---

# 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 APRIL 3, 2005

## 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)
|--------------------------------------------------------------------------- | ----------------------------------------------

10955 Vista Sorrento Parkway, San Diego, CA 92130(Address of principal executive offices)

(858) 314-7000(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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).     Yes    X      
No

Indicate the number of shares outstanding of each of the issuer's classes of common stock
as of May 6, 2005.

|Common Stock, par value $0.03 1/3(Title of each class) | 51,611,423(Number of shares)
|------------------------------------------------------ | ----------------------------

---

# IOMEGA CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS

`Page

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

                                            PART I - FINANCIAL STATEMENTS

Item 1.  Financial Statements (Unaudited)

         Condensed Consolidated Balance Sheets at April 3, 2005
             and December 31, 2004.................................................................       3

         Condensed Consolidated Statements of Operations for the Three Months
             Ended April 3, 2005 and March 28, 2004................................................       5

         Condensed Consolidated Statements of Cash Flows for the Quarters
             Ended April 3, 2005 and March 28, 2004................................................       6

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

Item 2.  Management's Discussion and Analysis of Financial
             Condition and Results of Operations...................................................      26

Item 3.  Quantitative and Qualitative Disclosures About Market Risk................................      53

Item 4.  Controls and Procedures...................................................................      55

                                             PART II - OTHER INFORMATION

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds...............................      57

Item 6.  Exhibits..................................................................................      57

Signatures.........................................................................................      58

Exhibit Index......................................................................................      59`

---

Copyright © 2005
Iomega Corporation. All rights reserved. Iomega, the stylized i
logo, Zip, REV, Jaz, Active Disk, iStorage, Micro Mini, QuikTouch and HotBurn,
are either registered trademarks or trademarks of Iomega Corporation in the United States
and/or other countries. All other trademarks referenced herein
are the property of their respective owners.

1

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## NOTE
REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on
Form 10-Q contains a number of forward-looking statements, including, without
limitation, any statements referring to:

- The Companys belief that any reserves, including inventory reserves,
reserves for estimated returns, warranty reserves, restructuring reserves and
any other reserves are adequate;
- The Company's intention to attempt to sublease any facilities;
- The Companys
evaluation of any risks and benefits associated with forward exchange or hedging
contracts;
- The Companys belief that the REV segment represents its best
opportunity to develop a product profit margin
(PPM) stream which could partially offset the declining Zip PPM
stream;
- The Companys intention to continue to invest significant
resources in an attempt to grow REV sales;
- The Companys goals to grow
REV sales, Consumer Storage Solutions sales and monitor overhead costs and
operating expenses;
- The Company's overall objective to achieve profitability in the second half of 2005;
- The  Company's  belief that its total  unrestricted  cash is  sufficient to operate the business for at least
         one year;
- The  Company's  expectations  with respect to sales or trends in any of its business  segments for any future
         periods;
- The Companys goals to improve gross margins, particularly in the Consumer
Storage Solutions segment and to operate the Consumer Storage Solutions segment
profitably;
- The Companys expectations regarding the repatriation of cash held by the
Companys international subsidiary and the applicability or effect of the
American Jobs Creation Act of 2004 or any existing tax credit carryforwards;
- Anticipated benefits from the regional assembly process;
- The Companys intentions to evaluate new products, review new business
opportunities and attempt to develop new technologies and products, including
next-generation REV products;
- Expectations of cost
savings resulting from any outsourcing activities and
- The Companys goal
to remediate any previously-reported material control weaknesses.

Any other statements 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, goal and similar expressions, are intended to
identify forward-looking statements, although not all forward-looking statements
contain these words.

Numerous factors could
cause actual events or results to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, those set
forth under the captions Application of Critical Accounting
Policies, Liquidity and Capital Resources, Factors
Affecting Future Operating Results and Quantitative and Qualitative
Disclosures About Market Risk included in Items 2 and 3 of 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 dispositions. In
addition, any forward-looking statements represent the Companys estimates
only as of the date of this report and the Company specifically disclaims any
obligation to update forward-looking statements, even if its estimates change.

2

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

`April 3,       December 31,
                                                                          2005             2004
                                                                      ----------       ------------
                                                                      (Unaudited)
Current Assets:
   Cash and cash equivalents                                           $  77,871        $ 103,403
   Restricted cash                                                           278                -
   Temporary investments                                                  26,050           17,406
   Trade receivables, less allowance for doubtful accounts
      of $2,478 and $2,885, respectively                                  29,395           30,764
   Inventories                                                            34,135           31,345
   Deferred income taxes                                                   8,475            9,710
   Other current assets                                                    6,063            7,045
                                                                       ---------        ---------
      Total Current Assets                                               182,267          199,673
                                                                       ---------        ---------

Property and Equipment, at Cost                                          121,174          128,395
Accumulated Depreciation                                                (108,797)        (114,832)
                                                                       ---------        ---------
      Net Property and Equipment                                          12,377           13,563
                                                                       ---------        ---------

Goodwill                                                                  11,691           11,691
Other Intangibles, Net                                                     2,285            2,448
Other Assets                                                                  69              127
                                                                       ---------        ---------
   Total Assets                                                        $ 208,689        $ 227,502
                                                                       =========        =========`

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

3

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

`April 3,        December 31,
                                                                         2005              2004
                                                                      ----------       ------------
                                                                      (Unaudited)
Current Liabilities:
   Accounts payable                                                    $  33,584        $  35,166
   Other current liabilities                                              55,933           65,607
   Income taxes payable                                                      598              664
                                                                       ---------        ---------
      Total Current Liabilities                                           90,115          101,437
                                                                       ---------        ---------

Other Long-Term Liabilities                                                  140              721

Deferred Income Taxes                                                     21,293           22,537

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 55,044,345 and 55,028,902 shares,
      respectively                                                         1,838            1,837
   Additional paid-in capital                                             78,971           78,713
   Less: 3,432,922 Common Stock treasury shares, at cost                 (33,791)         (33,791)
   Retained earnings                                                      50,123           56,048
                                                                       ---------        ---------
      Total Stockholders' Equity                                          97,141          102,807
                                                                       ---------        ---------
         Total Liabilities and Stockholders' Equity                    $ 208,689        $ 227,502
                                                                       =========        =========`

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

4

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

`For the Quarter Ended
                                                                        -------------------------
                                                                        April 3,        March 28,
                                                                          2005            2004
                                                                        --------        ---------
                                                                              (Unaudited)
Sales                                                                   $ 72,930         $ 84,126
Cost of sales                                                             56,385           59,776
                                                                        --------        ---------
   Gross margin                                                           16,545           24,350
                                                                        --------        ---------

Operating Expenses:
   Selling, general and administrative                                    18,502           23,195
   Research and development                                                4,104            6,465
   License fees                                                               (7)               -
   Restructuring charges                                                     235              546
   Bad debt expense (credit)                                                (287)             124
                                                                        --------        ---------
      Total Operating Expenses                                            22,547           30,330
                                                                        --------        ---------
   Operating loss                                                         (6,002)          (5,980)

Interest income                                                              435              371
Interest expense and other income and (expense), net                        (889)              59
                                                                        --------        ---------
   Loss before income taxes                                               (6,456)          (5,550)

Benefit for income taxes                                                     531              685
                                                                        --------        ---------
   Net Loss                                                             $ (5,925)       $  (4,865)
                                                                        ========        =========


Net loss per basic and diluted common share                             $  (0.11)       $   (0.09)
                                                                        ========        =========

Weighted average common shares outstanding                                51,611           51,527
                                                                        ========        =========`

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

5

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

`For the Three Months Ended
                                                                        --------------------------
                                                                        April 3,         March 28,
                                                                          2005             2004
                                                                        --------        ----------
                                                                               (Unaudited)
Cash Flows from Operating Activities:
   Net loss                                                             $ (5,925)        $ (4,865)
   Revenue and Expense Adjustments:
      Depreciation and amortization                                        2,040            2,071
      Deferred income tax benefit                                           (148)          (1,531)
      Stock compensation expense                                             212              189
      Non-cash inventory write-offs                                          514                -
      Bad debt expense (credit)                                             (287)             124
      Other                                                                  222              121

   Changes in Assets and Liabilities:
      Restricted cash                                                       (278)               -
      Trade receivables                                                    1,656            4,674
      Inventories                                                         (3,304)            (775)
      Other current assets                                                   982             (323)
      Accounts payable                                                    (1,622)            (820)
      Other current liabilities                                           (8,341)         (11,036)
      Accrued restructuring                                               (1,340)          (1,458)
      Income taxes                                                           (66)            (937)
                                                                        --------         --------
         Net cash used in operating activities                           (15,685)         (14,566)
                                                                        --------         --------

Cash Flows from Investing Activities:
   Purchases of property and equipment                                      (462)          (3,351)
   Purchases of temporary investments                                    (14,871)        (116,941)
   Sales of temporary investments                                          6,233           89,602
   Initial investment in ByteTaxi (net of $171 of cash)                      (44)               -
   Net change in other assets and other liabilities                         (708)            (942)
                                                                        --------         --------
      Net cash used in investing activities                               (9,852)         (31,632)
                                                                        --------         --------

Cash Flows from Financing Activities:
   Proceeds from sales of Common Stock                                         5                8
                                                                        --------         --------
      Net cash provided by financing activities                                5                8
                                                                        --------         --------
Net Decrease in Total Cash and Cash Equivalents                          (25,532)         (46,190)
Total Cash and Cash Equivalents at Beginning of Period                   103,403          122,591
                                                                        --------         --------
Total Cash and Cash Equivalents at End of Period                        $ 77,871         $ 76,401
                                                                        ========         ========`

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

6

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

## (1)
Significant Accounting Policies

In the opinion of the
Companys management, the accompanying condensed consolidated financial
statements reflect all adjustments of a normal recurring nature which are
necessary to present fairly the financial position of the Company as of April 3,
2005 and December 31, 2004 and the results of operations and cash flows for the
three months ended April 3, 2005 and March 28, 2004.

The results of operations
for the quarter ended April 3, 2005 are not necessarily indicative of the
results to be expected for the entire year or for any future period.

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

Principles of Consolidation

The condensed consolidated
financial statements include the accounts of Iomega Corporation, its
wholly-owned subsidiaries after elimination of all material intercompany
accounts and transactions and all variable interest entities which the Company
is required to consolidate (see Note 6). All entities of the Company have been
consolidated.

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
periods. Areas where significant judgments occur include, but are not limited
to: revenue recognition, price protection and rebate reserves, inventory
valuation reserves, tax valuation allowances and impairment of goodwill and
other intangible assets. Actual results could differ materially from these
estimates.

Reclassifications

Certain reclassifications
have been made to the prior years condensed consolidated financial
statements and notes to condensed consolidated financial statements to conform
to the current years presentation. All prior year business segment
information has been restated to be consistent with the current year
presentation and these reclassifications are discussed in Note 3.

Revenue Recognition

The Company recognizes
revenue based on the criteria in the SECs Staff Accounting Bulletin 104.
These criteria are that revenue should be recognized when there is: 1)
persuasive evidence of an arrangement with the buyer, 2) delivery has occurred
or the services have been rendered, 3) the selling price is fixed and
determinable and 4) collectibility is reasonably assured.

7

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

## (1)
Significant Accounting Policies (Continued)

The Companys
customers include OEMs, retailers, distributors, value added resellers
(VARs), catalog resellers, private label customers and end users.
Typically, retail and distribution customer agreements have provisions that
allow the customer to return product under certain conditions within specified
time periods. The reserve for estimated returns is calculated by reviewing
historical return rates on a product-by-product basis and then applying that
return rate to the most recent three months of shipments on a product-by-product
basis. Sales, less reserves for estimated returns, are generally recognized upon
shipment and passage of title to the customer. The Company has established
reserves for estimated returns, which are reflected as a reduction of sales and
trade receivables in the condensed consolidated financial statements. The
reserve for estimated returns totaled $2.9 million at April 3, 2005 and $2.1
million at December 31, 2004.

In addition to
reserves for estimated returns, the Company defers recognition of sales on
estimated excess inventory in the distribution, retail and catalog channels. For
this purpose, excess inventory is the amount of inventory that exceeds the
channels four-week requirements as estimated by management. OEM and VAR
customers are not considered to have excess inventory as they usually do not
carry more than four weeks of inventory. The distribution, retail and catalog
channels four-week requirements are estimated based on inventory and
sell-through amounts reported to the Company by the Companys key
customers, who make up the substantial majority of the Companys sales in
these channels. No adjustment is made for those customers that do not report
inventory and sell-through information. The Company defers estimated sales and
cost of sales associated with estimated excess channel inventory in its
condensed consolidated financial statements.

The table below shows the
related revenue and cost of sales deferrals associated with estimated excess
channel inventory.

`April 3,         Dec. 31,
                                                                          2005             2004
                                                                        --------         --------
                                                                              (In thousands)

    Deferred revenue                                                    $ 14,214         $ 15,798
    Deferred cost of sales                                                (8,991)          (8,617)
                                                                        --------         --------
       Margin on estimated channel inventory                            $  5,223         $  7,181
                                                                        ========         ========`

The Company bundles various
extended service plans with selected Network Attached Storage servers and sells
additional Network Attached Storage and REV extended service plans on a
stand-alone basis. The service periods of the extended service plans are up to
five years, with the vast majority of the plans being for three years. The
Company defers sales of extended service plans and recognizes the sales ratably
over the respective life of the service plan at the earlier of the extended
service plan being registered with the Company by the end-user or three months
after the service plan was sold into the channel. The related costs of servicing
these plans are expensed as incurred as the Company is charged per service call,
thus there is no deferral of cost associated with the extended service plans.

The deferred license fees
shown in the table below will be recognized once the Company has fulfilled all
of its obligations with respect to the related license agreement.

In certain circumstances,
such as end-of-life products, the Company provides for the net realizable value
of inventory in the channel.

8

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

## (1)
Significant Accounting Policies (Continued)

The components of margin on deferred revenue in the condensed consolidated balance sheets are as follows:

`April 3,         Dec. 31,
                                                                          2005             2004
                                                                        --------         --------
                                                                             (In thousands)

    Margin on estimated excess channel inventory                         $ 5,223          $ 7,181
    Deferred extended service plans                                        1,694            1,538
    Deferred license fees                                                    893              901
    Net realizable value reserve on channel inventory                          -              266
                                                                         -------          -------
       Margin on deferred revenue                                        $ 7,810          $ 9,886
                                                                         =======          =======`

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. The Companys
software sales are immaterial.

Price Protection and Rebate Reserves

The Company has agreements
with some of its direct and indirect customers which, in the event of a price
decrease, allow those customers (subject to certain limitations) a credit equal
to the difference between the price originally paid and the new decreased price
on units in the customers inventory on the date of the price decrease not
to exceed the number of units shipped to the customer for a specified time
period prior to the price decrease. When a price decrease is anticipated, the
Company establishes reserves against gross trade receivables with the
corresponding reduction in sales for estimated amounts to be reimbursed to
qualifying customers. In addition, the Company records reserves at the time of
shipment for estimated volume rebates and other estimated rebates given to
consumers at the time of purchase from channel partners for which sales have
been recognized.

Reserves for volume and
other rebates and price protection totaled $16.4 million at April 3, 2005 and
$16.0 million at December 31, 2004 and are netted against trade receivables in
the condensed consolidated balance sheets.

Cash and Cash Equivalents

For the purpose of
preparing the condensed consolidated statements of cash flows, cash and cash
equivalents include all marketable securities with maturities of three or fewer
months when purchased. Cash equivalents at April 3, 2005 and December 31, 2004
consisted primarily of investments in corporate obligations, repurchase
agreements, certificates of deposit and money market funds.

Temporary Investments

Investments purchased with
maturities in excess of three months are classified as temporary investments.
None of the Companys temporary investments have an effective maturity
greater than 24 months and at April 3, 2005, the average duration of the
Companys temporary investments was less than 19 months, as compared to
less than 16 months at December 31, 2004. At April 3, 2005, the Company had debt
security investments of $6.6 million that will mature within one year and $17.9
million that will mature in more than one year but less than two years.
Temporary investments at April 3, 2005 and December 31, 2004 consisted primarily
of investments in U.S treasuries, U.S. agencies, certificates of deposit and
corporate obligations. The Company seeks to minimize its credit risk associated
with temporary investments by purchasing investment grade, liquid securities.
The Company has classified all of its temporary investments as
available-for-sale securities.

9

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

## (1)
Significant Accounting Policies (Continued)

Inventories

Inventories include
material costs and inventory related overhead costs and are recorded at the
lower of cost (first-in, first-out) or market and consist of the following:

`April 3,         Dec. 31,
                                                                          2005             2004
                                                                        --------         --------
                                                                             (In thousands)
    Raw materials                                                       $    465         $    461
    Finished goods                                                        33,670           30,884
                                                                        --------         --------
                                                                        $ 34,135         $ 31,345
                                                                        ========         ========`

The Company evaluates the
carrying value of inventory on a quarterly basis to determine if the carrying
value is recoverable at estimated selling prices (including known future price
decreases). The Company includes product 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 through a charge to cost of sales. In addition, the Company
generally considers inventory which is not expected to be sold within
established timelines, as forecasted by the Companys material requirements
planning system, as excess and thus appropriate inventory reserves are
established through a charge to cost of sales.

Other Current Liabilities

Other current liabilities
consist of the following:

`April 3,         Dec. 31,
                                                                          2005             2004
                                                                        --------         --------
                                                                             (In thousands)
    Foreign tax contingencies                                           $ 13,636         $ 13,866
    Margin on deferred revenue                                             7,810            9,886
    Accrued marketing (a)                                                  6,641            7,550
    Accrued warranty                                                       5,462            5,537
    Accrued payroll, vacation and bonus                                    5,051            7,460
    Accrued restructuring charges                                          3,097            4,438
    Accrued excess purchase commitments                                    2,931            2,759
    Other accrued liabilities (b)                                         11,305           14,111
                                                                        --------         --------
                                                                        $ 55,933         $ 65,607
                                                                        ========         ========`

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

| | (b) | Includes  accruals for  royalties,  professional  fees,  forward  foreign  exchange  contracts,  self-insurance
liabilities,  litigation,  valued  added  taxes,  sales and  property  taxes  and  other  miscellaneous
liabilities.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

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

## (1)
Significant Accounting Policies (Continued)

Net Income (Loss) Per Common Share

Basic net income (loss) per
common share (Basic EPS) excludes dilution and is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding during the period. Diluted net income (loss) per common share
(Diluted EPS) reflects the potential dilution that could occur if
stock options or other contracts to issue common stock were exercised or
converted into common stock. The computation of Diluted EPS assumes no exercise
or conversion of securities that would have an anti-dilutive effect on net loss
per common share. In periods where losses are recorded, common stock equivalents
would decrease the loss per share and therefore are not added to the weighted
average shares outstanding. Losses have been recorded for the quarters ending
April 3, 2005 and March 28, 2004, thus there was no dilution as all outstanding
options were considered anti-dilutive. For the quarter ending March 28, 2004,
all unvested restricted common shares granted under the Management Incentive
Plan (MIP) were also considered anti-dilutive. The Company had no
securities that were considered dilutive for these two periods.

The table below shows the number
of outstanding options in each quarter that had an exercise price greater than
the average market price of the common shares (out of the money options) for the
respective quarter as well as the number of MIP restricted shares that were not
vested:

`April 3,         March 28,
                                                                          2005             2004
                                                                        --------         ---------

    Out of the money options                                             611,478         1,110,055
    Unvested MIP restricted shares                                             -            19,507`

Stock Compensation Expense

The Company currently has
various stock-based compensation plans. Effective January 1, 2003, the Company
adopted the fair value recognition provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation (SFAS 123) and as of October 2, 2003,
all of the Companys outstanding stock options are being accounted for
under the fair value method of SFAS 123. The Companys condensed
consolidated statements of operations included $0.2 million of compensation
expense related to stock-based compensation plans for the quarter ended April 3,
2005 and $0.2 million for the quarter ended March 28, 2004.

Accrued Warranty

The Company accrues for
warranty costs based on estimated warranty return rates and estimated costs to
repair. The Company uses a statistical-based model to estimate warranty accrual
requirements. The statistical model, used to project future returns, is based
upon a rolling monthly calculation that computes the number of units required in
the warranty reserve and is based upon monthly sales, actual returns and
projected return rates. Generally, if a product is subject to failure or likely
to fail, the product fails early in the usage cycle. Actual warranty costs are
charged against the warranty reserve. Factors that affect the Companys
warranty liability include the number of units sold, historical and anticipated
rates of warranty returns and repair cost. The Company reviews the adequacy of
its recorded warranty liability on a quarterly basis and records the necessary
adjustments to the warranty liability.

11

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

## (1)
Significant Accounting Policies (Continued)

Changes in the Company's warranty liability during all periods presented were as follows:

`For the Quarter Ended
                                                                        -------------------------
                                                                        April 3,         March 28,
                                                                          2005             2004
                                                                        --------         --------
                                                                              (In thousands)

    Balance at beginning of period                                       $ 5,537          $ 5,225
       Accruals/additions                                                  2,109            2,057
       Claims                                                             (2,184)          (2,618)
                                                                         -------          -------
    Balance at end of period                                             $ 5,462          $ 4,664
                                                                         =======          =======`

Guarantees

During the fourth quarter
of 2004, the Company entered into a limited guarantee for up to $1 million with
a contract manufacturer. The Company agreed to guarantee payments for purchases
made by the Companys Asian distribution and logistics service provider on
behalf of the Company. The distribution and logistics service provider was
making these purchases to fulfill orders in the Companys Asia Pacific
region.All purchase orders placed by the distribution and logistics
service provider were based on forecasts provided by the Company. This guarantee
remained in effect until May 1, 2005. The Company was obligated to make payments
under this guarantee only in the event of material payment default by the
distribution and logistics service provider. However, if the distribution and
logistics service provider defaulted on payment to the contract manufacturer,
the Company would have been entitled to withhold any related amounts due by the
Company to the distribution and logistics service provider or its parent
company. The Company recorded a $29 thousand liability to reflect the fair value
of this guarantee. The fair value was based on the estimated market value of a
similar stand-alone letter of credit.

Recent Accounting Pronouncements

In December 2004, the
Financial Accounting Standards Board (FASB) issued SFAS No. 123r,
Share-Based Payment (SFAS 123r). SFAS 123r provides
accounting guidance for stock-based payments to employees. SFAS 123r revises
SFAS 123 by eliminating the choice of using the intrinsic
recognition and measurement provisions of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees and requiring all
companies to use the fair value method of measuring stock compensation expense.
SFAS 123r clarifies and expands SFAS 123s guidance in several areas,
including measuring fair value, classifying an award as equity or a liability,
attributing compensation cost to reporting periods as well as adding several new
disclosure requirements. SFAS 123r also changes the accounting for the tax
effects of options, including the presentation of the tax effects on the
condensed consolidated statements of cash flows. On April 14, 2005, the SEC
announced that it had delayed the implementation date for calendar year-end
companies to January 1, 2006. As discussed above, the Company is currently
accounting for all of its stock-based compensation under the fair value method
as outlined in SFAS 123 and will adopt SFAS 123r beginning in the first quarter
of 2006. The Company has not yet evaluated the potential impacts of SFAS 123r.

12

---

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

## (2) Income Taxes

For the quarter ended April
3, 2005, the Company recorded an income tax benefit of $0.5 million on a pre-tax
loss of $6.5 million. The net tax benefit of $0.5 million was comprised of $0.4
million of various foreign tax accrual releases due to a change in the estimate
and the likely outcome of selected tax issues and $0.1 million of various
adjustments related to deferred taxes. The statutory tax benefit of $2.5
million, resulting from operating losses, was entirely offset by an increase in
the valuation allowance.

For the quarter ended March
28, 2004, the Company recorded an income tax benefit of $0.7 million on a
pre-tax loss of $5.6 million. The income tax benefit for the first quarter was
reduced by a $1.6 million increase in the valuation allowance for net deferred
tax assets as a result of a decrease in the available foreign cash in the first
quarter of 2004 which could be repatriated to utilize net operating loss
carryforwards (NOLs) and other deferred tax assets.

13

---

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

## (2) Income Taxes
(Continued)

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:

`April 3,         Dec. 31,
                                                                          2005             2004
                                                                       ---------        ---------
                                                                             (In thousands)
    Deferred Tax Assets (Liabilities):
    Current Deferred Tax Assets:
       Trade receivable reserves                                       $   4,322        $   4,180
       Inventory reserves                                                  2,662            2,629
       Accrued expense reserves                                            8,595            9,934
       Other                                                                 276               65
                                                                       ---------        ---------
    Total current deferred tax assets                                     15,855           16,808
                                                                       ---------        ---------

    Non-Current Deferred Tax Assets:
       Fixed asset reserves                                                2,131            2,273
       Tax credit carryforwards                                           39,495           39,464
       Accelerated depreciation and amortization                           4,055            4,034
       U.S. and foreign loss carryforwards                                19,843           20,504
       Other                                                               1,272            1,198
                                                                       ---------        ---------
    Total non-current deferred tax assets                                 66,796           67,473
                                                                       ---------        ---------
    Total deferred tax assets                                             82,651           84,281
                                                                       ---------        ---------

    Non-Current Deferred Tax Liabilities:
       Tax on unremitted foreign earnings                                (43,370)         (47,451)
       Purchased goodwill                                                 (4,751)          (4,657)
                                                                       ---------        ---------
    Total non-current deferred tax liabilities                           (48,121)         (52,108)
                                                                       ---------        ---------
    Current valuation allowance                                           (7,380)          (7,098)
    Non-current valuation allowance                                      (39,968)         (37,902)
                                                                       ---------        ---------
       Net deferred tax liabilities                                    $ (12,818)       $ (12,827)
                                                                       =========        =========

    As Reported on the Balance Sheet:
       Current deferred tax assets                                     $   8,475        $   9,710
                                                                       =========        =========
       Non-current deferred tax liabilities                            $ (21,293)       $ (22,537)
                                                                       =========        =========`

The realizability of the
deferred tax assets is evaluated quarterly in accordance with SFAS 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.

14

---

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

## (2) Income Taxes
(Continued)

The following table summarizes the Company's U.S. and foreign loss and tax credit carryforwards:

`April 3,
                                                                          2005         Expiration Dates
                                                                      -----------      ----------------
                                                                     (In thousands)
    U.S. and Foreign Loss Deferred Tax Assets:
       State NOLs (1)                                                   $ 10,340       2005 to 2024
       Foreign NOLs                                                        8,137       2010 to indefinite
       Federal NOLs                                                          936       2021 to 2023
       Capital losses                                                        430       2006
                                                                        --------
                                                                        $ 19,843
                                                                        ========

    Tax Credit Deferred Tax Assets:
       Foreign tax credits                                              $ 27,589       2009 to indefinite
       Research credits                                                   10,305       2007 to 2025
       Alternative minimum tax credits                                     1,601       Indefinite
                                                                        --------
                                                                        $ 39,495
                                                                        ========

 (1) NOLs = Net Operating Loss Carryforwards`

At April 3, 2005, the
Company had $10.3 million of deferred tax assets related to state NOLs, which
reflect a tax benefit of approximately $258 million in future state tax
deductions. At April 3, 2005, the Company had $0.9 million of deferred tax
assets related to U.S. federal NOLs, which reflect a tax benefit of
approximately $3 million in future U.S. federal tax deductions. The difference
in the amount of future federal and state tax deductions related to the NOLs is
primarily attributable to two factors: 1) the difference between federal and
state NOL carryback rules which have allowed the use of federal NOLs in
instances where state NOLs could not be utilized and 2) the difference in the
taxable portion for federal and state purposes of dividends received from the
Companys foreign subsidiary.

The Company has recorded
foreign tax contingencies related to items in various countries, which are
included in other accrued liabilities and in deferred income
taxes in the condensed consolidated balance sheets. These reserve balances
will be adjusted to the extent that these items are settled for amounts
different than the amounts recorded. The amount included in other accrued
liabilities at April 3, 2005 related to such foreign tax contingencies was
$13.6 million. During the first quarter of 2005, the Company reversed a tax
contingency of $0.2 million to benefit for income taxes in the
condensed consolidated statement of operations, due to changes in estimates
about the future requirement of these reserves.

Net deferred tax
liabilities for the Company at April 3, 2005 were $12.8 million. As of April 3,
2005, deferred tax liabilities for estimated U.S. federal, state and foreign
taxes of $43.4 million have been accrued on unremitted foreign earnings of $95.3
million. U.S. taxes have not been provided for unremitted foreign earnings of
$11.1 million, as these earnings are considered to be permanently invested in
non-U.S. operations.

On October 22, 2004, the
American Jobs Creation Act of 2004 (AJCA) was signed into law. The
AJCA includes a deduction of 85% of certain foreign earnings that are
repatriated, as defined in the AJCA. The Company may elect to apply this
provision to qualifying earnings repatriations in 2005. The Company is
evaluating the repatriation provision, but does not expect to be able to
complete this evaluation until after Congress or the Treasury Department
provides additional clarifying language on key elements of the provision. The
range of possible amounts that the Company is considering for repatriation under
this provision is between zero and $90 million. The related potential range of
income taxes that would be incurred upon repatriation of the foreign earnings
under the AJCA is between zero and $4 million.

15

---

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

## (3) Business
Segment Information

The Company has five reportable segments, which are organized into three business categories as follows:

`Business Categories                       Reportable Segments
    -------------------------------------------     -------------------------------

    Consumer Products                               1.  Zip Products
                                                    2.  Consumer Storage Solutions

    Business Products                               3.  REV Products
                                                    4.  Network Storage Systems

    Other Products                                  5.  Other Products`

The Consumer Products
category (formerly included in the Mobile and Desktop Storage Products category)
is comprised of the Zip Products and Consumer Storage Solutions segments
(formerly Sourced Branded Products). The Business Products category (formerly
Professional Storage Products) is comprised of the REV Products and Network
Storage Systems (NSS) segments. The Other Products segment consists
of license fees and products that have been discontinued or which are otherwise
immaterial. The Other Products segment also included the research and
development on the Digital Capture Technology (DCT) development
program (formerly included in the New Technologies category) which the Company
cancelled during 2004.

Consumer Products

The Zip Products segment
involves the distribution and sale of Zip drives and disks to retailers,
distributors, resellers and OEMs throughout the world. The Zip Products segment
is approaching the end of its life cycle and is experiencing significant
declines in unit sales, revenues and PPM. However, the Zip Products segment
still contributes the substantial majority of PPM to fund the Companys
operations.

The Companys Consumer
Storage Solutions segment involves the worldwide distribution and sale of
various storage devices including: CD-RW drives; DVD rewritable drives;
portable, desktop, network and mini hard disk drives (HDD); Iomega
Mini and Micro Mini USB flash drives and external floppy disk drives. In some
cases, the Company performs final assembly work of purchased components; in
other cases, the Company purchases and resells substantially complete products.

16

---

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

## (3) Business
Segment Information (Continued)

Business Products

The REV Products segment involves
the development, distribution and sale of REV products to retailers,
distributors, OEMs and resellers throughout the world.The REV drives are
removable hard disk storage systems that have a native capacity of 35 gigabytes
(GB) (where 1 gigabyte equals 1 billion bytes) and up to 90GB
compressed capacity. REV products began shipping in April 2004.

The NSS segment consists
primarily of the development, distribution and sale of Network Attached Storage
servers in the entry-level and low-end Network Attached Storage market.

Other Products

The Other Products segment
consists of license fees and products that have been discontinued or are
otherwise immaterial, including: Jaz and PocketZip disks, Peerless drive
systems, Iomega software products such as Iomega Automatic Backup software and
other miscellaneous products. Jaz, PocketZip and Peerless drives were
discontinued in 2002, though the Company continues to sell Jaz and PocketZip
disks to support the installed drive base of these products.

The Other Products segment
included the research and development of the DCT development program, a
small-form factor removable flexible magnetic storage device that was expected
to have a capacity of about 1.2 to 1.5GB and for which development was cancelled
in the second half of 2004.

Product Profit Margin

The Company evaluates
product segment performance based on PPM. PPM is defined as sales and other
income related to a segments operations, less both fixed and variable
product costs, research and development expenses, product management expenses,
specific selling and marketing expenses and depreciation and amortization
related to a segments operations. When such costs and expenses exceed
sales and other income, PPM is referred to as a product loss. The accounting
policies of the product segments are the same as those described in Note 1.
Intersegment sales, eliminated in consolidation, are not material. The expenses
attributable to general corporate activity are not allocated to the product
segments. Non-allocated operating expenses include: advanced research and
development, shared sales and corporate marketing expenses and general and
administrative expenses.

17

---

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

## (3) Business
Segment Information (Continued)

The information in the following table was derived directly from the segments' internal  financial  information used for
corporate  management  purposes.  All 2004  amounts  have been  reclassified  to match the 2005  Business  Category  and
Reportable Segment presentation.

Reportable Operating Segment Information:

`For the Quarter Ended
                                                                        --------------------------
                                                                        April 3,         March 28,
                                                                          2005             2004
                                                                        --------         ---------
                                                                              (In thousands)
    Sales:
    Consumer Products:
       Zip products                                                     $ 20,145         $ 44,220
       Consumer Storage Solutions                                         36,449           35,127
                                                                        --------         --------
          Total Consumer Products                                         56,594           79,347
    Business Products:
       REV products                                                       12,093                -
       Network Storage Systems                                             3,785            3,392
                                                                        --------         --------
          Total Business Products                                         15,878            3,392
    Other Products                                                           458            1,387
                                                                        --------         --------
          Total sales                                                   $ 72,930         $ 84,126
                                                                        ========         ========

    PPM (Product Loss):
    Consumer Products:
       Zip products                                                     $ 10,062         $ 18,167
       Consumer Storage Solutions                                           (881)             473
                                                                        --------         --------
          Total Consumer Products                                          9,181           18,640
    Business Products:
       REV products                                                       (1,818)          (5,615)
       Network Storage Systems                                              (299)            (811)
                                                                        --------         --------
          Total Business Products                                         (2,117)          (6,426)
    Other Products                                                            93           (1,809)
                                                                        --------         --------
          Total PPM                                                        7,157           10,405

    Common Expenses:
       General corporate expenses                                        (12,924)         (15,839)
       Restructuring charges                                                (235)            (546)
       Interest and other income (expense), net                             (454)             430
                                                                        --------         --------
          Loss before income taxes                                      $ (6,456)        $ (5,550)
                                                                        ========         ========`

18

---

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

## (4)
Restructuring Charges

The Company currently has
restructuring reserves under three different restructuring actions: the 2004
restructuring actions, the 2003 restructuring actions and the 2001 restructuring
actions. The following table summarizes the reserve balances related to each of
these restructuring actions:

`April 3,         Dec. 31,
                                                                          2005             2004
                                                                        --------         --------
                                                                              (In thousands)
    Other Current Liabilities:
       2001 restructuring actions                                        $ 1,936          $ 2,205
       2003 restructuring actions                                            502              742
       2004 restructuring actions                                            659            1,491
                                                                         -------          -------
          Total                                                          $ 3,097          $ 4,438
                                                                         =======          =======

    Fixed Asset Reserves:
       2001 restructuring actions                                        $   138          $   168
       2003 restructuring actions                                            155              192
       2004 restructuring actions                                            250              346
                                                                         -------          -------
          Total                                                          $   543          $   706
                                                                         =======          =======`

During the first quarter of
2005, the Company recorded restructuring charges of $0.2 million related to the
ratable recognition of severance and benefits for those employees that were on
transition under the 2004 restructuring actions. During the first quarter of
2004, the Company recorded restructuring charges of $0.5 million related to
lease expenses for facilities vacated in 2001 as part of the restructuring
actions initiated during 2001, which the Company was unable to sublease until
late 2004.

2004 Restructuring Actions

During 2004, the Company
recorded $3.7 million of restructuring charges for the 2004 restructuring
actions. This included $2.6 million of cash charges for severance and benefits
for 108 regular and temporary personnel worldwide (approximately 19% of the
Companys worldwide workforce) who were notified by September 26, 2004 that
their positions were being eliminated, $0.7 million of cash charges for lease
termination costs and $0.4 million of non-cash charges related to excess
furniture. All of the $3.7 million of restructuring charges recorded during 2004
were shown as restructuring expenses as a component of operating expenses. None
of these restructuring charges were allocated to any of the business segments.
The restructuring actions were part of an effort to align the Companys
cost structure with its expected future revenue levels.

In conjunction with the DCT
license agreement signed during the fourth quarter of 2004, the Company notified
an additional 9 employees that their positions were being eliminated. Severance
and benefits charges for these 9 employees were included in the $2.6 million
above. Another 24 employees were hired by the licensee of the DCT technology.
This additional reduction in force of 33 employees brought the total reduction
of employees to 141 positions or approximately 25% of the Companys
worldwide workforce as of September 26, 2004.

19

---

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

## (4)
Restructuring Charges (Continued)

As of April 3, 2005, the
Company has made $2.9million in cumulative cash payments related to the
2004 restructuring actions, of which $1.1 million was disbursed during the first
quarter of 2005.

Of the $2.6 million in
severance and benefits charges for the 117 regular and temporary personnel, $1.9
million was for 103 employees located in North America, $0.4 was for 9 employees
located in Asia and $0.3 million was for 5 employees located in Europe. The
worldwide workforce reduction was across all business functions and across all
levels of the Company. Of the 117 individuals worldwide, 14 employees worked on
a transition basis into the first quarter of 2005 with one additional employee
scheduled to work into the second quarter of 2005. However, during the first
quarter of 2005, 3 of these transition employees were rehired full-time which
reduced the headcount reduction to 114 employees. Transition pay is not a part
of the restructuring charges but rather is reported in normal operations as
incurred. Separation pay was based on years of service and job level and
included health insurance continuance payments. Separation payments, for most
employees, is made after the last day of employment and after separation
agreements have been signed by the employees except for those where continuous
payments are legally required and for two other employees. The $2.6 million in
severance and benefits costs recognized during 2004 included the costs
associated with those employees whose positions were eliminated during 2004 and
the ratable recognition of the severance and benefits costs which was paid or
will be paid to thoseemployees who were in transition beyond the minimum
retention period (60 days) as defined by SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities (SFAS 146).
During the first quarter of 2005, the Company recorded restructuring charges of
$0.2 million related to the ratable recognition of severance for those employees
that were or are on transition during the first half of 2005 under the 2004
restructuring actions. The Company anticipates that the total separation
payments or liability for the 114 employees whose positions have been eliminated
will be $2.8 million. The remaining severance and benefits costs related to the
one remaining transition employee is anticipated to be less than $0.1 million
and will be recorded in the second quarter of 2005.

The Company is still
evaluating whether it will exit a facility or a portion of a facility in Asia.
If that occurs, the Company anticipates incurring less than $0.4 million of
restructuring charges in 2005 relating to that facility.

In summary, the Company
anticipates recording less than $0.1 million for severance and benefits and less
than $0.4 million for lease commitments as the 2004 restructuring actions are
fully implemented. These remaining charges are expected to be recorded in 2005.
Once fully implemented, the total charges for the 2004 restructuring actions are
anticipated to be $4.3 million. None of these charges will be allocated to any
of the business product segments. All but the $0.4 million of excess furniture
charges are expected to be paid in cash.

20

---

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

## (4)
Restructuring Charges (Continued)

Remaining restructuring
reserves of $0.7 million are included in the Companys other current
liabilities and $0.2 million are included in the fixed asset reserves as of
April 3, 2005. Utilization of and other activity related to the 2004
restructuring reserves during the quarter ended April 3, 2005 are summarized
below:

`Foreign
                                          Balance         Utilized          Addition    Currency    Balance
                                                     ------------------
    2004 Restructuring Actions           12/31/04      Cash    Non-Cash    (Reversal)    Changes    04/03/05
    --------------------------           --------    --------  --------    ----------   --------    --------
                                                                   (In thousands)

    Severance and benefits (a)           $   766     $   (857)   $   -        $ 235       $ (13)      $ 131
    Lease termination costs (a)              725         (197)       -            -           -         528
    Furniture (b)                            346           -       (96)           -           -         250
                                         -------     --------    -----        -----       -----       -----
                                         $ 1,837     $ (1,054)   $ (96)       $ 235       $ (13)      $ 909
                                         =======     ========    =====        =====       =====       =====

    Balance Sheet Breakout:
       Other current liabilities (a)     $ 1,491     $ (1,054)   $   -        $ 235       $ (13)      $ 659
       Fixed asset reserves (b)              346           -       (96)           -           -         250
                                         -------     --------    -----        -----       -----       -----
                                         $ 1,837     $ (1,054)   $ (96)       $ 235       $ (13)      $ 909
                                         =======     ========    =====        =====       =====       =====

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

At April 3, 2005,
the remaining severance and benefits relate to the employee who is still on
transition and to those employees who are receiving their severance payments on
a continuous payment basis. Lease payments are being made on a continuous
monthly basis, and of these facilities, the last sublease expires in 2008. The
Company is trying to sublease these facilities. The Company anticipates
disposing of the excess furniture by the end of 2005.

2003 Restructuring Actions

The Company recorded $14.5
million of charges in 2003 for the 2003 restructuring actions including $6.5
million for severance and benefits for 198 regular and temporary personnel
worldwide, or approximately 25% of the Companys worldwide workforce, $3.0
million to exit contractual obligations, $2.6 million to reimburse a strategic
supplier for its restructuring expenses, $1.8 million for lease termination
costs and $0.6 million related to excess furniture.

Of the $14.5 million
recorded in 2003 for the 2003 restructuring actions, $5.0 million was charged to
cost of sales with the remaining $9.5 million being shown as restructuring
expenses as a component of operating expenses. The $5.0 million charged to cost
of sales included $2.6 million to reimburse a strategic supplier for its
restructuring expenses and $2.4 million to exit a third-party Zip disk
manufacturing agreement. This $5.0 million was charged to the Zip Products
segment and the remaining $9.5 million was not allocated to any of the business
segments.

Of the 198 individuals
worldwide whose positions were identified for elimination in the third quarter
of 2003, 42 employees worked on a transition basis into the fourth quarter of
2003, 7 employees worked on a transition basis into the first quarter of 2004, 4
employees worked on a transition basis into the second quarter of 2004 and 3
employees worked on a transition basis into the third quarter of 2004. The total
amount of separation payments or liability for the 198 employees notified during
2003 was $6.7 million.

21

---

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

## (4)
Restructuring Charges (Continued)

During the first quarter of
2004, the Company recorded $0.3 million of restructuring charges related to the
ratable recognition of the severance and benefits costs to be paid to the
employees who remained in transition into 2004. However, during the first
quarter of 2004, the Company also released $0.3 million of estimated
outplacement liabilities as employee usage of outplacement resources was less
than originally estimated. An additional $0.2 million of restructuring charges
related to the ratable recognition of the severance and benefits costs to be
paid to employees who remained in transition into 2004 were recorded during the
second and third quarters of 2004.

Of the $14.7 million net
total 2003 restructuring charges, all but the $0.6 related to excess furniture
will be paid in cash. As of April 3, 2005, the Company has made $13.5million in cumulative cash payments related to the 2003 restructuring
actions, of which $0.2 million was disbursed during the first quarter of 2005.

Remaining restructuring
reserves of $0.5 million are included in the Companys other current
liabilities and $0.2 million are included in the fixed asset reserves as of
April 3, 2005. Utilization of the 2003 restructuring charges during the quarter
ended April 3, 2005 is summarized below:

`Balance          Utilized           Balance
                                                      -----------------
    2003 Restructuring Actions           12/31/04      Cash    Non-Cash     04/03/05
    --------------------------           --------     ------   --------     --------
                                                        (In thousands)

    Severance and benefits (a)            $   2       $    -     $   -        $   2
    Lease termination costs (a)             740         (240)        -          500
    Furniture (b)                           192            -       (37)         155
                                          -----       ------     -----        -----
                                          $ 934       $ (240)    $ (37)       $ 657
                                          =====       ======     =====        =====

    Balance Sheet Breakout:
       Other current liabilities  (a)     $ 742       $ (240)    $   -        $ 502
       Fixed asset reserves (b)             192            -       (37)         155
                                          -----       ------     -----        -----
                                          $ 934       $ (240)    $ (37)       $ 657
                                          =====       ======     =====        =====

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

Lease payments are being
made on a continuous monthly basis, and of these facilities, the last lease
expires at the end of 2006 and the Company is trying to sublease this facility.
The Company anticipates completing the disposal of the furniture by the end of
2005.

2001 Restructuring Actions

During the third quarter of
2001, the Company recorded restructuring charges of $33.3 million. The $33.3
million of restructuring charges recorded 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.

22

---

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

## (4)
Restructuring Charges (Continued)

During the first quarter of
2004, the Company recorded an additional $0.5 million in restructuring charges
for its Ireland facility due to continuing depressed real estate market
conditions in Ireland. The Company was able to sublease this facility in the
fourth quarter of 2004 and incurred an additional $0.2 million in restructuring
charges in the third quarter of 2004 for total additional restructuring charges
of $0.7 million during 2004.

Remaining restructuring
reserves of $1.9 million are included in the Companys other current
liabilities and $0.1 million are included in the fixed asset reserves as of
April 3, 2005. Utilization of the 2001 restructuring reserves during the quarter
ended April 3, 2005 is summarized below:

`Balance          Utilized          Balance
                                                      ------------------
    2001 Restructuring Actions           12/31/04      Cash     Non-Cash    04/03/05
    --------------------------           --------     ------    --------    --------
                                                         (In thousands)

       Lease cancellations (a)           $ 2,205      $ (269)    $   -       $ 1,936
       Leasehold improvements and
          furniture (b)                      168           -       (30)          138
                                         -------      ------     -----       -------
                                         $ 2,373      $ (269)    $ (30)      $ 2,074
                                         =======      ======     =====       =======

    Balance Sheet Breakout:
       Other current liabilities (a)     $ 2,205      $ (269)    $   -       $ 1,936
       Fixed asset reserves (b)              168           -       (30)          138
                                         -------      ------     -----       -------
                                         $ 2,373      $ (269)    $ (30)      $ 2,074
                                         =======      ======     =====       =======

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

As of April 3, 2005, the
remaining leasehold improvements are associated with subleased facilities and
cannot be disposed of until the related subleases expire. The last sublease will
expire in March 2006. Lease payments are being made on a continuous monthly
basis and the Company is still trying to sublease one of the facilities where
the lease does not expire until 2009.

## (5)
Commitments and Contingencies

Litigation

There are no material legal
proceedings to which the Company is a party. The Company is involved in lawsuits
and claims generally incidental to its business.

23

---

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

## (6) Other
Matters

Other Intangible Assets

At April 3, 2005, the Company
had $2.3 million in net intangible assets, all of which are subject to
amortization. The Companys intangible assets include a licensing agreement
and 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. The
annual impairment evaluation was performed in the first quarter of 2005 and none
of the Companys intangible assets were determined to be impaired. During
the quarter ended April 3, 2005, amortization expense was $0.5 million.
Amortization expense for each of the next five fiscal years is anticipated to be
approximately $1.5 million for the remainder of 2005, $0.7 million in 2006, $0.1
million in 2007 and zero thereafter. As of April 3, 2005, the weighted average
useful life of the Companys intangible assets is approximately one and
one-quarter years.

The following table
presents the other intangible assets and associated amortization for all periods
presented:

`April 3,          Dec. 31,
                                                                          2005              2004
                                                                        --------          --------
                                                                              (In thousands)
    Other Intangible Assets:
       Gross value (1)                                                  $ 12,157          $ 11,791
       Accumulated amortization                                           (9,872)           (9,343)
                                                                        --------          --------
          Net intangible assets                                         $  2,285          $  2,448
                                                                        ========          ========

    (1) The intangible asset gross value increased $0.4 million in the quarter ended April 3, 2005 due
        to the consolidation of intellectual property related to the ByteTaxi investment.`

Significant Customers

The following table shows those customers that accounted for more than 10% of the Company's consolidated sales:

`For the Quarter Ended
                                                                        ---------------------------
                                                                        April 3,          March 28,
                                                                          2005              2004
                                                                        --------          ---------
                                                                      (Percent of consolidated sales)

    Ingram Micro, Inc.                                                     25%               18%
    Tech Data Corporation                                                  18%               13%`

Sales to Ingram Micro,  Inc. and Tech Data  Corporation  consisted of product  sales from all of the Company's  business
segments.  No other customer accounted for 10% or more of consolidated sales.

24

---

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

## (6) Other
Matters (Continued)

Forward Exchange Contracts

All forward exchange
contracts entered into by the Company are components of hedging programs and are
entered into for the sole purpose of hedging an existing or expected foreign
currency exposure, not for speculation or trading purposes. At April 3, 2005,
outstanding forward exchange contracts, which all mature in May 2005, were as
follows (rates are quoted as other currency unit per one United States dollar):

`Contracted         Month-End
                                                     Notional           Forward            Forward
                                                      Amount              Rate              Rate
                                                   -----------         ----------         ---------
                                                   (buy/(sell))
    European Currency Unit                         (12,400,000)          0.7758            0.7758
    Swiss Franc                                     (1,700,000)          1.2040            1.2040
    British Pound                                     (600,000)          0.5335            0.5335
    Singapore Dollar                                   500,000           1.6576            1.6576`

At the end of each month,
existing forward exchange contracts are revalued at the month-end forward rate.
The Companys theoretical risk in these transactions is the cost of
replacing, at current market rates, these forward exchange contracts in the
event of default by the counterparty. At April 3, 2005, there was $0.7 million
reflected in current assets and $0.6 million in other current liabilities
related to forward exchange contracts.

ByteTaxi Investment

In January 2005, the
Company acquired a 10% ownership interest in ByteTaxi, a start-up software
development company that had 2004 sales of less than $0.1 million. Under the
agreement, the Company will receive exclusive license rights to certain
products, including FolderShareTM software, developed by ByteTaxi. As
product development milestones are achieved, the Company will increase its
ownership interest in ByteTaxi, up to approximately 31% of the current
outstanding shares of ByteTaxi voting stock. However, ByteTaxi is a small
privately owned software development company and Iomega is currently the primary
beneficiary of ByteTaxis operations, thus the Company is required to
consolidate ByteTaxis operations under FASB Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46).
Iomega will be required to consolidate ByteTaxis operations as long as
Iomega is the primary beneficiary of ByteTaxis operations. The Company has
so far invested $0.2 million and could invest up to a total of $0.9 million as
the development milestones are met. Iomega is not liable for any of
ByteTaxis obligations. Iomega can terminate the agreement at any time and
would only be obligated to fund the completion of the current milestone at the
time notification of termination is made.

25

---

# IOMEGA CORPORATION AND SUBSIDIARIES

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

## Overview

Iomega designs and markets
products that help customers protect, secure, capture and share their valuable
digital information. The Companys reportable segments are based primarily
on the nature of the Companys products and include Zip Products, Consumer
Storage Solutions (formerly Sourced Branded Products), REV Products (which began
shipping in April 2004), Network Storage Systems (NSS) and Other
Products.

Since 1996, the Zip Product
segment has been the largest contributor to the Companys sales and product
profit margin (PPM). As the Zip business has approached the end of
its product life cycle, the Company has been trying to find other profitable
sources of revenue to replace the declining high gross margin Zip business. In
recent years, the Company invested significant efforts and dollars on the
development of two new technologies: REV products and the Digital Capture
Technology (DCT) development program. During 2004, the Company
launched its new REV products. The DCT development program was terminated in the
second half of 2004. The REV Products segment has yet to be profitable at the
product profit margin (PPM) level due primarily to development costs
for next generation REV products, continued significant marketing expenses to
improve market awareness and under-absorbed fixed overhead expenses at the
current sales volumes.

In other efforts to replace
the declining Zip business, the Company has developed and launched a variety of
products, none of which were commercially successful. In addition, the Company
has launched and attempted to expand its Consumer Storage Solutions and NSS
businesses. Sales of the Consumer Storage Solutions business segment now exceed
Zip product sales. However, the Companys Consumer Storage Solutions
segment has not generated significant gross margins and has never been
profitable for an entire year, nor was it profitable during the quarter ended
April 3, 2005. The NSS business has also incurred losses during each year of its
existence and the quarter ended April 3, 2005.

Thus, although the Zip
Product segment remains the Companys only consistently profitable segment,
the Company will not be viable going forward unless it generates significant PPM
from other products. REV products currently represent the Companys most
realistic opportunity to do so. Management expects to continue to invest
significant resources with the goal to increase REV product sales. As currently
structured, it is unlikely that the Company will be able to operate profitably
unless and until REV products generate significant positive PPM. However, the
Company can provide no assurance that the REV business will generate PPM
sufficient to offset the declining Zip PPM.

For the remainder of 2005,
the Companys primary goals are to: (1) significantly grow REV product
sales, (2) continue to grow Consumer Storage Solutions sales, gross margin
percentage and PPM and (3) closely monitor overhead costs and operating expenses
with the key objective to make the overall business profitable in the second
half of 2005. In light of the first quarter 2005 net loss, the Company believes
that this profitability goal poses significant challenges, but the Company will
continue to focus on progress toward that goal. In summary, the Company can
provide no assurance that it will achieve any of these goals. During second
quarter 2005, the Company plans to begin the process of reviewing its product
portfolio, distribution channels and cost structure, with the goal of ensuring
that the Company is building a business model that offers the best balance
between profitable revenue, customer choice and expenses.

26

---

# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Application of
Critical Accounting Policies

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
periods. Areas where significant judgments occur include, but are not limited
to: revenue recognition, price protection and rebate reserves, inventory
valuation reserves, tax valuation allowances and impairment of goodwill and
other intangible assets. 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, 2004.

## Business
Segment Information

The Company has five reportable segments, which are organized into three business categories as follows:

`Business Categories                       Reportable Segments
    -------------------------------------------     -------------------------------

    Consumer Products                               1.  Zip Products
                                                    2.  Consumer Storage Solutions

    Business Products                               3.  REV Products
                                                    4.  Network Storage Systems

    Other Products                                  5.  Other Products`

The Consumer Products
category (formerly included in the Mobile and Desktop Storage Products category)
is comprised of the Zip Products and Consumer Storage Solutions segments
(formerly Sourced Branded Products). The Business Products category (formerly
Professional Storage Products) is comprised of the REV Products and NSS
segments. The Other Products segment consists of license fees and products that
have been discontinued or which are otherwise immaterial. The Other Products
segment also included the research and development on the DCT development
program (formerly included in the New Technologies category) which the Company
cancelled during 2004.

Consumer Products

The Zip Products segment
involves the distribution and sale of Zip drives and disks to retailers,
distributors, resellers and Original Equipment Manufacturers (OEMs)
throughout the world. The Zip Products segment is approaching the end of its
life cycle and is experiencing significant declines in unit sales, revenues and
PPM. However, the Zip Products segment still contributes the substantial
majority of PPM to fund the Companys operations.

The Companys Consumer
Storage Solutions segment involves the worldwide distribution and sale of
various storage devices including: CD-RW drives; DVD rewritable drives;
portable, desktop, network and mini hard disk drives (HDD); Iomega
Mini and Micro Mini USB flash drives and external floppy disk drives. In some
cases, the Company performs final assembly work of purchased components; in
other cases, the Company purchases and resells substantially complete products.

27

---

# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Business
Segment Information (Continued)

Business Products

The REV Products segment
involves the development, distribution and sale of REV products to retailers,
distributors, OEMs and resellers throughout the world.The REV drives are
removable hard disk storage systems that have a native capacity of 35 gigabytes
(GB) (where 1 gigabyte equals 1 billion bytes) and up to 90GB
compressed capacity. REV products began shipping in April 2004.

The NSS segment consists
primarily of the development, distribution and sale of Network Attached Storage
servers in the entry-level and low-end Network Attached Storage market.

Other Products

The Other Products segment
consists of license fees and products that have been discontinued or are
otherwise immaterial, including: Jaz and PocketZip disks, Peerless drive
systems, Iomega software products such as Iomega Automatic Backup software and
other miscellaneous products. Jaz, PocketZip and Peerless drives were
discontinued in 2002, though the Company continues to sell Jaz and PocketZip
disks to support the installed drive base of these products.

The Other Products segment
included the research and development of the DCT development program, a
small-form factor removable flexible magnetic storage device that was expected
to have a capacity of about 1.2 to 1.5GB and for which development was cancelled
in the second half of 2004.

Product Profit Margin

The Company evaluates
product segment performance based on PPM. PPM is defined as sales and other
income related to a segments operations, less both fixed and variable
product costs, research and development expenses, product management expenses,
specific selling and marketing expenses and depreciation and amortization
related to a segments operations. When such costs and expenses exceed
sales and other income, PPM is referred to as a product loss. The accounting
policies of the product segments are the same as those described in Note 1 of
the notes to condensed consolidated financial statements. Intersegment sales,
eliminated in consolidation, are not material. The expenses attributable to
general corporate activity are not allocated to the product segments.
Non-allocated operating expenses include: advanced research and development,
shared sales and corporate marketing expenses and general and administrative
expenses.

## Seasonality

The Companys Consumer
Storage Solutions business is typically strongest during the fourth quarter. The
Companys European sales are typically weakest during the third quarter due
to summer holidays. Given the continued expected decline of the Zip business,
the Company is unable to estimate or forecast any Zip product seasonality in
future quarters with any degree of confidence. There can be no assurance that
any historic sales patterns will continue and, as a result, sales for any prior
quarter are not necessarily indicative of the sales to be expected in any future
quarter.

28

---

# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Results of
Operations

The following table sets
forth certain financial data as a percentage of sales for the quarters ended
April 3, 2005 and March 28, 2004:

`April 3,          March 28,
                                                                          2005              2004
                                                                        --------          ---------

    Sales                                                                100.0%            100.0%
    Cost of sales                                                         77.3              71.1
                                                                         -----             -----
       Gross margin                                                       22.7              28.9
                                                                         -----             -----

    Operating expenses:
       Selling, general and administrative                                25.4              27.6
       Research and development                                            5.6               7.7
       License fees                                                        0.0               0.0
       Restructuring charges                                               0.3               0.6
       Bad debt expense (credit)                                          (0.4)              0.1
                                                                         -----             -----
          Total operating expenses                                        30.9              36.0
                                                                         -----             -----
       Operating loss                                                     (8.2)             (7.1)

    Interest and other income and (expense), net                          (0.6)              0.5
                                                                         -----             -----
       Loss before income taxes                                           (8.8)             (6.6)

    Benefit  for income taxes                                              0.7               0.8
                                                                         -----             -----
       Net loss                                                           (8.1)%            (5.8)%
                                                                         =====             =====`

The Companys net loss
for the quarter ended April 3, 2005 was $5.9 million, or $0.11 per share,
compared with a net loss of $4.9 million, or $0.09 per share, for the quarter
ended March 28, 2004. The net loss for the quarter ended April 3, 2005 included:

- A  nonrecurring  pre-tax  benefit of $1.5  million  from a change in estimated  copyright  royalty  accruals in
         Europe;
- Pre-tax restructuring charges of $0.2 million;
- Tax provisions of $2.5 million from increased valuation allowances and
- Tax benefits of $0.5  million  primarily  from various  foreign tax accrual  releases  (see the "Income  Taxes"
         discussion for more details).

Included in the net loss for the quarter ended March 28, 2004 were:

- Pre-tax restructuring charges of $0.5 million and
- Tax  provisions of $1.6 million from increased  valuation  allowances  (see the "Income  Taxes"  discussion for
         more details).

29

---

# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Sales

As shown in the table
below, total sales for the quarter ended April 3, 2005 declined primarily due to
lower Zip product sales, partially offset by sales of the Companys REV
products and higher sales of Consumer Storage Solutions products.

`April 3,    March 28,
                                                2005        2004       $ Change     % Change
                                              --------    ---------    --------     --------
                                                          (In thousands, except %)
    Sales:
    Consumer Products:
       Zip Products                           $ 20,145    $ 44,220     $(24,075)       (54)%
       Consumer Storage Solutions               36,449      35,127        1,322          4
                                              --------    --------     --------
          Total Consumer Products               56,594      79,347      (22,753)       (29)
    Business Products:
       REV Products                             12,093           -       12,093          -
       Network Storage Systems                   3,785       3,392          393         12
                                              --------    --------     --------
          Total Business Products               15,878       3,392       12,486        368
    Other Products                                 458       1,387         (929)       (67)
                                              --------    --------     --------
          Total sales                         $ 72,930    $ 84,126     $(11,196        (13)%
                                              ========    ========     ========`

Zip product sales  continued its expected  decline for the quarter ended April 3, 2005, both in terms of units and sales
dollars.  Sales of Zip  products  represented  28% of total sales for the quarter  ended April 3, 2005,  compared to 53%
for the quarter ended March 28, 2004.  Original  equipment  manufacturer  ("OEM")  sales,  which were once a significant
channel for Zip product  sales,  are  declining  rapidly and the  availability  of Zip products as  "configure to order"
options has been  discontinued  by leading OEMs. The Company  expects Zip drive and disk sales to continue to decline as
Zip products reach the end of their product life cycle.

Sales of Consumer  Storage  Solutions  products  represented  50% of total  sales for the  quarter  ended April 3, 2005,
compared  to 42% for the  quarter  ended  March 28,  2004.  The  percentage  increase  is  primarily  due to lower total
consolidated  sales  (especially Zip products) and partly from higher Consumer  Storage Solution sales. The $1.3 million
increase in Consumer Storage  Solutions  product sales was comprised of increases of $9.0 million in HDD drives and $0.2
million in floppy external  drives,  partially  offset by a $7.8 million  decrease in Optical and $0.1 million in Iomega
Mini and Micro Mini USB flash drive sales.  The Company  anticipates  continued  future declines in Optical drive sales,
primarily  due to  continued  declining  CD-RW  sales as almost all new PCs include an  internal  optical  drive and the
transition  from CD-RW drives to DVD rewritable  drives.  All Consumer  Storage  Solutions  products  faced  competitive
pricing  pressures  during the quarter ended April 3, 2005 and the Company  anticipates  continued  competitive  pricing
pressures on all of these products.

REV products  began shipping in April 2004.  REV product sales  represented  17% of total sales during the quarter ended
April  3,  2005.  The  Company's  goal is to  develop  REV  products  into a  significant  part of its  overall  product
portfolio.  The Company believes that  significant  factors in the ultimate  commercial  success of REV products will be
the Company's  ability to increase  awareness of REV product  attributes and value and server OEM adoption and sales. No
tier one server OEMs have adopted REV technology and the Company can provide no assurance that any will do so.

30

---

# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

# Sales (Continued)

NSS sales  represented  5% of total sales for the  quarter  ended  April 3, 2005,  compared to 4% for the quarter  ended
March 28, 2004. The percentage  increase is primarily due to lower total  consolidated  (especially  Zip products) sales
and partly from higher NSS sales.  The higher  sales for the quarter  ended April 3, 2005  resulted  primarily  from new
products  launched  in the second  half of 2004.  With the goal to continue  growing  NSS sales,  the  Company  plans to
leverage REV market penetration into NSS sales and focus on additional easy to use software functionality.

Other product sales  decreased  $0.9 million for the quarter ended April 3, 2005 compared to the quarter ended March 28,
2004 due to lower sales of discontinued products.

The Company's sales by region for the quarters ended April 3, 2005 and March 28, 2004 are shown in the table below:

`April 3,    March 28,
                                                2005        2004       $ Change     % Change
                                              --------    --------    ---------     --------
                                                         (In thousands, except %)
    Sales Dollars:
    Americas (includes Latin America)         $ 33,796    $ 44,421    $ (10,625)       (24)%
    Europe                                      34,329      33,232        1,097          3
    Asia Pacific                                 4,805       6,473       (1,668)       (26)
                                              --------    --------    ---------
       Total                                  $ 72,930    $ 84,126    $ (11,196)       (13)%
                                              ========    ========    =========

    Percent of Total Sales:
    Americas (includes Latin America)            46%         52%
    Europe                                       47          40
    Asia Pacific                                  7           8
                                                ---         ---
       Total                                    100%        100%
                                                ===         ===`

The decrease in sales
dollars in the Americas was primarily due to lower Zip product sales, partially
offset by REV product sales and higher Consumer Storage Solutions product sales.
The increase in sales dollars in Europe was primarily from REV product sales and
higher Consumer Storage Solutions partially offset by lower Zip product sales.
The increase in Europes sales can also be attributed primarily to
favorable foreign currency movements. The decrease in sales dollars in the Asia
Pacific region was primarily due to lower Zip and lower Consumer Storage
Solutions product sales, partially offset by REV product sales.

31

---

# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Gross Margin

The Companys gross
margin details for the quarters ended April 3, 2005 and March 28, 2004 are shown
in the table below:

`April 3,    March 28,
                                                2005        2004      $ Change      % Change
                                              --------    ---------   --------      --------
                                                         (In thousands, except %)

    Total Gross Margin (dollars)              $ 16,545    $ 24,350    $ (7,805)       (32)%
    Total Gross Margin (%)                          23%         29%

    Zip Gross Margin %                              54%         46%`

Total gross margin dollars
in the quarter ended April 3, 2005 decreased primarily from a lower proportion
of Zip product sales and lower overall sales. Zip products have a higher gross
margin percentage than the Companys other products. The lower gross margin
percentage was impacted by a lower proportion of Zip product sales and lower
Consumer Storage Solution margin percentages.

The Zip product gross
margin percentage increased for the quarter ended April 3, 2005 primarily from a
combination of lower material spending and fewer pricing, rebate and marketing
programs and a higher mix of Zip disk sales which have higher margins. Total Zip
product gross margin dollars decreased due to lower Zip product sales. The
Company anticipates that future Zip product gross margin percentage will
fluctuate materially from quarter to quarter as Zip product sales decline.

Consumer Storage Solutions
product gross margins declined both in terms of dollars and percentages during
the quarter ended April 3, 2005, primarily from continued intense price
competition which more than offset supply chain improvements implemented by the
Company. The Companys goal is to improve Consumer Storage Solutions
product gross margins during the remainder of 2005 through a continued focus on
variable costs and reviewing its product portfolio and distribution channels.
Future gross margin percentages will depend on a wide variety of factors,
including those discussed in the section entitled, Factors Affecting
Future Operating Results. The Company can provide no assurance that it
will be able to improve gross margins in any subsequent quarter or year.

32

---

# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Product Segment PPM

The Company's  PPM,  product loss and common  expenses  details for the quarters  ended April 3, 2005 and March 28, 2004
are shown in the table below:

`April 3,    March 28,
                                                2005        2004      $ Change      % Change
                                              --------    ---------   --------      --------
                                                         (In thousands, except %)
    PPM (Product Loss):
    Consumer Products:
       Zip Products                           $ 10,062    $  18,167   $ (8,105)       (45)%
       Consumer Storage Solutions                 (881)         473     (1,354)      (286)
                                              --------    ---------   --------
          Total Consumer Products                9,181       18,640     (9,459)        51
    Business Products:
       REV Products                             (1,818)      (5,615)     3,797         68
       Network Storage Systems                    (299)        (811)       512         63
                                              --------    ---------   --------
          Total Business Products               (2,117)      (6,426)     4,309         67
    Other Products                                  93       (1,809)     1,902        105
                                              --------    ---------   --------
          Total PPM                           $  7,157    $  10,405   $ (3,248)        31
                                              ========    =========   ========

    Common Expenses:
       General corporate expenses             $ 12,924     $ 15,839   $ (2,915)       (18)%`

The decrease in Zip PPM resulted  primarily  from lower sales,  partially  offset by higher gross margin  percentages as
described  above.  Zip PPM as a percentage  of Zip product  sales  increased to 50% for the quarter  ended April 3, 2005
from 41% for the quarter ended March 28, 2004  primarily  from the higher gross margin  percentages  as described  above
and from lower  sales and  marketing  expenses.  The Company  anticipates  future  volatility  in Zip PPM as the segment
reaches the end of its life cycle.

Consumer  Storage  Solutions  product loss as a percentage of Consumer  Storage  Solutions  product sales  declined to a
negative 2% for the quarter  ended April 3, 2005 from a positive PPM of 1% of product  sales for the quarter ended March
28,  2004.  The  quarter  ended April 3, 2005  included a $1.5  million  benefit  from a change in  estimated  copyright
royalty  accruals in Europe.  The Consumer  Storage  Solutions  product loss worsened in the quarter ended April 3, 2005
primarily from lower gross margins,  both in terms of dollars and percentage,  as described  above,  partially offset by
lower  sales and  marketing  expenses.  The  Company's  goal is to  operate  its  Consumer  Storage  Solutions  business
profitably.  However,  this goal presents  significant  challenges and the Company can provide no assurance that it will
ever achieve this goal.

The REV product loss as a percentage of REV product  sales was a negative 15% for the quarter  ended April 3, 2005.  The
REV product loss for the quarter ended April 3, 2005 resulted  primarily from development  costs for next generation REV
products,  continued  significant  marketing  expenses to improve  market  awareness and  under-absorbed  fixed overhead
expenses at the current sales  volumes.  There were no REV product  sales for the quarter ended March 28, 2004.  The REV
product loss for the quarter ended March 28, 2004 primarily  reflected research and development  expenses for completing
REV product  development and sales and marketing  expenses in anticipation of the REV product launch at the start of the
second quarter of 2004.

33

---

# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Product Segment PPM (Continued)

The NSS  product  loss as a  percentage  of NSS  product  sales was a negative  8% for the  quarter  ended April 3, 2005
compared  with a negative  24% of product  sales for the quarter  ended March 28,  2004.  The  improved  NSS PPM for the
quarter ended April 3, 2005 resulted primarily from improved gross margins and slightly higher sales.

Other  Products  PPM  improved  for the quarter  ended  April 3, 2005  compared  to the  quarter  ended March 28,  2004,
primarily due to the cancellation of the DCT development program in the second half of 2004.

The decrease in general  corporate  expenses for the quarter ended April 3, 2005 compared to the quarter ended March 28,
2004 reflected  lower costs  resulting  primarily from the  restructuring  plans  implemented in 2004. The quarter ended
March 28, 2004 also included $1.1 million of expenses  relating to the Company's  information  technology system upgrade
which was  implemented  during the third  quarter of 2004 and $0.6 million of higher  expenses  related to the Company's
Management Incentive Plan ("MIP").

Operating Expenses

The table below shows the details of the changes in operating  expenses  for the quarters  ended April 3, 2005 and March
28, 2004.

`April 3,    March 28,
                                                2005        2004      $ Change      % Change
                                              --------    ---------   --------      --------
                                                         (In thousands, except %)
    Operating Expenses:
       Selling, general and administrative    $ 18,502     $ 23,195   $ (4,693)       (20)%
       Research and development                  4,104        6,465     (2,361)       (37)
       License fees                                 (7)           -         (7)         -
       Restructuring charges                       235          546       (311)       (57)
       Bad debt expense (credit)                  (287)         124       (411)      (331)
                                              --------    ---------   --------
          Total Operating Expenses            $ 22,547     $ 30,330   $ (7,783)       (26)%
                                              ========    =========   ========`

Selling, General and Administrative Expenses

The decrease in selling,
general and administrative expenses for the quarter ended April 3, 2005 compared
to the quarter ended March 28, 2004 reflected lower costs resulting primarily
from implementing the 2004 restructuring plans. The quarter ended March 28, 2004
also included $1.1 million of expenses relating to the Companys
information technology system upgrade which was implemented during the third
quarter of 2004 and $0.6 million of higher expenses related to the
Companys MIP.

Selling, general and
administrative expenses also decreased as a percentage of sales to 25% for the
quarter ended April 3, 2005, compared to 28% for the quarter ended March 28,
2004.

Research and Development Expenses

Lower research and
development expenses for the quarter ended April 3, 2005 reflected the
cancellation of the DCT development program in the second half of 2004 and cost
savings from the 2004 restructuring actions. As a result, research and
development expenses decreased as a percentage of sales to 6% for the quarter
ended April 3, 2005, compared to 8% for the quarter ended March 28, 2004.

34

---

# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Operating
Expenses (Continued)

Bad Debt

The bad debt credit for the
quarter ended April 3, 2005 resulted primarily from improved agings as the
percentage of accounts receivable that are current increased during the quarter.

## Restructuring
Charges

The Company currently has restructuring
reserves under three different restructuring actions: the 2004 restructuring
actions, the 2003 restructuring actions and the 2001 restructuring actions. The
following table summarizes the reserve balances related to each of these
restructuring actions:

`April 3,         Dec. 31,
                                                                          2005             2004
                                                                        --------         --------
                                                                              (In thousands)
    Other Current Liabilities:
       2001 restructuring actions                                        $ 1,936          $ 2,205
       2003 restructuring actions                                            502              742
       2004 restructuring actions                                            659            1,491
                                                                         -------          -------
          Total                                                          $ 3,097          $ 4,438
                                                                         =======          =======

    Fixed Asset Reserves:
       2001 restructuring actions                                        $   138          $   168
       2003 restructuring actions                                            155              192
       2004 restructuring actions                                            250              346
                                                                         -------          -------
          Total                                                          $   543          $   706
                                                                         =======          =======`

During the first quarter of
2005, the Company recorded restructuring charges of $0.2 million related to the
ratable recognition of severance and benefits for those employees that were on
transition under the 2004 restructuring actions. During the first quarter of
2004, the Company recorded restructuring charges of $0.5 million related to
lease expenses for facilities vacated in 2001 as part of the restructuring
actions initiated during 2001, which the Company was unable to sublease until
late 2004.

2004 Restructuring Actions

During 2004, the Company
recorded $3.7 million of restructuring charges for the 2004 restructuring
actions. This included $2.6 million of cash charges for severance and benefits
for 108 regular and temporary personnel worldwide (approximately 19% of the
Companys worldwide workforce) who were notified by September 26, 2004 that
their positions were being eliminated, $0.7 million of cash charges for lease
termination costs and $0.4 million of non-cash charges related to excess
furniture. All of the $3.7 million of restructuring charges recorded during 2004
were shown as restructuring expenses as a component of operating expenses. None
of these restructuring charges were allocated to any of the business segments.
The restructuring actions were part of an effort to align the Companys
cost structure with its expected future revenue levels.

35

---

# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Restructuring
Charges (Continued)

In conjunction with the DCT
license agreement signed during the fourth quarter of 2004, the Company notified
an additional 9 employees that their positions were being eliminated. Severance
and benefits charges for these 9 employees were included in the $2.6 million
above. Another 24 employees were hired by the licensee of the DCT technology.
This additional reduction in force of 33 employees brought the total reduction
of employees to 141 positions or approximately 25% of the Companys
worldwide workforce as of September 26, 2004.

As of April 3, 2005, the
Company has made $2.9million in cumulative cash payments related to the
2004 restructuring actions, of which $1.1 million was disbursed during the first
quarter of 2005.

Of the $2.6 million in
severance and benefits charges for the 117 regular and temporary personnel, $1.9
million was for 103 employees located in North America, $0.4 was for 9 employees
located in Asia and $0.3 million was for 5 employees located in Europe. The
worldwide workforce reduction was across all business functions and across all
levels of the Company. Of the 117 individuals worldwide, 14 employees worked on
a transition basis into the first quarter of 2005 with one additional employee
scheduled to work into the second quarter of 2005. However, during the first
quarter of 2005, 3 of these transition employees were rehired full-time which
reduced the headcount reduction to 114 employees. Transition pay is not a part
of the restructuring charges but rather is reported in normal operations as
incurred. Separation pay was based on years of service and job level and
included health insurance continuance payments. Separation payments, for most
employees, is made after the last day of employment and after separation
agreements have been signed by the employees except for those where continuous
payments are legally required and for two other employees. The $2.6 million in
severance and benefits costs recognized during 2004 included the costs
associated with those employees whose positions were eliminated during 2004 and
the ratable recognition of the severance and benefits costs which was paid or
will be paid to thoseemployees who were in transition beyond the minimum
retention period (60 days) as defined by Statement of Financial Accounting
Standards (SFAS) No. 146, Accounting for Costs Associated with
Exit or Disposal Activities (SFAS 146). During the first
quarter of 2005, the Company recorded restructuring charges of $0.2 million
related to the ratable recognition of severance for those employees that were or
are on transition during the first half of 2005 under the 2004 restructuring
actions. The Company anticipates that the total separation payments or liability
for the 114 employees whose positions have been eliminated will be $2.8 million.
The remaining severance and benefits costs related to the one remaining
transition employee is anticipated to be less than $0.1 million and will be
recorded in the second quarter of 2005.

The Company is still
evaluating whether it will exit a facility or a portion of a facility in Asia.
If that occurs, the Company anticipates incurring less than $0.4 million of
restructuring charges in 2005 relating to that facility.

In summary, the Company
anticipates recording less than $0.1 million for severance and benefits and less
than $0.4 million for lease commitments as the 2004 restructuring actions are
fully implemented. These remaining charges are expected to be recorded in 2005.
Once fully implemented, the total charges for the 2004 restructuring actions are
anticipated to be $4.3 million. None of these charges will be allocated to any
of the business product segments. All but the $0.4 million of excess furniture
charges are expected to be paid in cash.

36

---

# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Restructuring
Charges (Continued)

Remaining restructuring
reserves of $0.7 million are included in the Companys other current
liabilities and $0.2 million are included in the fixed asset reserves as of
April 3, 2005. Utilization of and other activity related to the 2004
restructuring reserves during the quarter ended April 3, 2005 are summarized
below:

`Foreign
                                          Balance         Utilized          Addition    Currency    Balance
                                                     ------------------
    2004 Restructuring Actions           12/31/04      Cash    Non-Cash    (Reversal)    Changes    04/03/05
    --------------------------           --------    --------  --------    ----------   --------    --------
                                                                   (In thousands)

    Severance and benefits (a)           $   766     $   (857)   $   -        $ 235       $ (13)      $ 131
    Lease termination costs (a)              725         (197)       -            -           -         528
    Furniture (b)                            346           -       (96)           -           -         250
                                         -------     --------    -----        -----       -----       -----
                                         $ 1,837     $ (1,054)   $ (96)       $ 235       $ (13)      $ 909
                                         =======     ========    =====        =====       =====       =====

    Balance Sheet Breakout:
       Other current liabilities (a)     $ 1,491     $ (1,054)   $   -        $ 235       $ (13)      $ 659
       Fixed asset reserves (b)              346           -       (96)           -           -         250
                                         -------     --------    -----        -----       -----       -----
                                         $ 1,837     $ (1,054)   $ (96)       $ 235       $ (13)      $ 909
                                         =======     ========    =====        =====       =====       =====

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

At April 3, 2005,  the remaining  severance and benefits  relate to the employee who is still on transition and
to those employees who are receiving their severance  payments on a continuous  payment basis.  Lease payments are being
made on a continuous  monthly basis, and of these  facilities,  the last sublease expires in 2008. The Company is trying
to sublease these facilities.  The Company anticipates disposing of the excess furniture by the end of 2005.

2003 Restructuring Actions

The Company  recorded  $14.5 million of charges in 2003 for the 2003  restructuring  actions  including $6.5 million for
severance  and benefits  for 198 regular and  temporary  personnel  worldwide,  or  approximately  25% of the  Company's
worldwide workforce,  $3.0 million to exit contractual  obligations,  $2.6 million to reimburse a strategic supplier for
its restructuring expenses, $1.8 million for lease termination costs and $0.6 million related to excess furniture.

Of the $14.5  million  recorded in 2003 for the 2003  restructuring  actions,  $5.0 million was charged to cost of sales
with the remaining $9.5 million being shown as  restructuring  expenses as a component of operating  expenses.  The $5.0
million  charged to cost of sales  included  $2.6  million to  reimburse  a  strategic  supplier  for its  restructuring
expenses and $2.4  million to exit a  third-party  Zip disk  manufacturing  agreement.  This $5.0 million was charged to
the Zip Products segment and the remaining $9.5 million was not allocated to any of the business segments.

Of the 198  individuals  worldwide  whose  positions were  identified  for  elimination in the third quarter of 2003, 42
employees  worked on a transition  basis into the fourth quarter of 2003, 7 employees  worked on a transition basis into
the first  quarter of 2004,  4 employees  worked on a transition  basis into the second  quarter of 2004 and 3 employees
worked on a transition  basis into the third quarter of 2004.  The total amount of separation  payments or liability for
the 198 employees notified during 2003 was $6.7 million.

37

---

# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Restructuring
Charges (Continued)

During the first quarter of 2004,  the Company  recorded $0.3 million of  restructuring  charges  related to the ratable
recognition  of the  severance and benefits  costs to be paid to the  employees  who remained in  transition  into 2004.
However,  during  the first  quarter  of 2004,  the  Company  also  released  $0.3  million  of  estimated  outplacement
liabilities  as employee  usage of  outplacement  resources  was less than  originally  estimated.  An  additional  $0.2
million of  restructuring  charges related to the ratable  recognition of the severance and benefits costs to be paid to
employees who remained in transition into 2004 were recorded during the second and third quarters of 2004.

Of the $14.7 million net total 2003  restructuring  charges,  all but the $0.6 related to excess  furniture will be paid
in cash.  As of April 3, 2005,  the Company  has made $13.5  million in  cumulative  cash  payments  related to the 2003
restructuring actions, of which $0.2 million was disbursed during the first quarter of 2005.

Remaining restructuring
reserves of $0.5 million are included in the Companys other current
liabilities and $0.2 million are included in the fixed asset reserves as of
April 3, 2005. Utilization of the 2003 restructuring charges during the quarter
ended April 3, 2005 is summarized below:

`Balance          Utilized           Balance
                                                      -----------------
    2003 Restructuring Actions           12/31/04      Cash    Non-Cash     04/03/05
    --------------------------           --------     ------   --------     --------
                                                        (In thousands)

    Severance and benefits (a)            $   2       $    -     $   -        $   2
    Lease termination costs (a)             740         (240)        -          500
    Furniture (b)                           192            -       (37)         155
                                          -----       ------     -----        -----
                                          $ 934       $ (240)    $ (37)       $ 657
                                          =====       ======     =====        =====

    Balance Sheet Breakout:
       Other current liabilities  (a)     $ 742       $ (240)    $   -        $ 502
       Fixed asset reserves (b)             192            -       (37)         155
                                          -----       ------     -----        -----
                                          $ 934       $ (240)    $ (37)       $ 657
                                          =====       ======     =====        =====

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

Lease payments are being
made on a continuous monthly basis, and of these facilities, the last lease
expires at the end of 2006 and the Company is trying to sublease this facility.
The Company anticipates completing the disposal of the furniture by the end of
2005.

2001 Restructuring Actions

During the third quarter of
2001, the Company recorded restructuring charges of $33.3 million. The $33.3
million of restructuring charges recorded 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 first quarter of
2004, the Company recorded an additional $0.5 million in restructuring charges
for its Ireland facility due to continuing depressed real estate market
conditions in Ireland. The Company was able to sublease this facility in the
fourth quarter of 2004 and incurred an additional $0.2 million in restructuring
charges in the third quarter of 2004 for total additional restructuring charges
of $0.7 million during 2004.

38

---

# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Restructuring
Charges (Continued)

Remaining restructuring
reserves of $1.9 million are included in the Companys other current
liabilities and $0.1 million are included in the fixed asset reserves as of
April 3, 2005. Utilization of the 2001 restructuring reserves during the quarter
ended April 3, 2005 is summarized below:

`Balance          Utilized          Balance
                                                      ------------------
    2001 Restructuring Actions           12/31/04      Cash     Non-Cash    04/03/05
    --------------------------           --------     ------    --------    --------
                                                         (In thousands)

       Lease cancellations (a)           $ 2,205      $ (269)    $   -       $ 1,936
       Leasehold improvements and
          furniture (b)                      168           -       (30)          138
                                         -------      ------     -----       -------
                                         $ 2,373      $ (269)    $ (30)      $ 2,074
                                         =======      ======     =====       =======

    Balance Sheet Breakout:
       Other current liabilities (a)     $ 2,205      $ (269)    $   -       $ 1,936
       Fixed asset reserves (b)              168           -       (30)          138
                                         -------      ------     -----       -------
                                         $ 2,373      $ (269)    $ (30)      $ 2,074
                                         =======      ======     =====       =======

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

As of April 3, 2005, the
remaining leasehold improvements are associated with subleased facilities and
cannot be disposed of until the related subleases expire. The last sublease will
expire in March 2006. Lease payments are being made on a continuous monthly
basis and the Company is still trying to sublease one of the facilities where
the lease does not expire until 2009.

## Interest
Expense and Other Income and (Expense), Net

Interest expense and other
income and (expense), net was a net expense of $0.9 million for the quarter
ended April 3, 2005 compared to a net other income of $0.1 million for the
quarter ended March 28, 2004. The increased expense resulted primarily from
foreign currency losses for the quarter ended April 3, 2005.

39

---

# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Income Taxes

For the quarter ended April
3, 2005, the Company recorded an income tax benefit of $0.5 million on a pre-tax
loss of $6.5 million. The net tax benefit of $0.5 million was comprised of $0.4
million of various foreign tax accrual releases due to a change in the estimate
and the likely outcome of selected tax issues and $0.1 million of various
adjustments related to deferred taxes. The statutory tax benefit of $2.5
million, resulting from operating losses, was entirely offset by an increase in
the valuation allowance.

For the quarter ended March
28, 2004, the Company recorded an income tax benefit of $0.7 million on a
pre-tax loss of $5.6 million. The income tax benefit for the first quarter was
reduced by a $1.6 million increase in the valuation allowance for net deferred
tax assets as a result of a decrease in the available foreign cash in the first
quarter of 2004 which could be repatriated to utilize net operating loss
carryforwards (NOLs) and other deferred tax assets.

The realizability of the
deferred tax assets is evaluated quarterly in accordance with SFAS 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.

The following table summarizes the Company's U.S. and foreign loss and tax credit carryforwards:

`April 3,
                                                                          2005         Expiration Dates
                                                                      -----------      ----------------
                                                                     (In thousands)
    U.S. and Foreign Loss Deferred Tax Assets:
       State NOLs (1)                                                   $ 10,340       2005 to 2024
       Foreign NOLs                                                        8,137       2010 to indefinite
       Federal NOLs                                                          936       2021 to 2023
       Capital losses                                                        430       2006
                                                                        --------
                                                                        $ 19,843
                                                                        ========

    Tax Credit Deferred Tax Assets:
       Foreign tax credits                                              $ 27,589       2009 to indefinite
       Research credits                                                   10,305       2007 to 2025
       Alternative minimum tax credits                                     1,601       Indefinite
                                                                        --------
                                                                        $ 39,495
                                                                        ========

 (1) NOLs = Net Operating Loss Carryforwards`

At April 3, 2005,  the  Company had $10.3  million of deferred  tax assets  related to state NOLs,  which  reflect a tax
benefit of  approximately  $258 million in future state tax  deductions.  At April 3, 2005, the Company had $0.9 million
of deferred tax assets related to U.S.  federal NOLs,  which reflect a tax benefit of approximately $3 million in future
U.S.  federal tax  deductions.  The difference in the amount of future  federal and state tax deductions  related to the
NOLs is primarily  attributable  to two factors:  1) the difference  between federal and state NOL carryback rules which
have allowed the use of federal NOLs in instances  where state NOLs could not be utilized and 2) the  difference  in the
taxable portion for federal and state purposes of dividends received from the Company's foreign subsidiary.

40

---

# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Income Taxes (Continued)

The Company has recorded foreign tax contingencies  related to items in various countries,  which are included in "other
accrued  liabilities"  and in "deferred  income  taxes" in the  condensed  consolidated  balance  sheets.  These reserve
balances will be adjusted to the extent that these items are settled for amounts  different  than the amounts  recorded.
The amount  included in "other  accrued  liabilities"  at April 3, 2005  related to such foreign tax  contingencies  was
$13.6  million.  During the first quarter of 2005,  the Company  reversed a tax  contingency of $0.2 million to "benefit
for income taxes" in the condensed  consolidated  statement of operations,  due to changes in estimates about the future
requirement of these reserves.

Net deferred tax  liabilities  for the Company at April 3, 2005 were $12.8  million.  As of April 3, 2005,  deferred tax
liabilities  for  estimated  U.S.  federal,  state and foreign  taxes of $43.4  million have been accrued on  unremitted
foreign  earnings  of $95.3  million.  U.S.  taxes have not been  provided  for  unremitted  foreign  earnings  of $11.1
million, as these earnings are considered to be permanently invested in non-U.S. operations.

On October  22,  2004,  the  American  Jobs  Creation  Act of 2004  ("AJCA")  was signed into law.  The AJCA  includes a
deduction of 85% of certain  foreign  earnings that are  repatriated,  as defined in the AJCA.  The Company may elect to
apply this  provision  to  qualifying  earnings  repatriations  in 2005.  The  Company is  evaluating  the  repatriation
provision,  but does not expect to be able to complete this evaluation  until after Congress or the Treasury  Department
provides  additional  clarifying  language on key  elements of the  provision.  The range of possible  amounts  that the
Company is considering  for  repatriation  under this provision is between zero and $90 million.  The related  potential
range of income taxes that would be incurred upon  repatriation  of the foreign  earnings under the AJCA is between zero
and $4 million.

## Liquidity and
Capital Resources

Detail of the Company's total cash, cash equivalents and temporary investments are shown in the table below:

`April 3,     Dec. 31,
                                                     2005         2004      $ Change     % Change
                                                   --------     --------    --------     --------
                                                               (In thousands, except %)

    Total cash and cash equivalents for the
       U.S. entity (1)                             $  6,231     $ 14,307    $ (8,076)      (56)%
    Total cash, cash equivalents and temporary
       investments for non-U.S. entities (2)         97,968      106,502      (8,534)       (8)
                                                   --------     --------    --------
    Total consolidated cash, cash equivalents
       and temporary investments                   $104,199     $120,809    $(16,610)      (14)
                                                   ========     ========    ========

    Working capital                                $ 92,152     $ 98,236    $ (6,084)       (6)%
                                                   ========     ========    ========


    (1)  Of the $6.2 million in total cash and cash  equivalents  for the U.S.  entity at April 3, 2005,  less than $0.1
         million  is from  ByteTaxi,  which the  Company  does not have  access to. The  Company  began  consolidating
         ByteTaxi in the quarter ended April 3, 2005.

    (2)  Of the $98.0 million in total cash, cash  equivalents and temporary  investments  for non-U.S.  entities,  $0.3
         million was restricted at April 3, 2005.  None of the Company's  total cash,  cash  equivalents and temporary
         investments were restricted at December 31, 2004.`

41

---

# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Liquidity and
Capital Resources (Continued)

The repatriation of any of
the $98.0 million of foreign cash to the U.S. will be taxable income in the U.S.
for federal and state tax purposes at a rate of approximately 37%, unless the
cash is repatriated at a lower rate under the AJCA. In any event, the amount of
cash required for U.S. federal and state taxes will be less than the
Companys effective tax rate due to the availability of existing federal
and state NOLs and tax credit carryforwards.

The decrease in working
capital resulted primarily from lower cash and cash equivalents, lower trade
receivables, lower current deferred income taxes and lower other current assets,
partially offset by higher temporary investments, higher inventories, lower
other current liabilities and lower accounts payable.

For the quarter ended April
3, 2005, cash used by operations amounted to $15.7 million. The primary uses of
cash from operations for the quarter ended April 3, 2005 were from the $6.0
million of operating losses; $3.3 million for higher inventories, primarily for
new HDD products; $1.6 million for restructuring disbursements; $1.5 million for
the payment of annual and other management bonus plans and changes in current
assets and current liabilities as described below.

Trade receivables decreased
in the quarter ended April 3, 2005 primarily from lower sales and timing of the
sales within the respective quarter. Days sales outstanding (DSO) in
receivables increased from 31 days at December 31, 2004 to 36 days at April 3,
2005 primarily due to the timing of sales. The percentage of accounts receivable
that are current increased during the quarter. DSO is calculated by multiplying
the quarter end trade receivables balance by 90 and dividing that amount by the
sales for the quarter. Inventories increased during the quarter ended April 3,
2005 primarily from the build up for a new line of HDD drives and to support
higher HDD sales. Current deferred income taxes decreased primarily due to lower
accrued expense reserves. Other current liabilities decreased, primarily from
(1) lower margin on deferred sales as the estimated amount of excess channel
inventory decreased, (2) lower accrued payroll, vacation and bonus accruals due
to the payment of annual and other management bonus plans in January 2005 that
were accrued at December 31, 2004 and from the timing of the payroll cycle, (3)
lower accrued royalties primarily from a $1.5 million nonrecurring benefit from
a change in estimated accrued copyright royalties in Europe and (4) accrued
restructuring charges decreased due to a net utilization of the accruals (see
the section above entitled Restructuring Charges for more detail on
the accrual utilization). Accounts payable decreased due to lower purchases
reflecting the lower sales volumes and operating costs.

It is the Companys
goal to reverse the negative cash flows from operations through further
improving REV product sales and margins, improving the financial results of the
Consumer Storage Solutions business, profitably growing the NSS business and
managing the Zip Products business for cash flow. However, the Company can give
no assurance that it will be successful in achieving any of these goals.

During the quarter ended
April 3, 2005, the Company did not repurchase any shares of the Companys
Common Stock. As of April 3, 2005, approximately $122.3 million remained
available for future repurchases under the $150 million stock repurchase plan
authorized by the Companys Board of Directors on September 8, 2000. The
repurchase plan does not have a fixed termination date.

The Company believes that
its balance of total unrestricted cash, cash equivalents and temporary
investments will be sufficient to fund anticipated working capital requirements,
funding of restructuring actions, capital expenditures and cash required for
other activities for at least one year. However, cash flow from future
operations, investing activities and the precise amount and timing of the
Companys future financing needs cannot be determined. Future cash flow
will depend on a number of factors, including those set forth in the section
labeled Factors Affecting Future Operating Results. Should the
Company be unable to meet its cash needs from its current balance of total
unrestricted cash, cash equivalents and temporary investments and future cash
flows from operations, the Company would most likely incur additional
restructuring charges to adjust the Companys expenditures to a level that
its cash flows could support and/or seek financing from other sources.

42

---

# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Liquidity and
Capital Resources (Continued)

The Companys current
balance of total unrestricted cash, cash equivalents and temporary investments
is its sole source of liquidity. Given the Companys history of sales
declines and losses, there is no assurance that, if needed, the Company would be
able to obtain financing from external sources or obtain a competitive interest
rate.

## Other Matters

Recent Accounting Pronouncements

In December 2004, the
Financial Accounting Standards Board (FASB) issued SFAS No. 123r,
Share-Based Payment (SFAS 123r). SFAS 123r provides
accounting guidance for stock-based payments to employees. SFAS 123r revises
SFAS 123 by eliminating the choice of using the intrinsic
recognition and measurement provisions of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees and requiring all
companies to use the fair value method of measuring stock compensation expense.
SFAS 123r clarifies and expands SFAS 123s guidance in several areas,
including measuring fair value, classifying an award as equity or a liability,
attributing compensation cost to reporting periods as well as adding several new
disclosure requirements. SFAS 123r also changes the accounting for the tax
effects of options, including the presentation of the tax effects on the
condensed consolidated statements of cash flows. On April 14, 2005, the SEC
announced that it had delayed the implementation date for calendar year-end
companies to January 1, 2006. As discussed above, the Company is currently
accounting for all of its stock-based compensation under the fair value method
as outlined in SFAS 123 and will adopt SFAS 123r beginning in the first quarter
of 2006. The Company has not yet evaluated the potential impacts of SFAS 123r.

43

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# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Factors
Affecting Future Operating Results

Demand for the Company's Products and Operating Efficiencies

The Companys future
operating results will depend upon its ability to generate sufficient market
demand and presence for its products to allow it to operate profitably in an
industry characterized by intense competition, rapid technological advances and
low margins. The Companys ability to accomplish this will depend on a
number of factors, including:

- Worldwide market conditions in general and demand for digital storage products in particular;
- The  Company's  ability to replace  rapidly  declining  Zip revenues and profits with revenues and profits from
         other products, particularly the Company's REV products;
- The  Company's  ability  to  generate  significant  sales and PPM from its REV  products,  which  will  require
         successful marketing and may require considerable OEM adoption of those products;
- The  Company's  ability to improve its Consumer  Storage  Solutions  business  gross margin  percentage  and to
         operate this business unit profitably;
- Price,  performance,  quality  and  other  characteristics  of the  Company's  products  and of  competing  and
         substitute products in an extraordinarily competitive industry;
- Success of the Company in meeting targeted availability dates for new and enhanced products;
- The  Company's  ability to  develop  and  commercialize  new  intellectual  property  and to  protect  existing
         intellectual property;
- The Company's ability to provide and maintain customer service and satisfaction;
- The Company's ability to profitably and efficiently manage its supplies of products and key components;
- The Company's ability to maintain  profitable  relationships with  distributors,  retailers and other resellers
         of the Company's products;
- The Company's  ability to maintain an appropriate cost structure and to minimize  unforeseen and  extraordinary
         expenses;
- The Company's ability to attract and retain competent, motivated employees;
- 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;
- The Company's ability to comply with applicable laws,  regulations,  ordinances and other legal requirements in
         the numerous countries in which it does business and
- The Company's  ability to  successfully  manage  litigation,  including  enforcing its rights,  protecting  its
         interests and defending itself from claims made against it.

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

44

---

# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Factors
Affecting Future Operating Results (Continued)

Zip Drives and Disks

Zip products have provided
the Companys only meaningful source of PPM for the past three years and
have accounted for the vast majority of the Companys sales and PPM since
1997. Zip product sales have declined consistently and significantly on a
year-over-year basis (see the Zip product discussion in the section above
entitled, Sales). These declines are irreversible; they will
continue and likely accelerate, through the end of the Zip product lifecycle,
due to the obsolescence of Zip technology, declining retail and OEM demand for
Zip products and the emergence of alternate means for storing, sharing and
transporting large data files. Consequently, the Company will not be viable
unless it generates significant PPM from products other than Zip products. The
Company has been unable to do this for several years and can provide no
assurance that it will be able to do so in the future.

The Company is attempting
to manage the Zip business so as to maximize cash flow and profits for as long
as possible, in order to allow the Company to develop additional revenue
streams. However, the Company continues to lose shelf space for Zip products
with its key resellers and retailers because of reduced volumes. OEM sales,
which were once a significant channel for Zip sales, are declining rapidly and
the leading OEMs no longer offer Zip products as configure to order
options. With declining volumes, Zip component suppliers are winding down
production at increasing rates, forcing the Company to make last-time purchases
of key components. All of these challenges will continue for the remainder of
the Zip product life cycle.

As Zip product segment
sales and profits continue to decline, the risk increases that the $11.7 million
of goodwill associated with the Zip product segment will become impaired and
that impairment charges will become necessary. The Company performed the
impairment test required under SFAS 142 in the first quarter of 2005 and has
determined that the goodwill was not yet impaired. However, as Zip sales and
profits continue to decline, the Company anticipates that the Zip goodwill may
start to become impaired in late 2005 or early 2006.

In light of the above
factors, the Company can offer no assurance that it will be able to maintain
profitable operations on its Zip business in any subsequent quarter or year.

45

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# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Factors
Affecting Future Operating Results (Continued)

REV Products

In April 2004, the Company
began shipping the first products in its REV product line. In the current
environment, the Company believes that the REV product line represents the most
realistic opportunity to develop a significant PPM stream which could at least
partially offset the rapidly declining Zip PPM. Nevertheless, the Companys
introduction of REV products entails numerous risks, including risks relating to
factors such as the following:

- Inability to create product awareness or lack of market acceptance;
- Failure to achieve Company REV product sales and PPM goals;
- Failure to maintain acceptable arrangements with product suppliers;
- Failure to achieve or maintain an appropriate cost structure for this business segment;
- Failure to achieve significant OEM adoption of the products;
- Unforeseen manufacturing, technical or supplier delays or issues, quality issues or component supply issues;
- Intense competition from competing technologies;
- Significant sales and marketing expenses which could cause on-going product losses and
- Risks that third parties may assert intellectual property claims against REV products.

It is unlikely that the
Company as currently structured will be able to operate profitably unless and
until REV products generate significant revenue and positive PPM. Although the
Company has qualified REV internal drives with smaller OEMs, the Company
believes that the ultimate commercial success of REV products is dependent upon
the Companys ability to increase awareness of REV product attributes and
value and tier one server OEM adoption and acceptance. This has not occurred,
and the Company can offer no assurance that it will occur, that the Company will
be able to successfully resolve any of the preceding challenges, problems or
risks, or that the Company will be able to generate significant PPM from its REV
business.

Consumer Storage Solutions

The Companys Consumer
Storage Solutions segment is comprised of optical (CD-RW and DVD rewritable)
drives, external hard drives, Iomega Mini and Micro Mini USB flash drives and
external floppy drives. The Company is maintaining a presence in the various
Consumer Storage Solutions markets in order to achieve its overall objective to
be viewed as a full-line supplier of digital mobile and desktop storage products
for the Companys retail, catalog and online customers. Moreover, the
Consumer Storage Solutions segment provides a significant percentage of the
Companys revenues and absorbs a material percentage of the Companys
operating expenses. However, unlike its Zip business, the Companys
Consumer Storage Solutions business has never provided a significant source of
PPM. There are a number of material differences between the Consumer Storage
Solutions and its Zip and REV businesses, including the following: a) in most
cases, the Companys Consumer Storage Solutions products are functionally
identical to numerous other products available in the marketplace; b) the
Company owns very little significant intellectual property relating to its
Consumer Storage Solutions; c) there is intense price competition between
different manufacturers and providers of Consumer Storage Solutions products; d)
there is a need to continually requalify new drives, products and suppliers as
new products or capacities are introduced and e) in the case of CD-RW, DVD
rewritable and external floppy disk drives, these drives use very low-cost,
non-proprietary discs/disks available from many sources.

46

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# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Factors
Affecting Future Operating Results (Continued)

The overall Consumer
Storage Solutions Products business is characterized by low (and frequently
negative) gross margins, frequent end user price reductions, the frequent
introduction of new products, performance upgrades for existing products,
periods of under- and over-supply of products or key components, and intense
competition from both brand name and generic, low-cost competitors. In order to
successfully compete, the Company must accurately forecast demand and closely
monitor its inventory levels, product transitions and other marketing expenses
among other items. The Company must also secure quality products, meet
aggressive product price and performance targets, create market demand for its
particular brand of products and hold sufficient, but not excess, inventory.
Finally, the Company must maintain shelf space with retailers who carry the
Companys products. Historically, the Company has failed to accomplish
these objectives. Since the Company entered the optical market in 1999 and began
sourcing products from other third-party suppliers, the Company has reported
product losses on its Optical and the Consumer Storage Solutions business as a
whole every year through 2004.

There are other risks
associated with shipping Consumer Storage Solutions products. Such products may
infringe another partys protected intellectual property, may lack adequate
quality or may otherwise expose the Company to liabilities which could exceed
the profits or even the revenues that the Company would recognize from selling
such products. The Company has implemented a regional assembly process by which
certain Consumer Storage Solutions products undergo final assembly in various
worldwide locations. This process is intended to increase efficiency by allowing
the Company greater flexibility to respond to demand for products while reducing
inventory requirements. However, the Company has yet to fully realize the
benefits of the regional assembly process and other supply chain improvement
projects. There can be no assurance that the regional assembly strategy will
achieve these objectives. In summary, the Company can provide no assurance that
it will be able to successfully manage any of the risks set forth above or
achieve sustainable profitability on these products.

Network Storage Systems

The Network Attached
Storage server market is dominated by large computer providers (including Dell
and Hewlett-Packard) with resources far in excess of the Companys, is
highly price competitive, primarily relies upon VARs to resell the products and
requires core competencies in server, software, systems integration and
networking technologies. The Company focuses on the entry-level and low-end
Network Attached Storage markets, where it attempts to leverage its small- to
medium-sized business customer base and channel customers, including existing
VARs already focused on these customers. However, the Company has not yet
successfully developed, nor can the Company provide any assurance that it will
successfully develop, the necessary core competencies to successfully compete in
this market segment and achieve profitability.

47

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# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Factors
Affecting Future Operating Results (Continued)

Development and Introduction of New Products and New Revenue Streams

In light of the rapid
technological advances and competitive nature of the data storage industry, the
Company believes that it must continually either develop or acquire the right to
profitably sell new products in order to remain viable. The Companys
efforts in this regard have frequently been unsuccessful. During 1999, 2000 and
2001, the Company invested significant resources in developing and launching new
products, including Peerless, PocketZip, HipZip, FotoShow and Microdrive
products. The Company was unable to sell any of these products profitably and no
longer markets any of these products. In 2002, the Company introduced additional
products including desktop and portable HDD drives and Iomega Mini USB flash
drives as well as Network Attached Storage servers. In 2003, the Company
introduced rewritable DVD drives and external floppy disk drives. In 2004, the
Company introduced REV, Network HDD and Mini HDD products. With the exception of
the external floppy disk drive, the Company has not yet been able to maintain
profitable operations on any of these products.

Over the past three years,
the Company spent significant resources developing two new high capacity
removable storage devices, referred to as REV products (discussed above) and DCT
technology. The Company launched its REV products, but never launched any DCT
products. The Company is currently spending significant resources attempting to
develop technologies and new products, including next-generation REV products.
The Company may spend additional resources attempting to acquire the rights to
new technologies, to fund development of such technologies, or to otherwise
differentiate existing products. The Company can provide no assurance that it
will succeed in any of these endeavors or that any of these expenditures will
result in products or technology which the Company can profitably sell or
license.

Internal Control Reporting Compliance Efforts

Under Section 404 of the
Sarbanes-Oxley Act of 2002, the Company is required to include in each annual
report a report on internal control over financial reporting.

For the year ended December
31, 2004, the Company reported a material weakness in internal control related
to the internal control surrounding the Companys distribution and
logistics service provider. The Company will continue to report this material
weakness in subsequent quarterly and annual reports until such time as the
service provider develops sufficient internal control or until such time as the
Company develops sufficient compensating controls. At the end of the first
quarter of 2005, neither the Company nor the service provider was able to fully
remediate this internal control weakness.

Further, the Company is at
risk that any future failure of its own internal control or the internal control
at any of its outsourcing partners could result in additional reported material
weaknesses. The Company tries to reduce this risk through the use of
compensating or redundant controls at the Company. The Company also requires a
written, audited report from its key outsourced service providers (this report
being known as a SAS 70 Report) on their internal controls. The
Company can provide no assurance that it will be successful in these efforts to
avoid reporting future material weakness of internal control. Any such reported
material weakness could have a material impact on the Companys financial
statements or have other adverse consequences.

48

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# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Factors
Affecting Future Operating Results (Continued)

General Economic Conditions

The Company is subject to
risks associated with general economic conditions and consumer confidence. Any
disruption in consumer confidence or general economic conditions including those
caused by acts of war, terrorism or other factors could affect the
Companys operating results.

Collection Risks

Although the Company uses
commercially reasonable steps to manage the credit granted to its customers,
certain trade receivable balances from one or more of its customers may become
uncollectible. This could adversely affect the Companys financial results.
The Company may be required to increase its allowance for doubtful accounts in
the future, which also could have an adverse effect upon the Company.

Company Operations

The Company has experienced
and may in the future experience significant fluctuations in its quarterly
operating results. Moreover, because the Companys expense levels
(including budgeted selling, general and administrative and research and
development expenses) are based, in part, on expectations of future sales
levels, a shortfall in expected sales could result in a disproportionate adverse
effect on the Companys net income and cash flow. In addition, in light of
the Companys declining revenues and recent operating losses, it is
becoming increasingly difficult for the Company to negotiate or maintain
favorable pricing, supply, business or credit terms with its vendors, suppliers
and service providers; in some cases existing vendors, suppliers and service
providers have begun imposing more stringent terms or even eliminating credit
altogether. The Company anticipates continued challenges in this area until and
unless the Company is able to maintain consistently profitable operations. The
Company can offer no assurance that it will ever do so.

Inventory Management

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

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

Customers may increase
orders during times of shortages, cancel orders if the channel is filled with
currently available products or delay orders in anticipation of new products.
Excess inventories could force the Company to reduce prices, write down such
inventory or take other actions which in turn could adversely affect the
Companys results of operations.

49

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# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Factors
Affecting Future Operating Results (Continued)

Product Procurement

The Company has fully
outsourced all manufacturing and has no direct control over the manufacturing
processes of any of its products. Consequently, the Companys ability to
quickly increase or decrease production rates is limited. In addition, the
Companys lack of control over its manufacturing processes may increase
quality or reliability risks. The Company may incur increased product or
operational costs in the future.

Zip and REV products are
each manufactured by single manufacturers, which creates certain risks for the
Company, including risks of disruption in the supply of Zip and REV products in
the event of labor, quality or other problems at the Zip or REV product
manufacturers. In addition, product manufacturing costs may increase if the
Company fails to achieve anticipated volumes. There can be no assurance that the
Company will be able to successfully manage these risks.

Distribution and Logistics

The Company has outsourced
its distribution and logistics centers. Consequently, the Company is reliant
upon the computer systems, business processes, and internal controls of its
outsourcing partners and logistics services providers. The Company faces risks
that these systems may have communication, compatibility, control or reliability
problems. In addition, the Company faces risks of operational interruptions,
missed or delayed shipments and inventory management risks. The Company faces
risks of additional disruption in light of the relocation of distribution
facilities in the first quarter of 2005. Since the first quarter 2004 transition
to the current distribution and logistics service providers, the Company has
experienced operational disruptions and has reported a material weakness in
internal control over financial reporting due to some of these factors. The
Company hopes to realize cost savings and operational efficiencies as a result
of outsourcing distribution and logistics services, but can provide no assurance
that it will do so.

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

Reporting of Channel Inventory and Product Sales by Channel Partners

The Company defers
recognition of sales on estimated excess inventory in the distribution, retail
and catalog channels. For this purpose, excess inventory is the amount of
inventory that exceeds the channels four-week requirements as estimated by
management. In order to make this estimation, the Company relies on its global
channel partners weekly reporting of channel inventory and product sales
by SKU. Errors in reports received from channel partners could lead to
inaccurate estimates of the excess channel inventory. The Company has processes
and systems checks in place to help reasonably ensure the accuracy of the
reports and believes these reports to be correct in all material respects.
However, there can be no assurance that the third-party data, as reported, will
always be correct and reliable.

50

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# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Factors
Affecting Future Operating Results (Continued)

Obsolescence Risks

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

Component Supplies

Although the Company has
fully outsourced its manufacturing, the Company has retained responsibility for
the supply of certain key components. The Company has experienced difficulty in
the past, and may experience difficulty in the future, in obtaining a sufficient
supply of key components on a timely and cost effective basis. Many components
incorporated or used in the manufacture of the Companys products are
currently available only from single source suppliers or from a limited number
of suppliers and are purchased by the Company without guaranteed supply
arrangements. As Zip product volumes have declined, multiple suppliers have
imposed component price increases and the Company has incurred end of life
material charges. This increases the overall cost of the Zip products, and the
Company expects this trend to continue as long as it continues to manufacture
Zip products. Should REV product volumes fail to ramp significantly, the Company
may experience similar component cost increases and other component availability
challenges. There can be no assurance that the Company will be able to obtain a
sufficient supply of components on a timely and cost effective basis.

The Companys
inability to obtain sufficient components and equipment or to obtain or develop
alternative sources of supply for any product could have a number of adverse
consequences, such as the following:

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

Any or all of these
problems could in turn result in the loss of customers, provide an opportunity
for competing products to achieve market acceptance and otherwise adversely
affect the Companys business and financial results.

The purchase orders under
which the Company buys many of its components and sourced products generally
extend one to three quarters in the future. The quantities on the purchase
orders are based on forecasted future sales requirements. It is difficult to
estimate future product demand for new products or products with declining
sales. Such estimates may result in excess purchase commitments, where the
Company makes commitments for purchases that the Company does not ultimately
utilize. The Company has recorded significant charges in the past relating to
excess purchase commitments and inventory reserves. The Company may be required
to take similar charges attributable to forecasting inaccuracies in the future.

51

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# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Factors
Affecting Future Operating Results (Continued)

Intellectual Property Risks

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

- An injunction against current or future product shipments;
- A  requirement  that the Company pay  royalties to a third party either for past product  shipments or in order
         to continue to market and distribute current or future products;
- A  requirement  that the Company  devote  unplanned  resources to developing  modifications  to its products or
         marketing programs or
- A requirement  that the Company  indemnify third parties who have  distributed the infringing  product with the
         Company's permission.

The Company routinely
reviews and responds to claims from third parties for patent royalties, both on
products designed or sold by the Company and products designed and supplied to
the Company by third parties. Resolution of patent infringement demand letters
and lawsuits can be very costly, with legal fees and costs running into the
millions of dollars.

The Company attempts to
protect its intellectual property rights through a variety of means, including
seeking and obtaining patents, trademarks and copyrights, and through license,
nondisclosure and other agreements. The Companys failure to properly
protect its intellectual property rights could have adverse consequences.
Although the Company has, in general, been successful in its efforts to protect
its intellectual property rights, there is no assurance that it will be able to
do so in the future.

Legal Risks

The Company has entered
into multiple agreements, including license, service, supply, resale,
distribution, development and other agreements in multiple jurisdictions
throughout the world. The Company is also subject to an array of regulatory and
compliance requirements. In addition, the Company employs several hundred
individuals throughout the world. Although the Company attempts to fulfill all
of its obligations, enforce all of its rights, and comply with all applicable
laws and regulations under these agreements and relationships, there is no
assurance that it will be able to do so. The Company has been sued and may be
sued under numerous legal theories, including breach of contract, tort, products
liability, intellectual property infringement and other theories. Such
litigation, regardless of outcome, may have an adverse effect upon the
Companys profitability or public perception.

Restructuring and Other Cost Reduction Activities

During the third quarter of
2004, the Company restructured its operations in an attempt to align its cost
structure with the Companys future business direction and expected revenue
streams. In light of the first quarter 2005 net loss, during second quarter
2005, the Company plans to begin the process of reviewing its product portfolio,
distribution channels and cost structure, with the goal of ensuring that the
Company is building a business model that offers the best balance between
profitable revenue, customer choice and expenses. There can be no assurance that
any review will bring the Company back to profitability, and further cost
cutting and restructuring activities could lead to material charges, legal
liabilities and other claims associated with such actions.

52

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# IOMEGA CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

## Factors
Affecting Future Operating Results (Continued)

Retention of Key Personnel

The Companys
continued success will depend, in part, upon its ability to attract and retain
highly skilled and experienced personnel and to maintain continuity and
stability within the Companys senior management team. There is no
assurance that the Company will be able to do so. Some skilled and experienced
employees voluntarily resigned from the Company during 2004 and there is a risk
of additional resignations by such employees, particularly in light of recent
restructuring activities, the Companys recent financial performance,
increased workloads resulting from the restructuring and recent improvements in
the U.S. economy.

Other Risk Factors

Significant portions of the
Companys sales are generated in Europe and Asia. The Company invoices the
majority of its European customers in Euros and invoices its remaining customers
in U.S. dollars. Fluctuations in the value of foreign currencies relative to the
U.S. dollar that are not sufficiently hedged by international customers invoiced
in U.S. dollars could result in lower sales and have an adverse effect on future
operating results (see Quantitative and Qualitative Disclosures About
Market Risk below).

Doing business outside the
United States can be difficult to manage or to properly execute. American
executives may overlook local trends outside the U.S., market ineffectively in
countries outside of the U.S., institute efforts from an American perspective
that are unsuccessful outside the U.S. or be unaware of customs or laws in other
countries, with resulting legal exposure, complaints, cost inefficiencies or
weak sales. The Companys tax structure requires compliance with
requirements in organizing, charter and enabling documents in addition to
compliance with local laws and regulations. Any failure of the Company to comply
with such requirements, laws or regulations could result in significant fines,
penalties or other material adverse consequences.

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

The Company is exposed to
various interest rate risks including foreign currency, interest rate and
securities price risks. The Company is exposed to various foreign currency
exchange rate risks that arise in the normal course of business. The
Companys functional currency is the U.S. dollar. The Company has
international operations resulting in receipts and payments in currencies that
differ from the functional currency of the Company. The Company attempts to
reduce foreign currency exchange rate risks by utilizing financial instruments,
including derivative transactions pursuant to Company policies.

The Company uses forward
contracts to hedge those net assets and liabilities that, when remeasured
according to accounting principles generally accepted in the United States of
America, impact the condensed consolidated statement of operations. All forward
contracts entered into by the Company are components of hedging programs and are
entered into for the sole purpose of hedging an existing or anticipated currency
exposure, not for speculation or trading purposes. Currently, the Company is
using forward contracts only to hedge net balance sheet exposures. 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 40 days.

53

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# IOMEGA CORPORATION AND SUBSIDIARIES
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

When hedging balance sheet exposures,
all gains and losses on forward contracts are recognized in other income and
expense in the same period that the gains and losses on remeasurement of the
foreign currency denominated assets and liabilities occur. All gains and losses
related to foreign exchange contracts are included in cash flows from operating
activities in the condensed consolidated statements 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 U.S. 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 $1.8 million at
April 3, 2005 and $4.2 million at December 31, 2004. However, these forward
exchange contracts are hedges and 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 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 statement of operations translation, sales volume and
prices and on local currency costs of production. As of April 3, 2005 and
December 31, 2004, the Companys analysis indicated that such market
movements, given the offsetting foreign currency gains or losses on the
underlying net assets and liabilities, would not have a material effect on the
Companys consolidated financial position, results of operations or cash
flows. Factors that could impact the effectiveness of the Companys hedging
programs include volatility of the currency and interest rate markets,
availability of hedging instruments and the Companys ability to accurately
project net asset or liability positions. Actual gains and losses in the future
may differ materially from the Companys analysis depending on changes in
the timing and amount of interest rate and foreign exchange rate movements and
the Companys actual exposures and hedges.

The Company did not have
any significant debt outstanding at April 3, 2005 and December 31, 2004. Should
the Company need to borrow funds in the future, it would be subject to
credit-based interest rate risks. The Company is also subject to interest rate
risks on its current cash, cash equivalents and temporary investment balances.
For example, if the interest rate on the Companys interest bearing
investments were to change 1% (100 basis points), interest income would have
hypothetically increased or decreased by $0.3 million during the quarter ended
April 3, 2005 and $0.4 million during the quarter ended March 28, 2004. 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.

Investments purchased with
maturities in excess of three months are classified as temporary investments.
None of the Companys temporary investments have an effective maturity
greater than 24 months and at April 3, 2005, the average duration of the
Companys temporary investments was less than 19 months, as compared to
less than 16 months at December 31, 2004. At April 3, 2005, the Company had debt
security investments of $6.6 million that will mature within one year and $17.9
million that will mature in more than one year but less than two years.
Temporary investments at April 3, 2005 and December 31, 2004 consisted primarily
of investments in U.S treasuries, U.S. agencies, certificates of deposit and
corporate obligations. The Company seeks to minimize its credit risk associated
with temporary investments by purchasing investment grade, liquid securities.
The Company has classified all of its temporary investments as
available-for-sale securities.

54

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# IOMEGA CORPORATION AND SUBSIDIARIES

## ITEM 4.
CONTROLS AND PROCEDURES

The Companys
management, with the participation of the Companys chief executive officer
and chief financial officer, evaluated the effectiveness of the Companys
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act) as of April 3, 2005.Based on this evaluation,
the Companys chief executive officer and chief financial officer concluded
that as of April 3, 2005, the Companys disclosure controls and procedures
were not effective because of the material weakness that was disclosed in the
Companys Annual Report on Form 10-K as amended for the year ended December
31, 2004 and described below.

As previously disclosed,
for the year ended December 31, 2004, the Company determined a material weakness
exists in the Companys internal control over financial reporting related
to controls maintained by the Companys third-party distribution/logistics
service provider and the Companys lack of adequate or comprehensive
compensating internal control. The Company is reliant upon this service provider
for worldwide inventory management, product pack-out, order fulfillment, final
product assembly on certain product lines and order management in Europe. The
material weakness is primarily attributable to: (i) pervasive control weaknesses
in the third-party distribution/logistics service providers general
information technology (IT) controls relating to change management
and system access and (ii) control weaknesses in the third-party
distribution/logistics service providers inventory management processes,
primarily in the areas of physical security and inventory receipts, combined
with (iii) a lack of adequate or comprehensive compensating internal controls at
the Company.

The material weakness has
not resulted in the restatement of any previously reported financial statements,
results of operations or any other related financial disclosures.

As disclosed the
Companys Annual Report on Form 10-K as amended for the year ended December
31, 2004, the Company has implemented several new procedures with the goal to
remediate this material weakness. However, these new procedures were implemented
too late in the first quarter of 2005 to be considered effective, particularly
the new processes that were required of the third-party distribution/logistics
service provider.

The new procedures that
began to be implemented during the quarter ended April 3, 2005, included the
following:

- Beginning in the first quarter of 2005, the Company
participated in quarter-end physical inventories in every location
in which Company inventory was held and Company representatives played an
expanded role in such inventories (the Companys past practice was to
participate in such inventories at only the larger locations);
- The Company obtained a detailed action plan from the third-party
distribution/logistics service provider which lays out how and when it
anticipates it will correct its control weaknesses and the Company expects to
hold regular meetings with the service provider to monitor its progress in this
regard and
- The Company expects to perform periodic monitoring, auditing and testing of the
third-party distribution/logistics service providers controls to obtain
first-hand knowledge of issues and to verify that required and promised
improvements are being achieved.

55

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# IOMEGA CORPORATION AND SUBSIDIARIES
CONTROLS AND PROCEDURES (Continued)

The remediation steps
needed to be taken by the third-party distribution/logistics service provider
were not fully implemented by April 3, 2005. Many of the remediation actions by
the third-party distribution/logistics provider are not anticipated to be
completed until July of 2005. However, the Company is continuing to focus on its
compensating controls with the plan to correct the material weakness in the
second or third quarter of 2005.

The Company believes that
these corrective actions, taken as a whole, will remediate the control
deficiencies identified above, but the Company will continue to monitor the
effectiveness of these actions and will make any other changes or take such
other actions as management determines to be appropriate.

Except for the controls
described above, no change in the Companys internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
occurred during the first quarter ended April 3, 2005, that has materially
affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting.

The certifications of the
Companys chief executive officer and chief financial officer attached as
Exhibits 31.5 and 31.6 to this Quarterly Report on Form 10-Q include, in
paragraph 4 of such certifications, information concerning the Companys
disclosure controls and procedures and internal control over financial
reporting. Such certifications should be read in conjunction with the
information contained in this Item 4 for a more complete understanding of the
matters covered by such certifications.

56

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# IOMEGA CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION

## ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS:

The Company did not sell
any equity securities during the quarter ended April 3, 2005 that were not
registered under the Securities Act of 1933.

During the quarter ended
April 3, 2005, the Company did not repurchase any shares of the Companys
Common Stock. As of April 3, 2005, approximately $122.3 million remained
available for future repurchases under the $150 million stock repurchase plan
authorized by the Companys Board of Directors on September 28, 2000. The
repurchase plan does not have a fixed termination date.

ITEM 6.
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.

57

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# IOMEGA CORPORATION AND SUBSIDIARIES
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: May 12, 2005
Dated: May 12, 2005 | IOMEGA CORPORATION
        (Registrant)/s/ Werner T. Heid
    Werner T. Heid
      
President and Chief Executive Officer    /s/ Thomas Liguori
Thomas Liguori
      
Vice President, Finance and
      
      
Chief Financial
Officer
      
      
(Principal financial and
      
      
accounting officer)
|--------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

58

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## IOMEGA CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX

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

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

|10.24 | 2005 Iomega Incentive Bonus Plan.
|----- | ---------------------------------

|10.25 | Employment letter, dated March 8, 2005 between the Company and Ron Gillies.
|----- | ---------------------------------------------------------------------------

|31.5 | Section 302 certification letter from Werner T. Heid, President and Chief Executive Officer.
|---- | --------------------------------------------------------------------------------------------

|31.6 | Section 302 certification letter from Thomas Liguori, Vice President, Finance
and Chief Financial Officer.
|---- | ----------------------------------------------------------------------------------------------------------

|32.3 | Section 906 certification letter from Werner T. Heid, President and Chief Executive Officer.
|---- | --------------------------------------------------------------------------------------------

|32.4 | Section 906 certification letter from Thomas Liguori, Vice President, Finance
and Interim Chief Financial Officer.
|---- | ------------------------------------------------------------------------------------------------------------------

59

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