with the Texas Claim has not been commenced. On
March 19, 2001, the parties in the Rinaldi matter submitted to the Delaware
Superior Court a request for certification of the class and approval of a
settlement of the class action. Following notice to the class members, the Court
held a hearing on June 8, 2001 to consider final approval of the settlement and
the objections raised against such approval. On June 29, 2001, the Court issued
an order approving the settlement, to become final after all appeals of the
order are resolved. On July 23, 2001, an objector to the settlement filed a
notice of appeal from the Courts order and subsequently filed an
appellants brief in the Supreme Court of the State of Delaware on
September 12, 2001. The Company and the attorneys for the named plaintiffs filed
briefs in support of the settlement. On January 15, 2002, that Court remanded
the matter for further proceedings in the Delaware Superior Court, so that the
Superior Court could make additional findings and address additional questions
concerning the proposed settlement. Subsequently, the Company, the lawyers for
the plaintiffs and the objector reached agreement on a modified
settlement; and as a result of this revised settlement agreement, the objector
requested the termination of his appeal. The Delaware Supreme Court granted that
request, dismissing the appeal on April 16, 2002. On May 8, 2002, the Superior
Court issued an order approving the settlement, to become final in approximately
thirty days unless the revised order is appealed.

The proposed settlement of
the Rinaldi case, the material terms of which are described in this paragraph,
will not be implemented unless and until all appeals are fully resolved. Under
the settlement, class members who have not opted out of the settlement will
release the Company from all claims that were or which could have been raised in
the litigation. For its part, the Company will issue rebates ranging between $5
and $40 to class members who submit a proof of claim. The rebates will remain
available for six months and will be valid for the purchase of certain Zip
products, Peerless products and CD-RW products. The level of the rebate will
depend on whether the class members Zip drive manifested a clicking
problem. In addition, the Company may offer a secondary rebate of $4 to $15 on
Zip disks to those class members who make a qualified purchase under the initial
rebate program; this would be available if certain conditions in the settlement
are met. In addition, the Company would offer an additional discount for a
60-day period for purchases of packs of five or more Zip disks. The exact amount
of this additional discount will be computed based upon the number of class
members submitting proofs of claims. The Company has agreed, in the proposed
settlement, to allow class members an additional 30-day period to submit proof
of claim forms. The Company will also provide dedicated technical assistance
personnel for addressing, free of charge, customer inquiries regarding alleged
clicking Zip drives. It will also make a charitable donation of Zip drives and
related software, disks and services, with a total retail value of $1 million.
Finally, counsel for the class applied to the Court for an award of
attorneys fees and costs in the amount of $4.7 million. As part of the
Courts June 29, 2001 order, it issued an award of $4.1 million for these
attorneys fees. The Company has funded $4.1 million into an escrow
account. The Company has title to the escrow account and interest received on
this account becomes part of the escrow balance. However, the Company is
restricted to using this cash only for the payment of plaintiff attorneys
fees once this lawsuit is settled. The accompanying financial statements reflect
accruals for the charitable donations and for plaintiffs attorneys
fees and costs less estimated insurance coverage. The settlement will not be
construed as a finding of any liability on the Companys part. Although the
Company does not expect this settlement or, if the settlement is overturned on
appeal, the Rinaldi suit, or the Texas Claim to have a material adverse effect
on the Companys ongoing business, results of operations or financial
condition, the settlement or an adverse judgment could have a material adverse
effect on the operating results reported by the Company for the period in which
the settlement occurs (or is implemented) or such adverse judgment occurs.

On June 15, 1999, a patent
infringement lawsuit, Valitek, Inc. v. Iomega Corporation, was filed
against the Company in the United States District Court for the Eastern District
of Pennsylvania. Valitek alleged that the Companys sale of the parallel
port version of the Zip and Jaz drive products constitutes patent infringement
as the products incorporate features or functions that allegedlyinfringe
one or more claims of a Valitek patent. The case was later transferred, pursuant
to motion by the Company, to U.S. District Court for the District of Utah,
Northern Division. The complaint requested injunctive relief against the
Company, as well as monetary damages. The plaintiff has asserted damages of
approximately $40 million and has further asserted willful infringement and
requested treble damages. On October 26, 1999, the Court granted the
plaintiffs motion to consolidate the action against Iomega, for discovery
purposes only, with a second, similar lawsuit filed by Valitek against
Hewlett-Packard and Imation. Valitek has settled its lawsuit against
Hewlett-Packard and Imation. A hearing is set for May 30-31, 2002, to address
pre-trial issues, summary judgment and construction of the patent at issue. The
parties have discussed settlement, including at an April 2002 mediation, but
have not reached any settlement agreement. The Company believes that the minimum
amount that the plaintiffs and their legal counsel would accept in
settlement, as the case currently stands, is approximately $4 million.
The Company has made an accrual in this amount. Unless a settlement acceptable
to the Company can be negotiated, the Company intends to vigorously defend
against this suit. Future developments in this case and the ultimate outcome,
whether by summary judgment, trial, appeal or settlement, are unpredictable
and any outcome could materially differ from the foregoing. An adverse
judgment in the case (if it is not settled or otherwise resolved) could have an
adverse effect on the Companys results of operations or financial
position.

On July 6, 1999, the
Company initiated litigation against Castlewood Systems, Inc.
(Castlewood), Iomega Corporation v. Castlewood Systems, Inc.,
in the United States District Court for the District of Utah, for infringing the
Companys U.S. Patent No. 4,458,273 and U.S. Patent No. 5,854,719 and for
infringing and diluting the Companys registered trademarks
Iomega, Zip and Jaz. The complaint further
alleged that Castlewood had engaged in federal unfair competition, common law
unfair competition and common law unjust enrichment. Through the complaint, the
Company requested monetary damages and injunctive relief enjoining Castlewood
from further infringement. On August 18, 1999, Castlewood filed an answer and
counterclaims, denying the Companys claims and requesting a declaratory
judgment that the Companys patents are invalid. On September 9, 1999, the
Company filed a reply to the counterclaims, denying that the patents are
invalid. On April 11, 2000, the Company also initiated litigation against
Castlewood in the United States District Court for the District of Utah for
infringement of the Companys U.S. Patent No. 6,049,444. The Companys
complaint requested monetary damages and injunctive relief enjoining Castlewood
from further infringement. The two complaints filed by Iomega in the United
States District Court for the District of Utah were subsequently consolidated.
On April 8, 2002, Castlewood entered into a settlement agreement with Iomega,
under which Castlewood agreed to pay the Company a confidential sum and the
litigation has been terminated.

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 before the Tribunal de Grande Instance de
Paris. On July 24, 2001, the Court granted the preliminary injunction against
AMMs 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,
however, it continued 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 its protection of
Iomega intellectual property.

Nomai/AMM Litigation

Nomai S.A.
(Nomai) is a French subsidiary of the Company that was acquired
during the third quarter of 1998. 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, (2) AMMs involvement in a research and
development contract known as the Magic project and (3) Nomais
subsequent disposition of AMM in September 1999.

On February 18, 2000,
Maître Jean Jacques Savenier, the Commissaire à lexecution du
Plan (bankruptcy trustee) for RPS Media, S.A., filed a complaint against Nomai.
Savenier 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 $13,300) until
Nomai invests FF 48 million (approximately $6.4 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 Savenier. On February 16, 2001,
Savenier 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 $13,300) 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 $6,600) for non-compliance. The Toulouse Court of
Appeals issued its ruling on May 2, 2002, upholding the Albi Court ruling. Nomai
is evaluating further appellate remedies to the Toulouse Court ruling.

On May 18, 2000, Conseil
& Technique, Soterem and IDCC (the plaintiffs) (parties involved
with AMM in the Magic project) filed a lawsuit before the Commercial Court of
Toulouse, France against AMM. Nomai is obligated to indemnify for and defend
against the lawsuit under the agreement whereby Nomai divested its ownership of
AMM to its new owner, Alain Bouttier. The lawsuit alleges breach of contract and
other claims relating to the Magic project. The plaintiffs claim total damages
of approximately FF 75 million (approximately $9.9 million). On May 15, 2001,
the Court consolidated this lawsuit with the second Magic project lawsuit
referenced below. As the defendant AMM is now in liquidation, the Court has
ordered the plaintiffs to serve a writ of summons on AMMs liquidator.
Iomega International and Nomai intend to vigorously defend against these
allegations.

On March 29, 2001, Conseil
& Technique filed a lawsuit before the Tribunal de Commerce of Toulouse
against Iomega International and Nomai. This lawsuit is based on the same matter
as the Magic project lawsuit against AMM described above. Conseil &
Technique claims that Nomai and Iomega International sabotaged the Magic project
and interfered with AMMs performance of the agreements underlying the
Magic project to prevent the development of a competing product. The lawsuit
asks the court to recognize Conseil & Technique as the owner of the
intellectual property rights in the Magic project and to award damages against
Nomai and/or Iomega International totaling approximately FF 8 million
(approximately $1.1 million). As noted above, the two Magic project lawsuits
have now been consolidated. Iomega International, S.A. and Nomai intend to
vigorously defend against these allegations.

On May 30, 2001, AMM filed
a lawsuit against Iomega International and Iomega Corporation before the
Tribunal de Commerce of Albi. The complaint claims 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 $ 17.1
million). This case was subsequently consolidated with the Savenier case
mentioned above. A hearing was scheduled for February 8, 2002, but was postponed
due to an ongoing court strike. Iomega International and Iomega Corporation
intend to vigorously defend against these allegations.

On June 25, 2001, AMM filed
an action in the Tribunal de Commerce of Albi seeking modification of the RPS
Media, S.A. bankruptcy plan. Although Iomega Corporation and Iomega
International are not parties to this action, the Court required representatives
of both companies to appear at a hearing to consider AMMs claims. In
particular, AMM sought modification to the employee requirements under the plan.
AMM also alleged damages of FFR 27.3 million (approximately USD $3.6 million)
based on its allegations that Iomega Corporation and Iomega International
interfered with its ability to comply with the bankruptcy plan. On July 24,
2001, the Court denied AMMs request to modify the plan as well as
AMMs claim of damages. It ruled, however, that both Iomega Corporation and
Iomega International were parties to the bankruptcy plan. The Company appealed
this aspect of the Courts ruling to the Toulouse Court of Appeals. On
March 14, 2002, the Court of Appeals reversed and vacated the lower courts
ruling on procedural grounds.

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

## (6)      
Other Matters

Goodwill and Other Intangible Assets

The Company adopted
Statement of Financial Accounting Standards No. 142, Accounting for
Goodwill and Intangible Assets (SFAS 142), on January 1, 2002.
Under SFAS 142, goodwill is no longer amortized but rather is tested for
impairment at least annually at the reporting unit level. The Company performed
the impairment test required under SFAS 142 and determined that the
Companys goodwill, all of which is associated with the Zip product line,
was not impaired at March 31, 2002.

As a result of the
implementation of SFAS 142, the Company did not record goodwill amortization
expense in the first quarter of 2002, whereas the Company had recorded pre-tax
goodwill amortization expense of $1.0 million in the first quarter of 2001.
Without this goodwill amortization, pro forma net income for the first quarter
of 2001 would have been $10.4 million, an increase of $0.6 million over the
reported net income of $9.8 million and pro forma earnings per share would have
been $0.19 per share, an increase of $0.01 per share over the reported $0.18 per
share.

At March 31, 2002, the
Company had $8.8 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
March 31, 2002, amortization expense was $0.9 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 March 31, 2002, the weighted average useful live of the
Companys intangible assets is approximately 41⁄2 years. At March 31,
2002, the gross value and accumulated amortization of the Companys
intangible assets were $13.0 million and $4.2 million, respectively. At December
31, 2001, the gross value and accumulated amortization of the Companys
intangible assets were $20.5 million and $10.7 million, respectively.

Significant Customers

During the quarter ended March 31, 2002,  sales to Ingram Micro,  Inc.  accounted for 18.3% of consolidated  sales.
Ingram  Micro,  Inc.,  Tech Data and CompUSA  Inc.  accounted  for 13.6%,  11.6% and 10.3% of  consolidated  sales,
respectively,  for the  quarter  ended  April 1, 2001.  No other  single  customer  accounted  for more than 10% of
consolidated sales for these periods.

Forward Exchange Contracts

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

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

At March 31, 2002,
outstanding forward exchange purchase (sales) contracts, which all mature in May
2002, were as follows (rates are quoted as United States dollar per other
currency unit):

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

      British Pound                           (3,200,000)                   .7036                .7015
      European Currency Unit                 (37,550,000)                  1.1448               1.1494
      Singapore Dollar                         1,150,000                   1.8422               1.8443`

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

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

## Reverse Stock
Split

On September 28, 2001, the
Companys shareholders approved a one-for-five reverse stock split
(reverse stock split) of the Companys outstanding Common
Stock. The reverse stock split was effected after the market close on September
28, 2001, thereby reducing 272.8 million shares of issued Common Stock
(including treasury shares) to 54.6 million shares. All per share amounts and
outstanding shares, including all common stock equivalents (stock options), have
been retroactively restated in the accompanying condensed consolidated financial
statements and notes to condensed consolidated financial statements for all
periods presented to reflect the reverse stock split.

## EITF 00-25
Reclassification

The Company adopted
Emerging Issues Task Force Issue No. 00-25, Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendors
Products (EITF 00-25), on January 1, 2002. This issue
concluded that under specific circumstances, certain consumer and trade sales
promotion expenses are presumed to be a reduction of the selling prices of the
vendors products and therefore, should be characterized as a reduction of
sales when recognized in the vendors income statement. Reclassification of
prior period financial statements is required if practical. The adoption of this
pronouncement resulted in a reduction to sales and a corresponding decrease in
selling, general and administrative expenses of $1.2 million for the first
quarter of 2001. The adoption of EITF 00-25 had no impact on operating income,
net income or earnings per share.

## Critical
Accounting Policies

The Companys
discussion and analysis of its financial condition and results of operations are
based upon the Companys condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
sales and expenses during the reporting periods. Areas where significant
judgments are made include, but are not limited to: revenue recognition, price
protection and volume rebate reserves, allowance for doubtful accounts,
inventory valuation, fixed asset impairment, 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.

## 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. 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 and OEMs throughout the world. The Companys CD-RW
segment involves the distribution and sales of CD-RW drives to retailers,
distributors and resellers throughout the world. The Jaz segment involved the
development, manufacture, distribution and sales of professional storage
products and applications, including Jaz disk and drive systems to resellers,
distributors and retailers throughout the world. The PocketZip segment involved
the development, manufacture, distribution and sales of PocketZip drives and
disks for use with portable digital products such as digital cameras, audio
players, handheld personal computers and notebook computers to retailers,
distributors and resellers throughout the world.

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

Subsequent to the end of
2001, 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 will continue to sell
disks for Jaz and PocketZip products to support the installed drive base of
these products.

The information in the
following table was derived directly from the segments internal financial
information used for corporate management purposes (all Zip and Other segment
amounts have been restated to show the current classification of FotoShow in
Other). The information for the first quarter of 2001 has been restated to show
the effects of EITF 00-25 which required, 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 $1.2 million for the
first quarter of 2001, with no impact on operating income, net income or
earnings per share.

## Reportable
Operating Segment and Unit Information:

`For the Quarter Ended
                                                                             ---------------------------
                                                                             March 31,          April 1,
                                                                                2002              2001
                                                                             ---------         ---------
                                                                                     (In thousands)
            Sales:
               Zip                                                           $ 143,066         $ 203,074
               CD-RW                                                            22,597            44,149
               Jaz                                                               5,873            26,509
               PocketZip                                                            19             1,271
               Other                                                             7,342             2,007
                                                                             ---------         ---------
                  Total sales                                                $ 178,897         $ 277,010
                                                                             =========         =========

            Product Profit Margin (Loss):
               Zip                                                           $  57,312         $  55,285
               CD-RW                                                                69            (5,904)
               Jaz                                                               1,944             9,663
               PocketZip                                                           737            (8,053)
               Other                                                            (4,900)           (6,771)
                                                                             ---------         ---------
                  Total product profit margin                                   55,162            44,220

            Common Operating Expenses:
               General corporate expenses                                      (28,780)          (33,292)
               Interest and other income, net                                      216             5,261
                                                                             ---------         ---------
                  Income before income taxes                                 $  26,598         $  16,189
                                                                             =========         =========`

`For the Quarter Ended
                                                                             ---------------------------
                                                                             March 31,          April 1,
                                                                               2002               2001
                                                                             ---------          --------
             Drive units:
                Zip                                                              1,116             1,479
                CD-RW                                                              154               270
                Jaz                                                                  2                43
                PocketZip                                                           12                14

             Disk units:
                Zip                                                              9,099            11,732
                CD-RW                                                                -                 -
                Jaz                                                                 72               231
                PocketZip                                                            8               101`

## Seasonality

The Companys Zip products
are targeted primarily to the personal computer, consumer digital electronic,
OEM, enterprise and business professional markets. The Companys CD-RW
products are targeted to the retail consumer and enterprise markets. The
Companys Peerless drive system is targeted to business professional and
enterprise markets. The Companys NAS products are targeted primarily to
the enterprise market. Management believes the markets for the Companys
products are generally seasonal, with a higher proportional share of total sales
typically occurring in the fourth quarter and sales slowdowns commonly occurring
during the first quarter, second quarter and summer months. This historic
pattern could, however, be affected by the significant weakness and uncertainty
that currently exists in the United States and global economies and consumer
confidence levels. Accordingly, sales and growth rates for any prior quarter are
not necessarily indicative of the sales or growth rates to be expected in any
future quarter.

## Results of
Operations

The Company reported net
income of $31.2 million, or $0.61 per diluted share, for the quarter ended March
31, 2002, which included $15.8 million, or $0.31 per diluted share, attributable
to a decrease in the Companys valuation allowance for net deferred tax
assets. This compares to first quarter 2001 net income of $9.8 million, or $0.18
per diluted share, which included a $0.4 million, or $0.01 per diluted share,
increase in the Companys valuation allowance for foreign net deferred tax
assets.

## Sales

Sales for the quarter ended
March 31, 2002 of $178.9 million decreased $98.1 million, or 35.4%, when
compared to sales of $277.0 million for the quarter ended April 1, 2001. This
decrease was primarily a result of lower Zip drive and disk sales, lower CD-RW
sales and lower Jaz drive and disk sales. Total drive sales of $107.0 million
decreased by 38.6%, while total drive units shipped declined by 28.0% when
compared to the first quarter of 2001. Total disk sales of $70.2 million
decreased by 29.2%, while total disk units shipped declined by 23.7% when
compared to the first quarter of 2001.

Zip product sales for the
first quarter of 2002 totaled $143.1 million, representing a decrease of $60.0
million, or 29.5%, compared to sales of $203.1 million for the first quarter of
2001. Sales of Zip products represented 80.0% of total sales for the first
quarter of 2002, compared to 73.3% for the first quarter of 2001. Zip drive
sales of $81.4 million for the first quarter of 2002 decreased by $37.8 million,
or 31.7%, while Zip drive units shipped decreased by 24.5% from the first
quarter of 2001. Zip drive sales decreased more than Zip drive units shipped
primarily due to lower prices and a higher mix of OEM shipments for the first
quarter of 2002 compared to the first quarter of 2001. Shipments of Zip OEM
drives accounted for approximately 51% of total Zip drive shipments in the first
quarter of 2002, compared to approximately 43% in the first quarter of 2001. Zip
disk sales of $61.3 million for the first quarter of 2002 decreased by $22.2
million, or 26.6%, while Zip disk units shipped decreased by 22.4% from the
first quarter of 2001. Zip disk sales decreased more than Zip disk units shipped
primarily due to lower prices. When compared to the first quarter of 2002, lower
drive and disk units shipped, net of favorable product mix, accounted for $42.8
million of the decrease in Zip product sales and pricing actions (primarily
relating to Zip drives) accounted for $17.2 million of the decrease in Zip
product sales.

CD-RW product sales for the
first quarter of 2002 totaled $22.6 million, representing a decrease of $21.5
million, or 48.8%, compared to sales of $44.1 million for the first quarter of
2001. Sales of CD-RW products represented 12.6% of total sales for the first
quarter of 2002, compared to 15.9% for the first quarter of 2001. CD-RW units
shipped decreased 43.0% compared to the first quarter of 2001. When compared to
the first quarter of 2001, pricing actions of $14.9 million taken to meet
competitive pressures and lower units shipped of $6.6 million accounted for the
decrease in CD-RW product sales. The lower CD-RW unit shipments in the first
quarter of 2002 resulted primarily from the Companys decision in the
second quarter of 2001 to exit the internal CD-RW drive business and supply
constraints experienced during the early part of first quarter 2002.

Jaz product sales for the
first quarter of 2002 totaled $5.9 million, representing a decrease of $20.6
million, or 77.8%, compared to sales of $26.5 million for the first quarter of
2001. Sales of Jaz products represented 3.3% of total sales for the first
quarter of 2002, compared to 9.6% for the first quarter of 2001. Jaz drive and
disk units shipped decreased by 95.3% and 68.8%, respectively, when compared to
the first quarter of 2001. When compared to the first quarter of 2001, lower
units shipped of $20.7 million was the primary reason for the decline in sales
and resulted from the Companys decision to discontinue the Jaz drive.

There were virtually no
PocketZip product sales for the first quarter of 2002, representing a decrease
of $1.3 million, compared to the first quarter of 2001 due to the Companys
decision to discontinue the PocketZip product line.

Other product sales for the
first quarter of 2002 totaled $7.3 million, representing an increase of $5.3
million, compared to sales of $2.0 million for the first quarter of 2001. The
increase in other product sales resulted primarily from the addition of
Peerless, which began shipping late in the second quarter of 2001 and which had
first quarter 2002 sales of $6.1 million.

Geographically, sales in
the Americas totaled $110.7 million, or 61.9% of total sales, in the first
quarter of 2002, compared to $190.2 million, or 68.7% of total sales, in the
first quarter of 2001. This decrease was primarily due to lower Zip, CD-RW and
Jaz sales. Sales in Europe totaled $55.9 million, or 31.2% of total sales, in
the first quarter of 2002, compared to $67.8 million, or 24.5% of total sales,
in the first quarter of 2001. This decrease was primarily due to lower Zip and
Jaz sales. Sales in Asia totaled $12.3 million, or 6.9% of total sales, in the
first quarter of 2002, compared to $19.0 million, or 6.8% of total sales, in the
first quarter of 2001. This decrease was primarily due to lower Zip sales.

## Gross Margin

The Companys overall
gross margin was $72.5 million, or 40.5%, in the first quarter of 2002, compared
to $84.5 million, or 30.5%, in the first quarter of 2001. The decrease in total
gross margin of $12.0 million was due primarily to lower Zip and Jaz sales,
partially offset by improved CD-RW gross margins. The gross margin percentage
increased from 30.5% in the first quarter of 2001 to 40.5% in the first quarter
of 2002, primarily from higher Zip and CD-RW gross margin percentages. Zip gross
margins improved to 48.6% in the first quarter of 2002 from 38.9% in the first
quarter of 2001, primarily from a favorable mix of Zip 250MB products to Zip
100MB products, a favorable mix of Zip disk sales to Zip drive sales, lower
depreciation expenses and other cost reductions resulting from the
Companys restructuring actions implemented during the second half of 2001.
CD-RW gross margins improved primarily as a result of the new CD-RW sourcing
strategy, the discontinuation of lower margin internal CD-RW drives and other
cost reductions resulting from the Companys restructuring actions
implemented during the second half of 2001. The higher gross margin percentages
reported for the first quarter of 2002 are not likely to be repeated in future
periods as the Company adds non-Zip sales in lower margin areas such as CD-RW,
external and portable hard drives and NAS, because future cost reductions are
anticipated to come at a slower rate than was achieved during the first quarter
of 2002 and because the favorable mix of Zip disk to Zip drive sales compared to
expectations may not continue.

Future gross margin
percentages will depend on a number of factors including: the mix between Zip
products compared to the Peerless drive system and sourced products such as
CD-RW, external and portable hard drives and NAS; sales mix between aftermarket
and OEM or private label channels, as OEM and private label sales generally
provide lower gross margins than sales through other channels; sales mix of Zip
100MB and Zip 250MB drives and disks, as sales of Zip 250MB products have higher
gross margins; sales volumes of Zip disks, which generate significantly higher
gross margins than the corresponding drives; the mix between disks and drives;
future pricing actions or promotions (including any pricing actions on Zip
drives and/or disks in an attempt to stimulate demand); the impact of any future
material cost reductions; the impact of any rebate that may be implemented as
part of the Rinaldi settlement (see Note 5 to the condensed consolidated
financial statements for more information); the ability to avoid further
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.

## Segment PPM

Zip segment PPM for the
first quarter of 2002 was $57.3 million and increased by $2.0 million, or 3.7%,
compared to Zip segment PPM of $55.3 million for the first quarter of 2001. The
increased PPM resulted primarily from a higher mix of Zip 250MB products to Zip
100MB products, lower depreciation and amortization expenses and significantly
lower operating expenses reflecting the benefits of the Companys
restructuring actions implemented during the second half of 2001. Lower goodwill
amortization expense of $1.0 million in the first quarter of 2002 resulted from
the implementation of Statement of Financial Accounting Standards No. 142,
Accounting for Goodwill and Intangible Assets (SFAS
142), which requires goodwill to be tested annually for impairment rather
than being amortized. The impairment test concluded that the goodwill associated
with the Zip product line was not impaired at March 31, 2002. PPM as a
percentage of Zip sales increased to 40.1% for the first quarter of 2002,
compared to 27.2% for the first quarter of 2001, primarily from a higher mix of
Zip 250MB products to Zip 100MB products, higher disk to drive mix, lower
materials costs and lower depreciation and amortization expenses.

CD-RW segment PPM for the
first quarter of 2002 was $0.1 million and increased by $6.0 million, or 101.2%,
compared to a CD-RW product loss of $5.9 million for the first quarter of 2001.
The increased PPM in the first quarter was primarily due to the new CD-RW
sourcing strategy, the decision to exit the internal CD-RW drive business and
lower operating expenses reflecting the benefits of the Companys
restructuring actions implemented during the second half of 2001.

Jaz segment PPM for the
first quarter of 2002 was $1.9 million and decreased by $7.8 million, or 79.9%,
compared to Jaz segment PPM of $9.7 million for the first quarter of 2001. The
lower PPM resulted primarily from lower units shipped reflecting the
Companys decision to discontinue the Jaz drive. PPM as a percentage of Jaz
sales decreased to 33.1% for the first quarter of 2002, compared to 36.5% for
the first quarter of 2001, primarily from fixed costs decreasing at a slower
rate than sales declined.

PocketZip segment PPM of
$0.7 million increased $8.8 million in the first quarter of 2002, compared to a
PocketZip segment product loss of $8.1 million in the first quarter of 2001. The
improved PPM resulted primarily from the Companys decision to discontinue
the PocketZip product line and the favorable settlement of certain supplier
inventory claims.

Other product losses of
$4.9 million decreased $1.9 million in the first quarter of 2002, compared to
Other product losses of $6.8 million in the first quarter of 2001. The decrease
in other product losses resulted primarily from improved PPM on FotoShow and
lower product losses associated with software, partially offset by increased
Peerless product losses. The Peerless product loss resulted primarily from
inventory reserves established in light of the April 8, 2002 announcement of the
new Iomega portable and external hard drives.

General corporate expenses
that were not allocated to PPM of $28.8 million in the first quarter of 2002,
decreased $4.5 million, or 13.6% compared to $33.3 million for the first quarter
of 2001. The $4.5 million decrease was comprised primarily of $11.1 million in
headcount and other cost reduction actions taken in the second half of 2001
partially offset by a $4.0 million litigation accrual and a $2.6 million
increase related to bonus and profit sharing costs.

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

Selling, general and administrative
expenses (including bad debt) of $37.5 million for the first quarter of 2002
decreased by $22.0 million, or 37.0%, compared to $59.5 million for the first
quarter of 2001. The decrease in selling, general and administrative expenses
resulted primarily from headcount and other cost reduction actions taken in the
second half of 2001. The $22.0 million decrease was comprised primarily of $28.2
million in total reductions in marketing, customer support, sales, product
management and all general and administrative functions and a $0.4 million
increase in bad debt credit. The increase in bad debt credit resulted primarily
from collections from customers in Europe and Asia whose balances had previously
been fully reserved. These decreases were partially offset by a $4.0 million
litigation accrual and a $2.6 million increase related to bonus and profit
sharing costs.

Selling, general and
administrative expenses (including bad debt) decreased as a percentage of sales
to 21.0% for the first quarter of 2002, from 21.5% in the first quarter of 2001,
as overall selling, general and administrative costs declined at a faster rate
than sales declined due to specific restructuring actions taken in the second
half of 2001.

## Research and
Development Expenses

Research and development expenses
of $8.6 million for the first quarter of 2002 decreased by $5.5 million, or
38.6%, when compared to $14.1 million for the first quarter of 2001. The lower
research and development expenses for the first quarter of 2002 resulted
primarily from headcount reductions and lower project expenses associated with
Zip, CD-RW, software and Peerless. Research and development expenses decreased
as a percentage of sales to 4.8% in the first quarter of 2002, from 5.1% in the
first quarter of 2001, as research and development costs declined at a faster
rate than sales declined due to specific restructuring actions taken in the
second half of 2001.

## Restructuring
Charges Discussions

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

## Restructuring
Charges/Reversals

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

2001 Restructuring Actions

Second Quarter 2001

In the second quarter of
2001, the Company recorded pre-tax restructuring charges of $0.8 million related
to the consolidation of manufacturing operations into the Companys Penang,
Malaysia manufacturing facility. The Companys Roy, Utah, manufacturing
facility was transitioning from prototyping and low-volume production of Iomega
drives and removable disks to prototyping and engineering support. As a result
of this shift, the Company implemented a workforce reduction of 112
manufacturing workers at the Roy manufacturing facility in June 2001. This
workforce reduction resulted in charges of $0.8 million for severance and
benefit costs. The Company anticipated annual cost savings of $3.7 million from
this action.

During the second quarter
of 2001, the Company also reorganized its Singapore operations, which resulted
in a reduction of 14 employees in sales, marketing, logistics and technical
support. This reduction resulted in charges of $0.3 million for severance and
benefit costs. All of the Singapore severance and benefit reserves were utilized
during 2001. The cost savings associated with this headcount reduction were not
expected to be significant.

The second quarter 2001
restructuring charges originally totaled $1.1 million. As of March 31, 2002, the
Company had terminated the employment of all affected employees and paid out all
severance and benefit payments associated with the second quarter 2001
restructuring actions. Utilization of the second quarter 2001 restructuring
reserves during the quarter ended March 31, 2002 is summarized below:

`Second Quarter 2001                               Balance              Utilized           Balance
                                                                  -----------------
Restructuring Actions                            12/31/01         Cash     Non-Cash       03/31/02
----------------------                           --------         ----     --------       --------
                                                                     (in thousands)

U.S. Manufacturing:
    Severance and benefits (a)                    $ 78            $ (78)    $    -         $    -
                                                  ====            =====     ======         ======

Balance Sheet Breakout:
    Other current liabilities (a)                 $ 78            $ (78)    $    -         $    -
                                                  ====            =====     ======         ======


(a) Amounts represent primarily cash charges.`

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.

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

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

The Asia Pacific
restructuring activities consisted of the closure of several sales offices and
the transfer of certain inventory operations and finance activities from
Singapore to Malaysia, which resulted in a workforce reduction of 85 regular
employees and temporary staff across all business functions and across all
levels of the organization. At September 30, 2001, of the 85 individuals whose
positions were identified for termination in the third quarter, 12 individuals
were scheduled to continue to work on a transitions basis through various
identified dated 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,
the 12 transition employees in the Asia Pacific region were notified that their
positions were being terminated, resulting in additional charges of $0.3 million
in the fourth quarter of 2001. These employees had been identified for
termination of employment at September 30, 2001. However, since the employees
had not been notified, the Company did not accrue the severance and benefit
costs associated with these individuals in the original third quarter 2001
restructuring charges. Additionally, in the fourth quarter of 2001, $0.7 million
of lease termination accruals were reversed due to the Company unexpectedly
locating a tenant for one of the vacated facilities and being released from
future rent obligations. In light of prevailing poor economic conditions, the
Company had originally assumed it would not be able to locate another tenant for
the facility.

The Europe restructuring
activities consisted of the outsourcing of call center activities, closure of
several sales offices and consolidation of operations in Switzerland and the
Netherlands, which resulted in a workforce reduction of 94 regular employees and
temporary staff across all business functions and across all levels of the
organization. At September 30, 2001, of the 94 individuals whose positions were
identified for termination in the third quarter, 28 individuals continued to
work on a transition basis through March 31, 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.

The Company anticipates
that these restructuring actions will result in an annual cost reduction of
approximately $60 million, beginning in 2002.

As of March 31, 2002, the
Company had terminated the employment of all affected employees, except for one
employee offered a retention package into the second quarter of 2002, and
vacated all facilities in connection with the third quarter 2001 restructuring
actions. Since some affected employees were offered retention packages that
extended to the end of the first quarter and into the second quarter of 2002,
not all severance payments were paid as of March 31, 2002. The remaining
severance and benefits are expected to be paid in the second and third quarters
of 2002. The information technology assets and furniture have not been utilized
since early in the fourth quarter of 2001 and are expected to be disposed during
the second 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 $5.7 million and $2.5 million were
included in the Companys other current liabilities and fixed asset
reserves, respectively, as of March 31, 2002. Utilization of the third quarter
2001 restructuring reserves during the quarter ended March 31, 2002 is
summarized below:

`Utilized
                                                                    ---------------------
        Third Quarter 2001                              Balance                                 Balance
        Restructuring Actions                           12/31/01      Cash       Non-Cash       03/31/02
        ----------------------                          --------    ---------    --------       --------
                                                                      (in thousands)
        North America Reorganization:
             Severance and benefits (a)                 $  2,194    $ (1,845)    $      -       $   349
             Lease cancellations (a)                       5,823        (831)           -         4,992
             Leasehold improvements and
                furniture (b)                              2,102           -         (240)        1,862
             Information technology assets (b)             1,216           -         (747)          469
                                                        --------    --------     --------       -------
                                                          11,335      (2,676)        (987)        7,672
                                                        --------    --------     --------       -------

        Asia Pacific Reorganization:
             Severance and benefits (a)                       82          (9)           -            73
             Lease cancellations (a)                          68         (53)           -            15
                                                        --------    --------     --------       -------
                                                             150         (62)           -            88
                                                        --------    --------     --------       -------
        Europe Reorganization:
             Severance and benefits (a)                      332        (278)           -            54
             Lease cancellations (a)                         390        (181)           -           209
             Leasehold improvements and
                furniture (b)                                235           -         (103)          132
             Information technology assets (b)                26           -          (26)            -
                                                        --------    --------     ---------      -------
                                                             983        (459)        (129)          395
                                                        --------    --------     --------       -------
                                                        $ 12,468    $ (3,197)    $ (1,116)      $ 8,155
                                                        ========    ========     ========       =======

        Balance Sheet Breakout:
            Other current liabilities (a)               $  8,889    $ (3,197)    $      -       $ 5,692
            Fixed asset reserves (b)                       3,579           -       (1,116)        2,463
                                                        --------    --------     --------       -------
                                                        $ 12,468    $ (3,197)    $ (1,116)      $ 8,155
                                                        ========    ========     ========       =======
        (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 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, 25 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.
Transition pay was not a part of the restructuring charges but rather was
reported in normal operations as incurred. The lease is expected to be vacated
in the second quarter of 2002. In addition, leasehold improvements, furniture
and equipment are anticipated to be disposed of in the second quarter of 2002.

The Company anticipates
that when fully implemented, the fourth quarter restructuring actions will
result in an annual cost reduction of approximately $9 million. Substantially
all of these savings are expected to be realized starting in the second quarter
of 2002.

At March 31, 2002, the
Company had terminated the employment of all affected employees, except for
those employees offered retention packages into the second and third quarters of
2002. The severance and benefits reserves associated with the employees who were
provided retention packages are expected to be paid in the second and third
quarters of 2002. Leasehold improvements, furniture and equipment are expected
to be disposed of in the second quarter of 2002. As previously disclosed, lease
payments are being made on a continuous monthly basis.

The fourth quarter 2001
restructuring charges originally totaled $4.8 million. Fourth quarter 2001
restructuring reserves in the amount of $0.6 million and $1.0 million were
included in the Companys other current liabilities and fixed asset
reserves, respectively, as of March 31, 2002. Utilization of the fourth quarter
2001 restructuring reserves during the quarter ended March 31, 2002 is
summarized below:

`Fourth Quarter 2001                                 Balance            Utilized                Balance
                                                                 ---------------------
Restructuring Actions                              12/31/01        Cash       Non-Cash         03/31/02
----------------------                             --------      --------    ----------        --------
                                                                    (in thousands)
North America Reorganization:
     Severance and benefits (a)                     $ 1,503      $ (1,103)   $        -         $   400
                                                    -------      --------    ----------         -------

Europe Reorganization:
     Severance and benefits (a)                         591          (486)            -             105
     Lease cancellations (a)                          1,698        (1,631)            -              67
     Leasehold improvements, furniture and
        equipment (b)                                   983             -             -             983
                                                    -------      --------    ----------         -------
                                                      3,272        (2,117)            -           1,155
                                                    -------      --------    ----------         -------
                                                    $ 4,775      $ (3,220)   $        -         $ 1,555
                                                    =======      ========    ==========         =======

Balance Sheet Breakout:
    Other current liabilities (a)                   $ 3,792      $ (3,220)   $        -         $   572
    Fixed asset reserves (b)                            983             -             -             983
                                                    -------      --------    ----------         -------
                                                    $ 4,775      $ (3,220)   $        -         $ 1,555
                                                    =======      ========    ==========         =======

(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 relates to contract obligations that are being litigated and
therefore have not been paid. The Company is unable to predict when the
litigation relating to these obligations will be resolved. Thus, there was no
utilization of the contract obligation reserves during the quarter ended March
31, 2002. 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 $3.0 million were included in the
Companys balance sheet as of March 31, 2002 in other current liabilities.
There was no utilization of the reserves during the first quarter of 2002.

`Balance          Utilized              Balance
                                                              --------------------
  1999 Restructuring Actions                       12/31/01     Cash       Non-Cash       03/31/02
  ---------------------------------                --------   -------      --------       --------
                                                                   (in thousands)
  France/Scotland Consolidation:
     Contract obligations (a)(b)                   $  1,414   $     -      $     -        $ 1,414
                                                   --------   -------      -------        -------

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

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

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

## Interest and
Other Income and Expense

Interest income of $2.3
million in the first quarter of 2002 decreased $3.0 million from $5.3 million in
the first quarter of 2001 primarily due to lower interest rates and lower
average cash, cash equivalents and temporary investment balances.

Interest and other expense
of $2.1 million in the first quarter of 2002 increased $2.0 million from $0.1
million in the first quarter of 2001. The increase resulted primarily from
increased foreign currency losses and a partial write down of a research and
development venture investment which is included in other assets. The objective
of this venture investment was the potential collaboration in the development of
optical technologies.

## Income Taxes

For the quarter ended March
31, 2002, the Company recorded an income tax benefit of $4.6 million on pre-tax
income of $26.6 million which reflected a $15.8 million decrease in the
valuation allowance for net deferred tax assets partially offset by an income
tax provision of $11.2 million. Excluding the $15.8 million decrease in the
valuation allowance, the effective tax rate for the first quarter of 2002 was
41.9%. This compares to an income tax provision of $6.4 million on pre-tax
income of $16.2 million for the first quarter of 2001, which included a $0.4
million increase in the valuation allowance for foreign net deferred tax assets.
Excluding the $0.4 million increase in the valuation allowance, the effective
tax rate for the first quarter of 2001 was 36.7%. The increase in the effective
tax rate, excluding adjustments to the valuation allowance, from 36.7% in the
first quarter of 2001 to 41.9% in the first quarter of 2002 resulted primarily
from the expiration of foreign tax credits due to the carryback of the 2001 net
operating loss to 1996.

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 (SFAS
109), which requires that a valuation allowance be established when there
is significant uncertainty as to the realizability of the deferred tax assets.

At March 31, 2002, the
Company had $30.8 million of deferred tax assets related to U.S. federal and
state net operating loss carryforwards, which reflected the tax benefit of
approximately $79 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 $15.9 million for deferred tax assets
related to foreign net operating loss carryforwards, which reflected the tax
benefit of approximately $36 million in future foreign tax deductions. These
carryforwards expire at various dates beginning in 2004. These deferred tax
assets remain fully reserved because their realization is dependent on earning
future foreign taxable income in the tax jurisdictions to which the net
operating loss carryforwards related. The largest of these foreign net operating
loss carryforwards relates to the Companys French subsidiary, Nomai S.A.
This subsidiarys operations have been shut down and therefore, the foreign
net operating loss carryforward related to Nomai S.A. is not likely to be
realized in the future.

Net deferred tax assets for
the Company at March 31, 2002 were $19.9 million. The minimum amount of future
taxable income that would have to be generated to realize the net deferred tax
assets is approximately $51 million. Management believes that the Companys
recent restructuring efforts will continue to reduce costs to be more in line
with expected sales and will allow the Company to generate sufficient future
taxable income to realize its net deferred tax assets. As such, management
believes that it is more likely than not that the net deferred tax assets will
be realized. However, actual results could differ from those estimates in the
near future and therefore, realization of the net deferred tax assets is not
assured.

The $15.8 million decrease
in the valuation allowance for net deferred tax assets resulted primarily from a
reduction in net deferred tax assets. This reduction was in response to 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 2001 tax
net operating loss.

As of March 31, 2002,  deferred tax  liabilities  for estimated U.S.  federal and state taxes of $56.2 million have
been accrued on unremitted  foreign  earnings of $144.1  million.  U.S. taxes have not been provided for unremitted
foreign  earnings  of $112.3  million.  These  earnings  are  considered  to be  permanently  invested  in non-U.S.
operations, including the Company's manufacturing operations in Penang, Malaysia.

Although the Company has
consolidated its manufacturing operations into its Penang, Malaysia facility to
increase manufacturing efficiencies, this facility is still significantly
underutilized. The Company is evaluating various alternatives to resolve this
underutilization, including divestment and outsourcing of its manufacturing
operations. The resolution of this issue will likely result in future charges
and could affect the Companys status of its $112.3 million of permanently
invested foreign earnings. The additional unrecorded deferred U.S. tax
liability, if such amounts were no longer considered permanently invested, would
be approximately $44 million. No cash impact would be incurred unless the cash
were repatriated.

## Liquidity and
Capital Resources

At March 31, 2002, the
Company had total cash, cash equivalents and temporary investments of $341.4
million, compared to $329.1 million at December 31, 2001, an increase of $12.3
million or 3.7%. At March 31, 2002, $5.9 million of the total cash on deposit in
the U.S. was restricted in its use (see below for more details).

At March 31, 2002, $162.3
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 March 31, 2002, the
remaining $179.1 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.

Deferred tax liabilities
for estimated U.S. federal and state taxes of $56.2 million, have been accrued
on unremitted foreign earnings of $144.1 million as of March 31, 2002. U.S.
taxes have not been provided for unremitted foreign earnings of $112.3 million
considered to be permanently invested in non-U.S. operations. The additional
unrecorded deferred U.S. tax liability, if such amounts were no longer
considered permanently invested, would be approximately $44 million. If the
Company decides to solve the underutilization problem of the Companys
Penang, Malaysia manufacturing facility through divestment or outsourcing, this
divestment will likely result in future charges and could affect the
Companys status of these permanently invested foreign earnings. The net
book value of the Penang, Malaysia building and land as of March 31, 2002 was
$21.7 million. Cash dividends of foreign earnings (such as the repatriation of
any of the $179.1 million of foreign cash) to the U.S. would be considered
taxable in the U.S. for federal and state tax purposes at a rate of
approximately 39%.

Working capital of $349.6
million at March 31, 2002, increased by $34.7 million compared to $314.9 million
at December 31, 2001. The increase in working capital resulted primarily as a
result of higher total cash, cash equivalents and temporary investments, lower
other current liabilities, higher income taxes receivable and lower accounts
payable, partially offset by lower trade receivables. The Companys ratio
of current assets to current liabilities increased to 2.8 to 1 at March 31,
2002, compared to 2.4 to 1 at December 31, 2001.

For the first three months
of 2002, cash provided by operating activities amounted to $16.9 million, an
increase of $12.1 million compared to cash provided from operating activities of
$4.8 million for the first three months of 2001. The higher cash provided from
operating activities resulted primarily from higher operating results and from
changes in current assets and current liabilities as described below.

Accounts receivable
decreased in the first three months of 2002 primarily from lower sales. Accounts
payable decreased primarily from lower levels of purchasing that has resulted
from lower sales volumes and cost reductions. Other current liabilities
decreased due to lower accrued restructuring accruals, marketing accruals and
purchase commitments, partially offset by increases in litigation accruals and
bonus and profit sharing accruals. 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.

For the three months ended
March 31, 2002, the Company made $6.4 million in cash payments related to the
2001 restructuring actions and made $3.3 million in cash payments related to the
second and third quarter 2001 non-restructuring actions.

During the three months
ended March 31, 2002, the Company repurchased 340,400 shares of the
Companys Common Stock for $2.9 million. For the three months ended April
1, 2001, the Company did not repurchase any shares. As of March 31, 2002,
approximately $122.3 million remained available for future repurchases under the
stock repurchase plan authorized by the Companys Board of Directors on
September 8, 2000. Any repurchase of shares is expected to be funded using the
Companys available working capital.

In connection with the
class action lawsuit, Rinaldi, et al. v. Iomega Corporation, as part of
the Courts June 29, 2001 order, the Court issued an award of $4.1 million
for plaintiffs attorneys fees. The Company has funded $4.1 million
into an escrow account. The Company has title to the escrow account and interest
received on this account becomes part of the escrow balance. However, the
Company is restricted to using this cash only for the payment of
plaintiffs attorneys fees once this lawsuit is settled. This cash is
reported separately as restricted cash in the condensed consolidated
balance sheets. For more information about the lawsuit, see Note 5
Commitments and Contingencies in the notes to condensed consolidated
financial statements.

During the first quarter of
2002, the Company classified $1.8 million of cash as restricted cash to cover
the bank agreement associated with an outstanding letter of credit. Per the bank
agreement, this cash has been set aside as a certificate of deposit and cannot
be utilized by the Company until shortly after the letter of credit is no longer
needed.

The Company believes that
its balance of unrestricted cash, cash equivalents and temporary investments,
together with cash flows from 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 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 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 current difficult 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, is 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.

The Company adopted 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.
As a result of the implementation of SFAS 142, the Company did not record
goodwill amortization expense in the first quarter of 2002, whereas the Company
had recorded pre-tax goodwill amortization expense of $1.0 million in the first
quarter of 2001. The Company also performed the impairment test required under
SFAS 142 and determined that the Companys goodwill, all of which is
associated with the Zip product line, was not impaired at March 31, 2002.

## Factors
Affecting Future Operating Results

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

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

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

Sales of Zip products have
accounted for a significant majority of the Companys sales and profits
since 1996. However, these sales have been declining and, in the first quarter
of 2002, Zip sales decreased 1.2% from the fourth quarter of 2001 and 29.5% from
the first quarter of 2001. The level of future sales of Zip drives to end user
customers will depend in large part on the Companys ability to effectively
position the Zip product line features versus CD-RW drives, increase the
capacity of its Zip products and to further reduce costs to compete against
other substitute technologies. The level of future shipments of Zip drives to
OEM customers will depend in large part on the Companys ability to further
reduce the cost of Zip drives and on the extent to which the incorporation of
CD-RW or DVD-Recordable drives into OEM products results in a reduction in the
demand for OEM products also incorporating a built-in Zip drive. The Company
believes that there is a trend among personal computer OEM customers to adopt
internal CD-RW drives as a standard product feature and this trend has adversely
impacted the Companys Zip business. This trend is expected to continue and
there can be no assurance that the Company will be successful in mitigating the
adverse impact. Notwithstanding the foregoing challenges, the Companys
future operating results are dependent upon its ability to stabilize the Zip
products business and to stop the Zip sales decline. For example, during 2001,
the PPM for the Zip business was $153.1 million versus a product loss of $120.6
million on all other product segments (including restructuring and
non-restructuring charges). In addition, during the first quarter of 2002, the
PPM for the Zip business was $57.3 million versus a product loss of $2.1 million
on all other product segments. There is no assurance that the Company will be
successful in achieving this critical business objective of stabilizing and
improving its Zip business.

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

During the second quarter
of 2001, the Company began selling its Peerless drive system. In addition to the
other risks described herein which relate to all of the Companys products,
additional risks relating to the Peerless drive system include the
Companys dependency upon a third party for some of the key technology used
in the product and the fact that a number of the potential market applications
for the Peerless drive system are new. In addition to stabilization of the Zip
business, as discussed above, the Company believes that future operating results
are further dependent upon the success of the Peerless drive system and other
new high capacity, portable Hard Disk Drive (HDD) offerings. The
Company expects this sector to continue to be highly price competitive and the
Companys success will depend on its ability to meet aggressive product
price and performance targets. Although encouraged by the Peerless drive, the
current implementation of this product faces significant cost challenges in
light of continued price reductions in the portable HDD market segment in which
the product competes. As a result, in April 2002, the Company launched newly
designed portable HDD devices with the goal of achieving improved
competitiveness in this market segment. There is no assurance that the Company
will meet these goals or that the Peerless drive system or other new high
capacity HDD products will achieve profitability or significant market presence
or otherwise be successful.

During 2001, the Company
began selling NAS devices. In introducing this product line, the Company is
attempting to leverage the Iomega brand name and its small to medium size
business customer base to expand into the network infrastructure, or back
office market, as opposed to the personal computer desktop/laptop, or
front office market. The NAS market is dominated by large computer
and data storage providers (including Dell, Compaq, IBM and Hewlett Packard), is
highly price competitive, primarily relies upon value added sales channels and
requires core competencies in server, software and networking technologies. The
Company is developing a strategy to address these requirements and challenges.
In March 2002, the Company announced the launch of four NAS devices. There is no
assurance that the Company will be successful in developing the necessary core
competencies in this market segment, that the Companys NAS products will
be successful, that the Company will be successful in implementing its
back office strategy or will achieve profitability on this product
line in 2002 or thereafter.

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

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

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

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

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

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

The Company believes that
in order to compete successfully against current and future sources of
competition, it will be necessary to further reduce the manufacturing costs of
its products, thus enabling the Company to profitably sell its products at lower
prices in response to competitive and market factors. The Company is continuing
to focus on reducing the manufacturing costs of its products by reducing the
cost of parts and components used in the Companys products through
improved inventory management and product design modifications and by taking
advantage of industry-wide reductions in costs; increasing manufacturing
efficiencies; reducing overhead and burden rates and decreasing defect rates.
The Company has reduced its distribution costs through outsourcing its
distribution and logistic facilities to third parties in both North America and
in Europe. The need to further reduce costs is particularly important for the
Companys OEM business, as OEM customers are highly price sensitive. If the
lower sales volumes recently reported by the Company result in less favorable
pricing for components purchased from third parties, the Companys ability
to reduce manufacturing costs may be adversely affected. Although the Company
has consolidated its manufacturing operations into its Penang, Malaysia facility
to increase manufacturing efficiencies, this facility is still significantly
underutilized, which has an adverse impact on the overhead and burden applied to
the Companys products. The Company is evaluating various alternatives to
resolve this underutilization, including the divestment and outsourcing of its
manufacturing operations. There is no assurance that the Company will be able to
resolve this issue. However, any resolution implemented or future consolidation
of the Companys manufacturing facilities will likely result in future
charges. The net book value of the Penang building and land as of March 31, 2002
was $21.7 million.

The Company faces
development, manufacturing and demand risks with regard to recently introduced
products and future products. Future operating results will also depend on the
Companys ability to effectively manage obsolescence risks associated with
products that are phased out and its success in anticipating and ramping to
volume production of new or enhanced products. The factors described above
relating to the Companys products are, or will be, relevant to any other
products currently sold by the Company or new products introduced by the Company
in the future.

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

Future operating results
also depend on intellectual property and antitrust matters including the
possibility that infringement claims asserted from time to time against the
Company could result in an injunction against future product shipments, require
the Company to pay royalties to a third party in order to continue to market and
distribute one or more of the Companys current or future products and also
include the possibility that the Company would be required to devote unplanned
resources to developing modifications to its products or marketing programs.

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

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

The Company recorded
restructuring and other charges during the second, third and fourth quarters of
2001 of $47.1 million, $64.4 million and $4.6 million, respectively, in
connection with the following restructuring and other actions: to adjust the
Companys operating structure in accordance with sales expectations, reduce
the Companys break-even point and improve operating cash flow; reduce the
Companys global workforce in all functional areas during 2001 by 1,465
persons or approximately 43% from 3,429 employees at December 31, 2000;
streamline the Companys supply chain and logistics strategy, including the
closure and outsourcing of the Companys distribution facility in North
Carolina; planned closure in 2002 and outsourcing of the Companys
distribution center and logistics in Europe; consolidate labor-intensive tasks
into Malaysia; consolidate the Companys operations and facilities,
including the relocation of Corporate Headquarters to San Diego, California; and
revise the Companys product strategy. There is no assurance that
additional restructuring and other actions will not be necessary in 2002. For
example, although the Company has consolidated its manufacturing operations into
its 376,000 square foot Penang, Malaysia facility to increase manufacturing
efficiencies, this facility is still significantly underutilized. The Company is
evaluating various alternatives to resolve this underutilization, including
divestment and outsourcing of its manufacturing operations. The implementation
of any of the alternatives being considered will likely result in future
charges. The net book value of the Penang building and land as of March 31, 2002
was $21.7 million. In addition, the Company is applying to Malaysian authorities
for a relaxation of its minimum local content to continue to qualify for its
Malaysian tax holiday. This application should be retroactive for the period
1997 through 2001 as well as for future periods. Although the Company believes
it will be successful in obtaining this relaxation, there is no assurance it
will be successful. If the relaxation is not approved, there would be a material
adverse impact on the Companys tax provision and net income.

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

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

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

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

At March 31, 2002, net
deferred tax assets not covered by valuation allowances was $19.9 million. The
minimum amount of future taxable income that would have to be generated to
realize these net deferred tax assets is approximately $51 million. As such, as
business conditions change, there is the risk that the Company may not be able
to realize its remaining unreserved net deferred tax assets and may have to
increase the valuation allowance for these assets in the future.

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

The Company has issued
stock options that are subject to variable plan accounting in accordance with
FASB Interpretation No. 44 Accounting for Certain Transactions Involving
Stock Compensation (Interpretation 44). Under variable plan
accounting, the Company is required to recognize compensation expense in its
statement of operations for any increase in the market price of the
Companys Common Stock above $20.00 (the market price at July 1, 2000,
which was the effective date of Interpretation 44). This compensation expense
must be recorded on a quarterly basis until the option is exercised, forfeited
or expires unexercised. The impact of the new options granted under the Exchange
Program on the Companys financial statements will depend on quarterly
fluctuations in the Companys Common Stock price and the dates of
exercises, forfeitures or cancellations of the new options by employees. For
example, during 2001, approximately 43,000 shares were forfeited or cancelled,
leaving a balance of approximately 173,000 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.

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

# IOMEGA
CORPORATION

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

The Company is exposed to
various interest rate risks. The Company did not have any significant debt
outstanding at March 31, 2002. Should the Company need to borrow funds in the
future, it would be subject to 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 $0.8 million in the first quarter of
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.

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

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

The fair value of the
Companys forward contracts is subject to change as a result of potential
changes in market rates and prices. If the United States dollar were to
strengthen or weaken against these foreign currencies by 10%, the hypothetical
value of the contracts would have increased or decreased by approximately $3.6
million at March 31, 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 March 31, 2002, the analysis indicated that such market
movements would not have a material effect on the Companys consolidated
financial position, results of operations or cash flows. Factors that could
impact the effectiveness of the Companys hedging programs include
volatility of the currency and interest rate markets, availability of hedging
instruments and the Companys ability to accurately project net asset or
liability positions. Actual gains and losses in the future may differ materially
from the Companys analysis depending on changes in the timing and amount
of interest rate and foreign exchange rate movements and the Companys
actual exposures and hedges.

## 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 first 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. On March 21, 2002, the Company filed a Form 8-K
under item 4, Changes in Registrants Certifying Accountant
announcing the change in auditors from Arthur Andersen LLP to Ernst & Young
LLP. No financial statements were included.

SIGNATURES

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

|Dated: 05/13/02
Dated: 05/13/02 | IOMEGA CORPORATION
        (Registrant)/s/ Werner T. Heid
    Werner T. Heid
    President and Chief Executive Officer    /s/ Barry Zwarenstein
Barry Zwarenstein
    Vice President, Finance and
    Chief Financial Officer
|------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## EXHIBIT INDEX

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

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

|10.21 | Separation Agreement and General Release, dated
January 4, 2002, between the Company and Charlotte L. Miller
|----- | ------------------------------------------------------------------------------------------------------------

|10.22 | 2002 Bonus Plan
|----- | ---------------