---

# UNITED STATESSECURITIES
AND EXCHANGE COMMISSION

                                                        WASHINGTON, D.C. 20549

---

# FORM 10-Q

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

## FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 2003

## 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 October 31, 2003.

|Common Stock, par value $.03 1/3(Title of each class) | 51,525,100(Number of shares)
|----------------------------------------------------- | ----------------------------

---

# IOMEGA CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS

`Page

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

                                            PART I - FINANCIAL STATEMENTS

Item 1.  Financial Statements (Unaudited)

         Condensed Consolidated Balance Sheets at September 28, 2003
             and December 31, 2002.................................................................       3

         Condensed Consolidated Statements of Operations for the Quarters
             ended September 28, 2003 and September 29, 2002.......................................       5

         Condensed Consolidated Statements of Operations for the Nine Months
             ended September 28, 2003 and September 29, 2002.......................................       6

         Condensed Consolidated Statements of Cash Flows for the Nine Months
             ended September 28, 2003 and September 29, 2002.......................................       7

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

Item 2.  Management's Discussion and Analysis of Financial
             Condition and Results of Operations...................................................      31

Item 3.  Quantitative and Qualitative Disclosures About Market Risk................................      66

Item 4.  Controls and Procedures...................................................................      67

                                             PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.........................................................................      68

Item 2.  Changes in Securities and Use of Proceeds.................................................      68

Item 6.  Exhibits and Reports on Form 8-K..........................................................      68

Signatures.........................................................................................      69

Exhibit Index......................................................................................      70`

---

Copyright © 2003
Iomega Corporation. All rights reserved. Iomega, the stylized i
logo, Zip, Jaz, Peerless, PocketZip, HipZip, HotBurn and FotoShow are either
registered trademarks or trademarks of Iomega Corporation in the United States
and/or other countries. Certain other product names, brand names and company
names may be trademarks or designations of their respective owners.

1

---

## SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form
10-Q contains a number of forward-looking statements, including, without
limitation, statements referring to: plans to introduce in 2004 new and enhanced
products and software, including a small-form factor removable flexible magnetic
storage device (referred to as Digital Capture Technology or DCT)
expected to have a capacity of about 1.5 gigabyte (GB), where
gigabyte equals 1 billion bytes, and a removable hard disk storage system
(referred to as Removable Rigid Disk System or RRD) expected to have
a capacity of approximately 35GB; goals to recruit original equipment
manufacturer (OEM) customers for DCT and RRD; expected expense,
tooling and equipment spending levels on DCT and RRD development in the fourth
quarter of 2003; the expected timeframe for launching DCT and RRD products in
2004; expected cost and expense reductions and timing thereof, as a result of
the restructuring announced July 17, 2003; expected research and development
spending levels in 2004; the expectation that there will not be further material
decreases in the Zip product gross margin percentage in the fourth quarter of
2003; plans to mitigate the continued decline in the Companys core Zip
business; expected level of fourth quarter restructuring charges; the need for,
and amount of, additional restructuring or other charges in the future; the
expectation of future outsourcing initiatives; the expected profitability or
lack of profitability on certain product lines; the expected sales volume or
lack of sales volume on certain product lines; plans concerning the availability
of PocketZip and Jaz disks and other plans concerning product lines; the goal to
achieve sourced branded product growth in the fourth quarter 2003; the
expectation of continuing to lower product procurement costs; the goal to
improve the procurement and commodity business processes to maximize
profitability on sourced branded products; the impacts of expensing stock option
grants; the expected sufficiency of unrestricted cash, cash equivalents and
temporary investment balances and cash flows from future operations; the
Companys belief that its cash reserves, after the $ 5.00 per share
one-time cash dividend that was paid on October 1, 2003, will be sufficient to
operate the existing business on an ongoing basis; expected utilization of net
operating loss carryforwards (NOLs); the factors affecting future
gross margins; expected sales levels due to seasonal demand; the expectation
that the Company can obtain sufficient product and components thereof to meet
business requirements; anticipated hedging strategies; the possible effects of
an adverse outcome in the review of the Companys SEC filings described
under the caption Other Matters in Managements Discussion and
Analysis of Financial Condition and Results of Operations and the expected
impact of the adoption of recent accounting pronouncements and the possible
effects of an adverse outcome in legal proceedings, including the resolution of
the adverse judgments in the Nomai litigation, as described in Note 5 of the
notes to condensed consolidated financial statements in Part I. Any other
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words believes, anticipates, plans,
expects, intends and similar expressions are intended to
identify forward-looking statements, although not all forward-looking statements
contain these words.

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

2

---

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

`September 28,          December 31,
                                                                          2003                  2002
                                                                      -------------          ------------
                                                                       (Unaudited)
Current Assets:
  Cash and cash equivalents                                             $ 147,382             $ 241,519
  Cash reserved for dividend                                              257,247                     -
                                                                        ---------             ---------
    Total cash and cash equivalents                                       404,629               241,519
  Restricted cash                                                             200                 3,800
  Temporary investments                                                    33,208               208,545
  Trade receivables, less allowance for doubtful accounts of
    $3,195 and $5,462, respectively                                        36,646                54,477
  Inventories                                                              25,960                40,525
  Income taxes receivable                                                     696                     -
  Deferred income taxes                                                    17,688                27,573
  Other current assets                                                     10,229                14,490
                                                                        ---------             ---------
    Total Current Assets                                                  529,256               590,929
                                                                        ---------             ---------

Property and Equipment, at Cost                                           150,676               155,376
Accumulated Depreciation and Amortization                                (134,696)             (137,274)
                                                                        ---------             ---------
    Net Property and Equipment                                             15,980                18,102
                                                                        ---------             ---------

Goodwill                                                                   11,691                11,691
                                                                        ---------             ---------
Other Intangibles, Net                                                      5,044                 6,755
                                                                        ---------             ---------
Other Assets                                                                   73                   122
                                                                        ---------             ---------
    Total Assets                                                        $ 562,044             $ 627,599
                                                                        =========             =========`

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

3

---

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

`September 28,          December 31,
                                                                          2003                   2002
                                                                      -------------          ------------
                                                                       (Unaudited)
Current Liabilities:
  Accounts payable                                                      $  32,326             $  60,131
  Dividend payable                                                        257,247                     -
  Other current liabilities (Note 1)                                       82,994                98,456
  Income taxes payable                                                          -                   622
                                                                        ---------             ---------
    Total Current Liabilities                                             372,567               159,209
                                                                        ---------             ---------

Other Long-Term Liabilities                                                 1,414                 2,244
                                                                        ---------             ---------

Deferred Income Taxes                                                      36,352                55,107
                                                                        ---------             ---------

Commitments and Contingencies (Notes 4 and 5)

Stockholders' Equity:
  Preferred Stock, $0.01 par value; authorized 4,600,000
    Shares; none issued                                                         -                     -
  Series A Junior Participating Preferred Stock; authorized
    400,000 shares; none issued                                                 -                     -
  Common Stock, $0.03 1/3 par value; authorized 400,000,000
    shares; issued 54,875,738 and 54,645,278 shares,
    respectively                                                            1,831                 1,822
  Additional paid-in capital                                              167,591               307,716
  Less: 3,426,288 Common Stock treasury shares, at cost                   (33,791)              (33,791)
  Retained earnings                                                        16,080               135,292
                                                                        ---------             ---------
  Total Stockholders' Equity                                              151,711               411,039
                                                                        ---------             ---------
      Total Liabilities and Stockholders' Equity                        $ 562,044             $ 627,599
                                                                        =========             =========`

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

4

---

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

`For the Quarter Ended
                                                                      -----------------------------------
                                                                      September 28,         September 29,
                                                                           2003                  2002
                                                                      -------------         -------------
                                                                                  (Unaudited)
Sales                                                                    $ 90,990             $ 136,416
Cost of sales                                                              72,817                90,407
                                                                         --------             ---------
Gross margin                                                               18,173                46,009
                                                                         --------             ---------

Operating Expenses:
  Selling, general and administrative                                      26,291                31,550
  Research and development                                                  7,545                 9,072
  Restructuring charges (reversals)                                         7,007                  (217)
  Bad debt expense (credit)                                                   (37)                 (272)
                                                                         --------             ---------
    Total Operating Expenses                                               40,806                40,133
                                                                         --------             ---------

Operating income (loss)                                                   (22,633)                5,876
Interest income                                                             1,230                 1,978
Interest and other expense                                                   (669)                 (581)
                                                                         --------             ---------

Income (loss) before income taxes                                         (22,072)                7,273
Benefit (provision) for income taxes                                        8,988               (33,020)
                                                                         --------             ---------
Net loss                                                                 $(13,084)            $ (25,747)
                                                                         ========             =========


Net loss per basic and diluted common share                              $  (0.25)            $   (0.50)
                                                                         ========             =========

Weighted average common shares outstanding                                 51,372                51,195
                                                                         ========             =========

Dividends declared per share                                             $   5.00             $       -
                                                                         ========             =========`

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

5

---

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

`For the Nine Months Ended
                                                                      -----------------------------------
                                                                      September 28,         September 29,
                                                                          2003                   2002
                                                                      -------------         -------------
                                                                                  (Unaudited)
Sales                                                                   $ 297,974             $ 460,521
Cost of sales                                                             208,329               287,040
                                                                        ---------             ---------
Gross margin                                                               89,645               173,481
                                                                        ---------             ---------

Operating Expenses:
  Selling, general and administrative                                      77,449               102,819
  Research and development                                                 23,768                26,601
  Restructuring charges (reversals)                                         6,929                (2,398)
  Bad debt expense (credit)                                                (1,740)               (2,203)
                                                                        ---------             ---------
    Total Operating Expenses                                              106,406               124,819
                                                                        ---------             ---------

Operating income (loss)                                                   (16,761)               48,662
Interest income                                                             4,742                 6,704
Interest and other expense                                                 (1,132)               (3,726)
                                                                        ---------             ---------

Income (loss) before income taxes                                         (13,151)               51,640
Benefit (provision) for income taxes                                        9,787               (34,721)

                                                                        ---------             ---------
Net income (loss)                                                       $  (3,364)            $  16,919
                                                                        =========             =========


Net income (loss) per basic and diluted common share                    $   (0.07)            $    0.33
                                                                        =========             =========

Weighted average common shares outstanding                                 51,322                51,215
                                                                        =========             =========
Weighted average common shares outstanding -
  assuming dilution                                                        51,322                51,398
                                                                        =========             =========

Dividends declared per share                                            $    5.00             $       -
                                                                        =========             =========`

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

6

---

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

`For the Nine Months Ended
                                                                      ------------------------------------
                                                                      Sept. 28, 2003        Sept. 29, 2002
                                                                      --------------        --------------
Cash Flows from Operating Activities:                                              (Unaudited)
  Net income (loss)                                                     $  (3,364)            $  16,919
  Non-Cash Revenue and Expense Adjustments:
    Depreciation and amortization                                           9,816                17,693
    Deferred income taxes                                                  (8,870)               46,340
    Non-cash inventory write-offs                                               -                 3,752
    Restructuring reversals                                                     -                  (600)
    Non-cash impairment charges                                                 -                10,681
    Amortization on temporary investments                                   2,411                   416
    Bad debt expense (credit)                                              (1,740)               (2,203)
    Other                                                                     555                 2,047
                                                                        ---------             ---------
                                                                           (1,192)               95,045
  Changes in Assets and Liabilities:
    Restricted cash                                                         3,600                  (406)
    Trade receivables                                                      19,571                40,757
    Inventories                                                            14,565                19,001
    Other current assets                                                    4,261                   833
    Accounts payable                                                      (27,805)              (41,283)
    Other current liabilities                                             (18,704)              (32,736)
    Accrued restructuring                                                   3,242               (10,020)
    Current assets/liabilities held for sale                                    -                10,534
    Income taxes                                                           (1,318)              (10,858)
                                                                        ---------             ---------
      Net cash (used in) provided by operating activities                  (3,780)               70,867
                                                                        ---------             ---------

Cash Flows from Investing Activities:
  Purchases of property and equipment                                      (6,102)               (6,670)
  Purchases of temporary investments                                     (529,095)             (157,058)
  Sales of temporary investments                                          702,021               142,298
    Net change in other assets and other liabilities                         (483)                  370
                                                                        ---------             ---------
      Net cash provided by (used in) investing activities                 166,341               (21,060)
                                                                        ---------             ---------

Cash Flows from Financing Activities:
  Proceeds from sales of Common Stock                                         549                   237
  Purchases of Common Stock                                                     -                (2,924)
  Payments on other obligations                                                 -                  (569)
                                                                        ---------             ---------
    Net cash provided by (used in) financing activities                       549                (3,256)
                                                                        ---------             ---------
Net Increase in Total Cash and Cash Equivalents                           163,110                46,551
Total Cash and Cash Equivalents at Beginning of Period                    241,519               219,949
                                                                        ---------             ---------
Total Cash and Cash Equivalents at End of Period                        $ 404,629             $ 266,500
                                                                        =========             =========

Supplemental Schedule of Non-Cash Items:
  Declared dividend to be paid in the fourth quarter of 2003            $ 257,247             $       -
                                                                        =========             =========`

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

7

---

# 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 unaudited, 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
September 28, 2003 and December 31, 2002, the results of operations for the
quarters and nine months ended September 28, 2003 and September 29, 2002 and
cash flows for the nine months ended September 28, 2003 and September 29, 2002.

The results of operations
for the quarter and nine months ended September 28, 2003 are not necessarily
indicative of the results to be expected for the entire year or for any future
period.

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

Principles of Consolidation

These unaudited, condensed
consolidated financial statements include the accounts of Iomega Corporation and
its wholly-owned subsidiaries after elimination of all material intercompany
accounts and transactions. All entities of the Company have been consolidated.

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 are made include, but are not limited
to: revenue recognition, price protection and rebate reserves, allowance for
doubtful accounts, inventory valuation reserves and marketing program accruals.
Actual results could differ materially from these estimates.

Reclassifications

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

Revenue Recognition

The Companys
customers include original equipment manufacturers (OEMs),
retailers, distributors, value added resellers (VARs), catalogs,
private label and end users. Typically, retail and distribution customer
agreements have provisions that allow the customer to return product under
certain conditions within specified time periods. Sales, less reserves for
estimated returns, are generally recognized upon shipment 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
accompanying condensed consolidated financial statements. The reserves for
estimated returns totaled $3.4 million and $6.0 million at September 28, 2003
and December 31, 2002, respectively.

8

---

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

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. The OEM and VAR customers are
not considered to have excess inventory as they tend to 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
majority of the Companys sales in these channels. The Company defers
estimated sales and cost of sales associated with estimated excess channel
inventory in its condensed consolidated financial statements. The gross margin
associated with the deferral of sales for estimated excess channel inventory
totaled $6.4 million and $17.9 million at September 28, 2003 and December 31,
2002, respectively and is included in other current liabilities in
the accompanying condensed consolidated balance sheets.

The Company sells various
extended warranty plans for its NAS servers, some of which are bundled with
certain NAS servers. The service period of the extended warranties varies from 1
year to 3 years depending upon the NAS server and the extended warranty plan.
The Company defers all sales associated with these warranties and recognizes the
sales ratably over the respective life of the warranty once the extended
warranty has been registered with the Company by the end-user. The deferred
sales associated with these extended warranties was $0.7 million at September
28, 2003 and was less than $0.1 million at December 31, 2002 and is included in
other current liabilities in the accompanying condensed consolidated
balance sheets.

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

Price Protection and Volume Rebates

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

Reserves for volume rebates
and price protection credits totaled $21.3 million and $29.2 million at
September 28, 2003 and December 31, 2002, respectively and are netted against
trade receivables in the accompanying condensed consolidated balance sheets.

9

---

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

Temporary Investments

Investments with maturities
in excess of three months at time of purchase are classified as temporary
investments until maturity or sale. Temporary investments at September 28, 2003
and December 31, 2002 primarily consisted of corporate obligations, U.S.
treasuries, U.S. agencies, taxable and non-taxable municipal obligations,
asset-backed securities and mortgage-backed securities. None of the
Companys temporary investments have an effective maturity greater than 24
months and at September 28, 2003, the average duration of the Companys
temporary investments was less than 90 days, as compared to just under six
months at June 29, 2003. The lower duration was attributable to the Company
liquidating its temporary investments during the third quarter of 2003 to pay
the one-time cash dividend on October 1, 2003. The Company minimizes 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.

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:

`September 28,      December 31,
                                                                            2003              2002
                                                                       -------------      ------------
                                                                                (In thousands)
         Raw materials                                                    $  3,146          $  2,249
         Finished goods                                                     22,814            38,276
                                                                          --------          --------
                                                                          $ 25,960          $ 40,525
                                                                          ========          ========`

Other Current Liabilities

Other current liabilities
consist of the following:

`September 28,      December 31,
                                                                            2003              2002
                                                                       -------------      ------------
                                                                                (In thousands)
         Accrued payroll, vacation, bonus and profit sharing              $ 10,438          $  9,589
         Accrued marketing (a)                                               8,174            15,426
         Accrued restructuring charges                                       7,241             3,999
         Margin on deferred sales                                            7,904            19,118
         Accrued warranty                                                    5,834             8,035
         Accrued purchase commitments                                        4,529             2,258
         Other accrued liabilities (b)                                      38,874            40,031
                                                                          --------          --------
                                                                          $ 82,994          $ 98,456
                                                                          ========          ========`

| | (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,  forward  foreign  exchange  contracts,  litigation,  professional  fees,
self-insurance  liabilities,  employee  relocation  costs,  VAT,  sales  and  other  taxes  and other
 miscellaneous liabilities.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

---

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

Net Income (Loss) Per Common Share

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

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

`Net
                                                         Income (loss)          Shares          Per Share
                                                          (Numerator)       (Denominator)        Amount
                                                         -------------      -------------       ---------
                                                               (In thousands, except per share data)
         For the Quarter Ended:
         September 28, 2003:
         Basic EPS                                         $ (13,084)           51,372           $ (0.25)
           Effect of options                                       -                 -                 -
           Effect of restricted stock                              -                 -                 -
                                                           ---------            ------           -------
         Diluted EPS                                       $ (13,084)           51,372           $ (0.25)
                                                           =========            ======           =======

         September 29, 2002:
         Basic EPS                                         $ (25,747)           51,195           $ (0.50)
           Effect of options                                       -                -                  -
                                                           ---------            ------           -------
         Diluted EPS                                       $ (25,747)           51,195           $ (0.50)
                                                           =========            ======           =======

         For the Nine Months Ended:
         September 28, 2003:
         Basic EPS                                         $  (3,364)           51,322           $ (0.07)
           Effect of options                                       -                 -                 -
           Effect of restricted stock                              -                 -                 -
                                                           ---------            ------           -------
         Diluted EPS                                       $  (3,364)           51,322           $ (0.07)
                                                           =========            ======           =======

         September 29, 2002:
         Basic EPS                                         $  16,919            51,215           $  0.33
           Effect of options                                       -               183                 -
                                                           ---------            ------           -------
         Diluted EPS                                       $  16,919            51,398           $  0.33
                                                           =========            ======           =======`

For the quarters ended
September 28, 2003 and September 29, 2002, there were outstanding options to
purchase 1,302,109 and 1,584,725 shares, respectively, that had an exercise
price greater than the average market price of the common shares for the
respective quarters. For the nine months ended September 28, 2003 and September
29, 2002, there were outstanding options to purchase 1,306,897 and 1,674,259
shares, respectively, that had an exercise price greater than the average market
price of the common shares for the respective nine-month periods. These shares
would have had an anti-dilutive effect on EPS and were therefore excluded from
the Diluted EPS calculation above.

11

---

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

Stock Compensation Expense

The Company has five
stock-based compensation plans (four stock option plans and one restricted stock
plan). Prior to January 1, 2003, the Company accounted for these plans under the
recognition and measurement provisions of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB No.
25) and related interpretations. No stock-based compensation expense for
the four stock option plans is reflected in net income for the three or nine
months ended September 29, 2002, as all options granted under the four plans had
an exercise price equal to the market value of the Companys Common Stock
on the date of grant.

Stock compensation expense
for the restricted stock plan, which was approved by stockholders during the
second quarter of 2003, has been accounted for under Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation (SFAS 123), with the fair value of
the restricted stock being recognized over the vesting period of the restricted
stock.

12

---

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

Effective January 1, 2003,
the Company adopted the fair value recognition provisions of SFAS 123. The
Company selected the prospective method, which was one of the three transition
methods allowed by SFAS No. 148, Accounting for Stock-Based Compensation
 Transition and Disclosure, to transition to the fair value method
of measuring stock-based compensation expense. Under the prospective method, the
Company expensed only those employee stock options that were granted or modified
after January 1, 2003. The majority of awards under the Companys plans
vest over periods ranging from four to five years. Therefore, the cost related
to stock-based compensation included in the determination of net income for the
three and nine months ended September 28, 2003 is less than the amount which
would have been recognized if the fair value based method had been applied to
all awards since the original effective date of SFAS 123. The following table
illustrates the effect on net income (loss) and per share data if the fair value
based method had been applied to all outstanding and unvested awards in each
period.

`For the Quarter Ended         For the Nine months Ended
                                                -----------------------        -------------------------
                                                Sept. 28,     Sept. 29,        Sept. 28,       Sept. 29,
                                                  2003           2002            2003            2002
                                                ---------     ---------        --------        ---------
                                                          (In thousands, except per share data)
Net income (loss) as reported                   $ (13,084)    $ (25,747)       $ (3,364)       $ 16,919
  Add: Stock compensation expense
    included in reported net income
    (loss), net of related tax effects                 39             -             136               -
  Less: Total stock compensation
    expense determined under fair
    value method for all awards, net of
    related tax effects                              (281)         (676)         (1,158)         (2,410)
                                                ---------     ---------        --------        --------
Pro forma net income (loss)                     $ (13,326)    $ (26,423)       $ (4,386)       $ 14,509
                                                =========     =========        ========        ========

Basic EPS:
  As reported                                   $   (0.25)    $   (0.50)       $  (0.07)       $   0.33
                                                =========     =========        ========        ========
  Pro forma                                     $   (0.26)    $   (0.52)       $  (0.09)       $   0.28
                                                =========     =========        ========        ========

Diluted EPS:
  As reported                                   $   (0.25)    $   (0.50)       $  (0.07)       $   0.33
                                                =========     =========        ========        ========
  Pro forma                                     $   (0.26)    $   (0.52)       $  (0.09)       $   0.28
                                                =========     =========        ========        ========`

See Note 6, Other
Matters for a discussion of the impact of the Companys one-time cash
dividend on its accounting for stock options.

13

---

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

Accrued Warranty

The Company accrues for
warranty costs based on estimated warranty return rates and estimated costs to
repair. The Company uses a statistically-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 statistically 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.

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

`For the Quarter Ended     For the Nine Months Ended
                                            ---------------------     -------------------------
                                            Sept. 28,   Sept. 29,     Sept. 28,       Sept. 29,
                                              2003         2002          2003           2002
                                            ---------   ---------     ---------       ---------
                                                             (In thousands)

Balance at beginning of period               $ 6,474     $ 8,995       $ 8,035         $ 10,856
  Accruals/additions                           1,224       1,948         5,342            7,853
  Claims/charges                              (1,864)     (2,716)       (7,543)         (10,482)
                                             -------     -------       -------         --------
Balance at end of period                     $ 5,834     $ 8,227       $ 5,834         $  8,227
                                             =======     =======       =======         ========`

Guarantees

During the third quarter of
2003, the Company entered into a limited guarantee with a major supplier whereby
the Company will provide a guarantee of payments for purchases by a second
supplier of the major suppliers product that is being incorporated by the
second supplier into Iomega branded DVD products. The Company has guaranteed
purchases of the major suppliers product by the second supplier for up to
$3 million. All purchase orders placed by the second supplier must be
countersigned or approved by a Company representative in advance of the
transaction. This guarantee will remain in effect until the Company is no longer
selling the major suppliers product under the Iomega brand or until the
major supplier extends a credit facility to the second supplier that does not
require a guarantee by the Company. The Company entered into this guarantee to
facilitate the purchase of product by the second supplier directly from the
major supplier. The Company will only make payments under this guarantee in the
event that the second supplier is in material payment default. However, if the
second supplier defaulted on payment to the major supplier, the Company would
withhold any related amounts due from the Company to the second supplier. The
major supplier has presently granted a $1 million line of credit to the second
supplier, accordingly the current potential exposure to the Company under the
guarantee is $1 million. The Company recorded a $90 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.

14

---

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

Recent Accounting Pronouncements

In January of 2003, the
Financial Accounting Standards Board (FASB) issued Interpretation
No. 46, Consolidation of Variable Interest Entities, and Interpretation of
Accounting Research Bulletin No. 51 (FIN 46). FIN 46 provides
guidance for determining whether and how to consolidate variable interest
entities (VIEs). Variable interests are contractual, ownership or
other interests in an entity that expose their holders to the risks and rewards
of the VIE. Variable interests include equity investments, loans, leases,
derivatives, guarantees and other instruments whose values change with changes
in the VIEs assets. Any of these instruments may require its holder to
consolidate the VIE. The party with the majority of the variability in gains or
losses of the VIE is required to consolidate the VIE. In October of 2003, the
FASB announced that it has deferred the effective date of FIN 46 until the
fourth quarter of 2003. The Company plans on adopting FIN 46 during the fourth
quarter of 2003. The Company does not have an interest in a VIE that meets FIN
46s requirements and thus the Company believes that FIN 46 will not
currently impact the Company.

## (2) Income
Taxes

For the quarter ended
September 28, 2003, the Company recorded an income tax benefit of $9.0 million
on a pre-tax loss of $22.1 million reflecting an effective tax benefit rate of
41%. This compares to an income tax provision of $33.0 million on pre-tax income
of $7.3 million, reflecting an income tax provision of $6.2 million and a net
provision of $26.8 million related to the sale of the Companys Penang
Manufacturing Subsidiary for the quarter ended September 29, 2002. The $26.8
million net provision related to the Penang Manufacturing Subsidiary was
comprised of a $39.6 million increase associated with foreign earnings for which
no U.S. tax provision had previously been provided and a $12.8 million decrease
in the valuation allowance for net deferred tax assets. Excluding the increased
provision related to the provision on foreign earnings and the valuation
allowance release, the adjusted effective tax rate for the third quarter of 2002
was 85%. The 85% adjusted effective tax rate in the third quarter of 2002
resulted primarily from the fact that $10.7 million of impairment charges
related to the sale of the Companys Penang Manufacturing Subsidiary were
not deductible for tax purposes.

15

---

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

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

`September 28,      December 31,
                                                                   2003               2002
                                                               -------------      ------------
                                                                         (In thousands)
    Deferred Tax Assets (Liabilities):
    Current Deferred Tax Assets:
      Trade receivable reserves                                 $    6,447         $  11,259
      Inventory reserves                                             3,253             3,042
      Accrued expense reserves                                       7,909            13,030
      Other                                                             79               242
                                                                ----------         ---------
     Total current deferred tax assets                              17,688            27,573
                                                                ----------         ---------

    Non-Current Deferred Tax Assets:
      Fixed asset reserves                                             336             1,185
      Tax credit carryforwards                                      23,724            19,058
      Accelerated depreciation/amortization                          4,771             4,301
      Foreign net operating loss carryforwards                      13,177            15,199
      U.S. net operating loss carryforwards                         36,686            34,444
      Other                                                          1,326               884
                                                                ----------         ---------
    Total non-current deferred tax assets                           80,020            75,071
                                                                ----------         ---------
    Total deferred tax assets                                       97,708           102,644
                                                                ----------         ---------

    Non-Current Deferred Tax Liabilities:
      Tax on unremitted foreign earnings                           (98,329)         (109,988)
      Nomai goodwill                                                (4,866)           (4,991)
                                                                ----------         ---------
    Total non-current deferred tax liabilities                    (103,195)         (114,979)
                                                                ----------         ---------
    Non-current valuation allowance                                (13,177)          (15,199)
                                                                ----------         ---------
      Net deferred tax liabilities                               $ (18,664)        $ (27,534)
                                                                ==========         =========

    As Reported on the Balance Sheet:
      Current deferred tax assets                               $   17,688         $  27,573
                                                                ==========         =========
      Non-current deferred tax liabilities                      $  (36,352)        $ (55,107)
                                                                ==========         =========`

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.

At
September 28, 2003, the Company had $36.7 million of deferred tax assets related
to U.S. federal and state NOLs. Of the total NOL deferred tax assets, $29.7
million related to U.S. federal NOLs and $7.0 million related to state
NOLs.  The federal NOLs reflect a tax benefit of  approximately  $85 million in future U.S.  federal tax  deductions.
The state NOLs reflect a tax benefit of  approximately  $175 million in future state tax  deductions.  The difference
in the amount of future  federal and state tax  deductions  related to the NOLs is largely the result of  differences
between  federal and state NOL  carryback  rules which have allowed the use of federal NOLs in instances  where state
NOLs could not be  utilized.  The U.S.  federal  NOLs expire at various  dates  beginning  in 2022 and the state NOLs
expire at various dates  beginning in 2004.  With the  repatriation of cash during the fourth quarter of 2003 for the
payment of the one-time  cash  dividend  (see Note 6, "Other  Matters" for more detail on the impacts of the one-time
cash dividend), the Company anticipates that it will fully utilize its current federal NOLs in 2003.

16

---

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

The Company continues to
maintain a full valuation allowance of $13.2 million for deferred tax assets
related to foreign NOLs, which reflect the tax benefit of approximately $35.7
million in future foreign tax deductions. These NOLs expire at various dates
beginning in 2004. These deferred tax assets remain fully reserved because their
realization is dependent on earning future foreign taxable income in the tax
jurisdictions to which the NOLs were generated. The largest of these foreign
NOLs relate to the Companys French subsidiary, Nomai S.A. This
subsidiarys operations are inactive and therefore, the foreign NOL related
to Nomai S.A. is not likely to be realized in the future.

Net deferred tax
liabilities for the Company at September 28, 2003 were $18.7 million. As of
September 28, 2003, deferred tax liabilities for estimated U.S. federal and
state taxes of $98.3 million have been accrued on unremitted foreign earnings of
$252.1 million.

For the nine months ended
September 28, 2003, the Company recorded an income tax benefit of $9.8 million
on a pre-tax loss of $13.2 million which included a benefit of $4.6 million for
research tax credits. Excluding the $4.6 million of research tax credits, the
adjusted effective tax rate for the nine months ended September 28, 2003 was
39%. This compares to an income tax provision of $34.7 million on pre-tax income
of $51.6 million in the nine months ended September 29, 2002, reflecting an
income tax provision of $24.4 million, an additional tax provision of $39.6
million related to the Companys earnings previously considered to be
permanently invested in non-U.S. operations and a $29.3 million decrease in the
valuation allowance for net deferred tax assets. The $39.6 million provision
resulted from the sale of the Companys Penang Manufacturing Subsidiary.
Excluding the $39.6 million increase related to the sale of the Penang
Manufacturing Subsidiary and the $29.3 million decrease in the valuation
allowance, the adjusted effective tax rate for the nine months ended September
29, 2002 was 47%. The 47% effective tax rate adjusted for the valuation
allowance and increased provision on foreign earnings in the first nine months
of 2002 resulted primarily from $10.7 million in impairment charges related to
the sale of the Companys Penang Manufacturing Subsidiary that were not
deductible for tax purposes and from the expiration of foreign tax credits due
to the carryback of the 2001 net operating loss to 1996, as allowed by the Job
Creation and Worker Assistance Act of 2002.

## (3) Business
Segment Information

The Company has seven
reportable segments based primarily on the nature of the Companys
customers and products: Zip, Optical (formerly referred to as CD-RW), Jaz,
PocketZip, Other Mobile and Desktop Storage Products, Network Storage Systems
and New Technologies. Jaz, PocketZip and some of the Other Mobile and Desktop
Storage Products have been discontinued, as further discussed below. The Zip
segment involves the development, distribution and sale of Zip drives and disks
to retailers, distributors, resellers and OEMs throughout the world. The
Companys Optical segment involves the distribution and sale of CD-RW
drives and DVD rewritable drives (which began shipping in limited quantities in
the first quarter of 2003) to retailers, distributors and resellers throughout
the world. The Optical segment also includes HotBurn software which is bundled
with CD-RW and DVD rewritable drives and sold on a stand-alone basis on the
Companys website. The Jaz segment involved the development, manufacture,
distribution and sale of professional storage products and applications,
including Jaz disk and drive systems to resellers, distributors and retailers
throughout the world. The PocketZip segment involved the development,
manufacture, distribution and sale of PocketZip drives and disks for use with
portable digital products such as digital cameras, audio players, handheld
personal computers and notebook computers to retailers, distributors and
resellers throughout the world.

17

---

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

The Other Mobile and
Desktop Storage Products segment (formerly included in Other)
includes: Peerless drive systems; sourced branded products such as portable and
desktop hard disk drives (HDD), which began shipping during the
second quarter of 2002, Iomega Mini USB drives, which began shipping during the
fourth quarter of 2002 and external floppy disk drives, which began shipping in
the first quarter of 2003; Iomega software products such as Iomega Automatic
Backup software and other miscellaneous items. The Other Mobile and Desktop
Storage Products segment also includes products that have been discontinued such
as FotoShow, Iomega Microdrive miniature hard drives, Iomega CompactFlash and
Iomega SmartMedia memory cards.

The Network Storage Systems
segment (formerly included in Other) consists of the development,
distribution and sale of network attached storage (NAS) servers
targeted toward small and medium-size businesses and enterprise workgroups and
beginning late in the third quarter of 2003, sales of tape drive products,
primarily bundled with NAS servers.

The New Technologies
segment includes the research and development of two new high capacity removable
storage devices, including a small-form factor removable flexible magnetic
storage device (referred to as Digital Capture Technology or DCT)
that is expected to have a capacity of about 1.5GB and a removable hard disk
storage system (referred to as Removable Rigid Disk or RRD) that is
expected to have a capacity of approximately 35GB. There have been no sales
associated with New Technologies and no sales are expected from RRD until the
first quarter of 2004. No sales are expected from DCT until sometime during the
summer of 2004. This is several months later than what was previously planned
for DCT. It should also be noted that one of the large prospective digital video
camera OEMs has decided to delay its decision on whether to incorporate DCT into
its products until late 2004 or early 2005.

In early 2002, the Company
discontinued the Jaz drive and PocketZip product line, including HipZip, which
was being reported in the PocketZip segment. Under the Other Mobile and Desktop
Storage Products category, the Company also discontinued in early 2002 its
FotoShow, Microdrive, CompactFlash and SmartMedia products. The Company has
continued to sell disks for Jaz and PocketZip products to support the installed
drive base of these products.

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

18

---

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

The information in the
following table was derived directly from the segments internal financial
information used for corporate management purposes. The Network Storage Systems
segment was previously presented in Other products and all 2002 amounts have
been reclassified for consistent presentation. The New Technologies segment was
previously presented in general corporate expenses and all 2002 amounts have
been reclassified for consistent presentation.

## Reportable
Operating Segment Information:

`For the Quarter Ended         For the Nine Months Ended
                                                   ----------------------        -------------------------
                                                   Sept. 28,    Sept. 29,        Sept. 28,       Sept. 29,
                                                      2003         2002             2003            2002
                                                   ---------    ---------        ---------       ---------
                                                                      (In thousands)
Sales:
Mobile and Desktop Storage Products:
  Zip                                              $  58,953    $ 110,726        $ 198,706       $ 368,073
  Optical                                             15,575       14,203           49,773          57,077
  Other Mobile and Desktop Storage
    Products                                          11,793        6,429           36,438          20,678
  Jaz                                                  1,024        2,621            3,931          11,733
  PocketZip                                               23          423              143             335
                                                   ---------    ---------        ---------       ---------
    Total Mobile and Desktop Storage
      Products                                        87,368      134,402          288,991         457,896
Network Storage Systems                                3,622        2,014            8,983           2,625
                                                  ----------    ---------        ---------       ---------
    Total sales                                    $  90,990    $ 136,416        $ 297,974       $ 460,521
                                                   =========    =========        =========       =========

PPM (Product Loss):
Mobile and Desktop Storage Products:
  Zip                                              $  14,993    $  31,426        $  70,907       $ 129,222
  Optical                                             (1,285)      (2,980)             414          (4,017)
  Other Mobile and Desktop Storage
    Products                                            (679)         (98)             (97)         (6,003)
  Jaz                                                   (218)       1,137            1,112           4,088
  PocketZip                                               (6)         497              147             819
                                                   ---------    ---------        ---------       ---------
    Total Mobile and Desktop Storage
      Products                                        12,805       29,982           72,483         124,109
Network Storage Systems                               (3,666)      (1,842)         (11,883)         (3,431)
New Technologies                                      (7,022)      (2,390)         (17,961)         (5,387)
                                                   ---------    ---------        ---------       ---------
    Total PPM                                          2,117       25,750           42,639         115,291

Common Expenses:
  General corporate expenses                         (17,743)     (20,091)         (52,471)        (69,027)
  Restructuring (charges) reversals                   (7,007)         217           (6,929)          2,398
  Interest and other income, net                         561        1,397            3,610           2,978
                                                   ---------    ---------        ---------       ---------
    Income (loss) before income taxes              $ (22,072)   $   7,273        $ (13,151)      $  51,640
                                                   =========    =========        =========       =========`

19

---

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

`For the Quarter Ended         For the Nine Months Ended
                                                   ----------------------        -------------------------
                                                   Sept. 28,    Sept. 29,        Sept. 28,       Sept. 29,
                                                      2003         2002             2003            2002
                                                   ---------    ---------        ---------       ---------
                                                                      (In thousands)
Impairment Charges:
  Zip                                              $       -    $  10,581        $       -       $  10,581
  Jaz                                                      -          100                -             100
                                                   ---------    ---------        ---------       ---------
                                                   $       -    $  10,681        $       -       $  10,681
                                                   =========    =========        =========       =========

Restructuring Charges (Reversals):
  Zip                                              $   5,022    $       -        $   5,022       $       -
  Non-allocated                                        7,007         (217)           6,929          (2,398)
                                                   ---------    ---------        ---------       ---------
                                                   $  12,029    $    (217)       $  11,951       $  (2,398)
                                                   =========    =========        =========       =========`

## (4)
Restructuring Charges/Reversals

Third Quarter 2003 Restructuring Actions

During the third quarter of
2003, the Company recorded pre-tax restructuring charges of $12.0 million, of
which $11.1 million was for restructuring actions initiated during the third
quarter of 2003 and $0.9 million was associated with restructuring actions
initiated during the third quarter of 2001 related to lease expenses for a
facility vacated in 2001 and which the Company has been unable to sublease (see
the Third Quarter 2001 Restructuring Actions discussion below for more detail).
The $11.1 million charge for the third quarter 2003 restructuring actions
included $5.5 million for severance and benefits for 203 regular and temporary
personnel worldwide, or approximately 25% of the Companys worldwide
workforce, $3.0 million to exit contractual obligations and $2.6 million to
reimburse a strategic supplier for its restructuring expenses (see below for
more detail).

Of the $12.0 million in
total restructuring charges recorded in the third quarter of 2003, $5.0 million
was charged to cost of sales with the remaining $7.0 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 segment and
the remaining $7.0 million was not allocated to any of the business segments.
All of the $12.0 million restructuring charge will be paid in cash. During the
third quarter of 2003, the Company made cash payments of $7.1 million related to
these restructuring actions.

20

---

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

Of the $5.5 million
severance and benefits charges for the 203 regular and temporary personnel, $3.6
million was for 150 North American employees, $1.6 million was for 35 European
employees and $0.3 million was for 18 Asian employees. The worldwide workforce
reduction was across all business functions and across all levels of the Company
and was in response to the continued sales decline. At September 28, 2003, of
the 203 individuals worldwide whose positions were identified for elimination in
the third quarter of 2003, 69 employees were scheduled to work on a transition
basis through the fourth quarter of 2003 and 14 employees were scheduled to work
on a transition basis through the first quarter of 2004. 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, job level and transition
time and included health insurance continuance payments. Separation payments are
made after the last day of employment after separation agreements have been
signed by the employees. The Company anticipates that the total separation
payments or liability for the 203 employees notified during the third quarter of
2003 will be $7.4 million. The $5.5 million severance and benefits costs
recognized during the third quarter of 2003 included the costs associated with
those employees whose positions were eliminated during the third quarter of 2003
and the ratable recognition of the severance and benefits costs to be paid to
the 83 employees who will remain in transition beyond the minimum retention
period (60 days) as defined by SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. The remaining $1.9 million of
severance and benefits costs related to the 83 transition employees will be
recognized ratably over the future transition period. The Company anticipates
recording additional costs of $1.3 million in the fourth quarter of 2003 and
$0.6 million in the first quarter of 2004.

The $3.0 million of charges
to exit contractual obligations included $2.4 million to discontinue a
third-party manufacturing relationship as part of the Companys efforts to
consolidate its Zip disk manufacturing. The manufacturing contract was
terminated as a result of continued declining Zip disk volumes. The $2.4 million
charge was a negotiated amount based upon the net book value of manufacturing
equipment that the third-party contractor had purchased for the manufacture of
Zip disks, for which the Company was under contract to reimburse in the event of
terminating the manufacturing agreement. Also included in the $3.0 million
charges to exit contractual obligations was $0.5 million to exit an information
technologies contract related to the maintenance and hosting of the
Companys servers and $0.1 million for other miscellaneous contract
cancellations. The information technology maintenance function and hosting will
now be performed by Company employees within the Companys facilities.

The $2.6 million charge to
reimburse a strategic supplier for its restructuring expenses related to
restructuring charges incurred by a strategic supplier of the Companys
products in an effort to reduce product costs charged to the Company. Due to the
continuing decline in sales of Zip products, the Company had requested the
supplier to reduce their overhead costs. In order to induce the supplier to
reduce its overhead costs to a level commensurate with current Zip drive volumes
and at an accelerated rate compared to the overhead cost reductions called for
in the contract between the parties, the Company agreed to reimburse the
restructuring costs incurred by the supplier.

The Company anticipates
recording another $6 million to $8 million of restructuring charges in the
fourth quarter of 2003 related to the third quarter restructuring actions,
bringing the total charges for the third quarter 2003 restructuring actions to
$18 million to $20 million. The charges in the fourth quarter will occur once
the Company has vacated various facilities and has incurred the liability for
the severance charges for employees on transition. The Company also anticipates
recording an estimated charge of $0.6 million in the first quarter of 2004 for
severance and benefits for those employees whose transition period will end
during the first quarter of 2004. None of these remaining charges will be
allocated to any of the business segments.

21

---

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

Remaining restructuring
reserves in the amount of $4.3 million are included in the Companys other
current liabilities and accounts payable as of September 28, 2003. The third
quarter 2003 restructuring charges and utilization of the reserves during the
three months ended September 28, 2003 are summarized below:

`Third Quarter 2003                           Original     Utilized      Balance
    Restructuring Actions                         Charge      in Cash       09/28/03
                                                 --------     --------      --------
                                                           (In thousands)

    Severance and benefits                       $  5,525     $ (2,571)     $ 2,954
    Contract cancellations                          2,945       (1,640)       1,305
    Supplier restructuring reimbursement            2,629       (2,629)           -
                                                 --------     --------      -------
                                                 $ 11,099     $ (6,840)     $ 4,259
                                                 ========     ========      =======

    Balance Sheet Breakout:
      Other current liabilities                  $  8,707     $ (5,255)     $ 3,452
      Accounts payable                              2,392       (1,585)         807
                                                 --------     --------      -------
                                                 $ 11,099     $ (6,840)     $ 4,259
                                                 ========     ========      =======`

Third Quarter 2001 Restructuring Actions

During the third quarter of
2001, the Company recorded pre-tax restructuring charges of $33.3 million. In
the fourth quarter of 2001, the Company recorded a net reversal of $0.2 million
with respect to the third quarter 2001 restructuring actions. During the third
quarter of 2003, the Company recorded an additional $0.9 million for Europe
lease termination costs as a result of the Company not being able to locate a
tenant for the Ireland facility. The restructuring charges in the third quarter
of 2001 included $17.4 million associated with exiting lease facilities, of
which $9.8 million related to leasehold improvements, furniture and information
technology asset write-downs and $7.6 million was associated with lease
termination costs, and $15.9 million related to the reduction of 1,234 regular
and temporary personnel worldwide, or approximately 37% of the Companys
worldwide workforce. During the fourth quarter of 2001, the Company reversed
$0.5 million related to lease termination costs and recorded additional charges
of $0.3 million related to severance and benefits with respect to employees that
were identified as part of the third quarter 2001 restructuring actions but who
were not notified of their termination until the fourth quarter of 2001.

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

22

---

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

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

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

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

The Europe activities
consisted of the outsourcing of call center activities, closure of several sales
offices and consolidation of operations in Switzerland, Ireland and the
Netherlands, which resulted in a workforce reduction of 94 regular employees and
temporary staff across all business functions and across all levels of the
organization. At September 30, 2001, of the 94 individuals whose positions were
identified for termination in the third quarter, 28 individuals were scheduled
to continue to work on a transition basis through December 31, 2001 and 21
individuals were scheduled to work on a transition basis through September 29,
2002 to manage operations that were outsourced effective April 1, 2002. This
workforce reduction resulted in charges of $1.9 million for severance and
outplacement costs. The Europe restructuring actions also resulted in charges of
$0.2 million related to asset write-downs and $0.2 million related to lease
termination costs.

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

23

---

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

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

Remaining restructuring
reserves in the amount of $3.8 million and $0.3 million are included in the
Companys other current liabilities and fixed asset reserves, respectively,
as of September 28, 2003. Utilization of and other activity relating to the
third quarter 2001 restructuring reserves during the three months ended
September 28, 2003 are summarized below:

`Third Quarter 2001                           Balance        Utilized                         Balance
                                                       -------------------
Restructuring Actions                        06/29/03   Cash      Non-Cash     Additions     09/28/03
                                             --------  ------     --------     ---------     -------
                                                               (In thousands)
North America Reorganization:
  Lease cancellations (a)                    $ 2,645   $ (241)     $   -         $   -       $ 2,404
  Leasehold improvements and
    furniture (b)                                365        -        (33)            -           332
                                             -------   ------      -----         -----       -------
                                               3,010     (241)       (33)            -         2,736
                                             -------   ------      -----         -----       -------

Europe Reorganization:
  Lease cancellations (a)                        468      (13)         -           930         1,385
                                             -------   ------      -----         -----       -------
                                             $ 3,478   $ (254)     $ (33)        $ 930       $ 4,121
                                             =======   ======      =====         =====       =======

Balance Sheet Breakout:
  Other current liabilities (a)              $ 3,113   $ (254)     $   -         $ 930       $ 3,789
  Fixed asset reserves (b)                       365        -        (33)            -           332
                                             -------   ------      -----         -----       -------
                                             $ 3,478   $ (254)     $ (33)        $ 930       $ 4,121
                                             =======   ======      =====         =====       =======`

|(a) | Amounts represent primarily cash charges.
|--- | -----------------------------------------

|(b) | Amounts represent primarily non-cash charges.
|--- | ---------------------------------------------

24

---

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

Utilization of and other
activity relating to the third quarter 2001 restructuring reserves during the
nine months ended September 28, 2003 are summarized below:

`Third Quarter 2001                           Balance           Utilized        Additions/    Balance
                                                       ----------------------
Restructuring Actions                        12/31/02    Cash     Non-Cash    (Reversals)    09/28/03
                                             -------   -------    --------     ----------    --------
                                                               (In thousands)

North America Reorganization:
  Severance and benefits (a)                 $    78   $     -     $   -         $ (78)      $     -
  Lease cancellations (a)                      3,194      (790)        -             -         2,404
  Leasehold improvements and
    furniture (b)                                431         -       (99)            -           332
                                             -------   -------     -----         -----       -------
                                               3,703      (790)      (99)          (78)        2,736
                                             -------   -------     -----         -----       -------

Europe Reorganization:
  Lease cancellations (a)                        727      (272)        -           930         1,385
                                             -------   -------     -----         -----       -------
                                             $ 4,430   $(1,062)    $ (99)        $ 852       $ 4,121
                                             =======   =======     =====         =====       =======

Balance Sheet Breakout:
  Other current liabilities (a)              $ 3,999   $(1,062)    $   -         $ 852       $ 3,789
  Fixed asset reserves (b)                       431         -       (99)            -           332
                                             -------   -------     -----         -----       -------
                                             $ 4,430   $(1,062)    $ (99)        $ 852       $ 4,121
                                             =======   =======     =====         =====       =======`

|(a) | Amounts represent primarily cash charges.
|--- | -----------------------------------------

|(b) | Amounts represent primarily non-cash charges.
|--- | ---------------------------------------------

As of September 28, 2003,
the remaining leasehold improvements are associated with subleased facilities
and cannot be disposed of until the 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. During the first quarter of 2003,
severance and benefit reserves of $0.1 million were reversed due to the original
estimates being higher than what was utilized. During the third quarter of 2003,
the Company recorded an additional $0.9 million for Europe lease termination
costs as a result of the Company not being able to locate a tenant for the
Ireland facility.

## (5)
Commitments and Contingencies

Litigation

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

25

---

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

Nomai S.A.
(Nomai) is a French subsidiary of the Company that was acquired
during the third quarter of 1998. As previously disclosed in the Companys
Annual Report on Form 10-K for the year ended December 31, 2002 and in the
Companys Quarterly Reports on Form 10-Q for the quarters ended March 30,
2003 and June 29, 2003, Nomai is a party to certain litigation matters arising
from (1) Nomais acquisition of certain assets of RPS Media S.A.
(RPS) in bankruptcy in 1997 and its organization of Albi Media
Manufacturing, SARL (AMM) as a subsidiary to operate such assets and
(2) Nomais subsequent disposition of AMM in September 1999. All French
Franc and Euro conversions to the United States Dollars below were made using
currency rates as of October 31, 2003.

On February 18, 2000, the
bankruptcy trustee for RPS Media S.A. filed a lawsuit against Nomai. The trustee
claimed that Nomai had not complied with the alleged investment and employment
related commitments made by Nomais former management before the Commercial
Court of Albi, France in connection with Nomais acquisition during 1997 of
certain assets of RPS in bankruptcy. The action sought a daily penalty against
Nomai of FF 100,000 (approximately USD $17,700) until Nomai invested FF 48
million (approximately USD $8.5 million) and hired 100 people in Albi, France.
On February 16, 2001, the trustee filed a new complaint with the Commercial
Court, again asking that the Court order AMM and Nomai to comply with the
alleged employment and investment commitments set forth in the bankruptcy plan
or to fine AMM and Nomai FF 100,000 (approximately USD $17,700) for each day of
noncompliance. On November 23, 2001, the Court ordered Nomai to proceed with the
required investments and to put in place the technical and human means to which
it is engaged, subject to a daily penalty of FF 50,000 (approximately USD
$8,850) for non-compliance. The Toulouse Court of Appeals issued its ruling on
May 2, 2002, upholding the Albi Court ruling. Nomai filed a notice of appeal of
the Toulouse Court of Appeals ruling to the French Cour de Cassation on June 10,
2002; this further appeal has not been decided, but the disputes between the
trustee for RPS and the Company have been settled, as described below. On
October 11, 2002, the Commercial Court of Albi issued a ruling in connection
with the prior complaint by the bankruptcy trustee for RPS, finding that Iomega
Corporation, Iomega International and AMM were liable in connection with
Nomais failure to make investments in Albi. The Commercial Court of Albi
assessed damages of 8.5 million Euros (approximately USD $9.9 million) in favor
of the trustee for RPS and Iomega filed an appeal to the Toulouse Court of
Appeals. Subsequently, in December 2002, the parties executed a settlement
agreement, calling for Nomai to transfer rights to a vacant manufacturing
building in Albi and requiring a payment of an aggregate of 1.0 million Euros
(approximately USD $1.2 million), to be divided among 99 former employees of
RPS, subject to their signing releases in favor of the Company in exchange for
receiving a portion of the settlement funds. On January 24, 2003, the Commercial
Court of Albi issued its approval of the settlement. Under the settlement, the
bankruptcy trustee for RPS agreed to release all claims of RPS and to seek to
obtain executed releases from the former employees of that company. The
settlement terminated the trustees right to attempt to enforce the 8.5
million Euros (approximately USD $9.9 million) judgment from October 11, 2002
and all daily penalties that had accrued. Presently, four of those former
employees are not cooperating with the settlement and have filed new claims
against the Company, Iomega International and Nomai, among other parties. The
amounts claimed by the remaining litigants are immaterial and the Company
intends to vigorously defend against the remaining claims involving the former
employees.

26

---

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

On May 30, 2001, AMM filed
a lawsuit against Iomega International and Iomega Corporation, before the
Commercial Court of Albi, claiming that Iomega International and Iomega
Corporation jointly committed fraudulent acts against AMM and that, as a result,
AMM suffered damages of FRF 129 million (approximately USD $22.9 million). This
case was subsequently consolidated with the RPS case discussed above. On October
11, 2002, the Commercial Court of Albi issued a ruling that Iomega International
and Iomega Corporation were liable to AMM in the amount of 1.9 million Euros
(approximately USD $2.2 million). This amount was in addition to the 8.5 million
Euros (approximately USD $9.9 million) amount discussed in the foregoing
paragraph and Iomega filed an appeal to the Toulouse Court of Appeals. During
June 2003, the parties entered into a definitive settlement agreement to resolve
the litigation, including full resolution of the 1.9 million Euros
(approximately USD $2.2 million) adverse judgment, with the Company agreeing to
pay an amount of 450,000 Euros (approximately USD $525,000) to settle the
dispute. Dismissal of this litigation pursuant to the settlement agreement is
expected to be the subject of an upcoming hearing, currently scheduled for
December 2003.

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

Management Incentive Plan

In January 2003, the Board
of Directors adopted the Management Incentive Plan (the Plan) for
executives and key employees. Under the Plan, the total pool for the granting of
cash awards and/or restricted stock for the 2003 to 2005 Plan Period was
approximately $4.3 million. Under the provisions of the Plan, participants may
elect to receive either cash or restricted stock or a combination of the two in
25% increments. Restricted stock is granted based on 75% of the closing price of
the Common Stock ten days after the participant receives notice of his award.
The cash and the restricted stock for the 2003 to 2005 Plan Period will vest in
50% increments on January 1, 2004 and January 1, 2005, respectively.

In the event that a
participants employment with the Company terminates for any reason other
than disability or death prior to the vesting of all or a portion of their
award, the participant will forfeit the unvested portion of their award. In
addition, immediately upon a Change in Control as defined in section 5(b) of the
Plan (which was filed on April 1, 2003 as Exhibit A to the Companys Notice
of Annual Meeting of Stockholders) any unvested portion of each
participants award will vest in full.

On May 20, 2003, the
Companys stockholders approved the restricted stock provisions of the Plan
and the reservation of 1,000,000 shares of Common Stock for the restricted stock
grants. No restricted stock could be granted until stockholder approval was
received.

27

---

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

## (6) Other
Matters

Other Intangible Assets

At September 28, 2003, the
Company had $5.0 million in net intangible assets, all of which are subject to
amortization. During the quarter ended September 28, 2003, amortization expense
was $0.5 million. Amortization expense for the nine months ended September 28,
2003 was $1.7 million. Amortization expense for each of the next five fiscal
years is anticipated to be approximately $0.5 million for the remainder of 2003,
$2 million in 2004, $2 million in 2005, $0.5 million in 2006 and zero
thereafter. As of September 28, 2003, the weighted-average useful life of the
Companys intangible assets is approximately 2 1/2 years.

`September 28,      December 31,
                                           2003               2002
                                       -------------      ------------
                                               (In thousands)
Intangible Assets:
  Gross value (1)                        $ 11,791           $ 12,955
  Accumulated amortization                 (6,747)            (6,200)
                                         --------           --------
    Net intangible assets                $  5,044           $  6,755
                                         ========           ========`

|(1) | The change in the gross  value of  intangible  assets  between  December  31, 2002 and  September  28, 2003
resulted  from $1.2 million of  intellectual  property  that was fully  amortized and removed from the
books during the first quarter of 2003.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Significant Customers

During the quarter ended
September 28, 2003, sales to Ingram Micro, Inc. and Tech Data Corporation
accounted for 18% and 11% of consolidated sales, respectively. Ingram Micro,
Inc. accounted for 17% of consolidated sales for the quarter ended September 29,
2002. No other single customer accounted for more than 10% of consolidated sales
for these periods.

During the nine months
ended September 28, 2003, sales to Ingram Micro, Inc. and Tech Data Corporation
accounted for 16% and 11% of consolidated sales, respectively. Ingram Micro,
Inc. accounted for 17% of consolidated sales for the nine months ended September
29, 2002. No other single customer accounted for more than 10% of consolidated
sales for these periods.

28

---

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

Forward Exchange Contracts

All forward contracts
entered into by the Company are components of hedging programs and are entered
into for the sole purpose of hedging an existing exposure or expected exposure,
not for speculation or trading purposes. At September 28, 2003, outstanding
forward exchange buy/(sell) contracts, which all mature in November 2003, were
as follows (rates are quoted as other currency unit per one United States
dollar):

`Contracted    Month - End
                                                           Forward       Forward
                                        Amount               Rate         Rate
                                      ----------         ----------    -----------

      British Pound                      100,000           0.6040         0.6040
      European Currency Unit          (9,600,000)          0.8728         0.8728
      Singapore Dollar                 1,000,000           1.7007         1.7007
      Swiss Franc                       (900,000)          1.3448         1.3448`

Legal Settlements

On January 22, 2003, the
Company signed a settlement agreement resolving a dispute with an insurance
carrier over coverage related to a class action lawsuit which was settled in
2002. The settlement payment from the insurance carrier was for $7.5 million and
was received by the Company on January 28, 2003. The payment included
approximately $1 million that was previously recorded as a receivable and
resulted in a $6.5 million gain in the Companys results for the first
quarter of 2003. During the first quarter of 2003, the Company also recorded a
$0.5 million litigation expense. Both the $6.5 million gain and the $0.5 million
expense were reflected in selling, general and administrative expense in the
Companys condensed consolidated statement of operations.

One-Time Cash Dividend

On July 17, 2003, the
Companys Board of Directors declared a one-time cash dividend of $5.00 per
share to stockholders of record as of the close of business on September 15,
2003. This dividend, amounting to $257.2 million, was paid on October 1, 2003.

As required by the
Companys 1997 Stock Incentive Plan, an adjustment to reflect the dividend
was made on October 2, 2003 to the approximately 1.9 million stock options
outstanding under this plan. The outstanding options were adjusted by reducing
their exercise prices by an amount equal to the dividend (but in no event below
$0.03 1/3 per share), effective as of the ex-dividend date (October 2, 2003).
The Company estimates that the impact of this action will be an additional
charge in the fourth quarter of 2003 of less than $0.6 million for the impact of
modifying vested options and an additional $2.2 million that will be amortized
to the statement of operations over the remaining vesting period of the
outstanding options.

29

---

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

The Board of Directors also
intends to recommend to the Companys stockholders that they vote, at the
2004 Annual Meeting of Stockholders, to approve amendments to the Companys
1995 Director Stock Option Plan, 1987 Stock Option Plan and 1987 Director Option
Plan permitting a similar adjustment to be made to options outstanding under
those plans. Unless such stockholder approval is obtained, no adjustment will be
made to the options outstanding under those three plans. However, since the
value of the options was decreased as a result of the declared dividend, this
was determined to be a deemed modification of the stock options.
Since these options have been considered modified, they will be accounted for
under the fair value method of FAS 123. Until stockholder approval is obtained
for further modification, the Company estimates that the impact of this action
will be an additional $0.1 million that will be amortized to the statement of
operations over the remaining vesting period of the outstanding options.

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.

30

---

IOMEGA
CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS:

## Overview

The Company designs and
markets storage systems that help people protect, secure, capture and share
their valuable digital information. The Companys products are organized
into two broad business categories: 1) Mobile and Desktop Storage Products and
2) Network Storage Systems. Mobile and Desktop Storage Products include Zip
drives and disks, optical drives including CD-RW and DVD rewritable drives as
well as portable and desktop hard disk drives (HDD), Iomega Mini USB
drives, external floppy disk drives and various software titles. Network Storage
Systems (NSS) consists of a selection of network attached storage
(NAS) servers with capacities of 160GB to 2 terabyte
(TB), where terabyte equals 1 trillion bytes, and tape drive
products.

During the third quarter of
2003, the Company reported a net loss of $13.1 million on sales of $91.0
million, compared to a net loss in the third quarter of 2002 of $25.7 million on
sales of $136.4 million. The net loss for the third quarter of 2003 included
$12.0 million of pre-tax restructuring charges. The third quarter 2002
net loss included costs relating to the sale of the Companys
Penang Manufacturing Subsidiary to Venture Corporation Limited
(Venture), consisting of $10.7 million pre-tax impairment charges
and an additional $26.8 million in related tax provisions. The net loss for the
third quarter of 2002 also included a $3.5 million release of pre-tax marketing
accruals and a pre-tax $0.2 million reversal of restructuring charges.

For the nine months ended
September 28, 2003, the Company reported a net loss of $3.4 million on sales of
$298.0 million, compared to net income for the nine months ended September 29,
2002 of $16.9 million on sales of $460.5 million. The net loss for the nine
months ended September 28, 2003 included $11.9 million of net pre-tax
restructuring charges, but was favorably impacted by $6.0 million of net pre-tax
legal settlements and the recording of $4.6 million of research tax credits. Net
income for the first nine months of 2002 included costs relating to the sale of
the Companys Penang Manufacturing Subsidiary to Venture, consisting of
$10.7 million pre-tax impairment charges and an additional $26.8 million in
related tax provisions. Net income for the first nine months of 2002 also
included a $7.9 million release of pre-tax marketing accruals, $4.9 million of
net unfavorable pre-tax legal settlements, a pre-tax $2.4 million reversal of
restructuring charges and a $16.5 million decrease in the Companys
valuation allowance for net deferred tax assets.

For the third quarter of
2003, the Company had an operating loss of $22.6 million, compared to an
operating profit of $5.9 million in the third quarter of 2002. The operating
loss for the third quarter of 2003 included $12.0 million of restructuring
charges. The operating profit for the third quarter of 2002 included $10.7
million of impairment charges related to the sale of the Companys Penang
Manufacturing Subsidiary, a $3.5 million release of marketing accruals and a
$0.2 million reversal of restructuring charges. For the first nine months of
2003, the Company had an operating loss of $16.8 million, compared to an
operating profit of $48.7 million for the first nine months of 2002. The
operating loss for the nine months ended September 28, 2003 included $11.9
million of net restructuring charges and $6.0 million of net favorable legal
settlements. Operating income for the nine months ended September 29, 2002
included $10.7 million of impairment charges related to the sale of the
Companys Penang Manufacturing Subsidiary, a $7.9 million release of
marketing accruals, $4.9 million of net unfavorable legal settlements and a $2.4
million reversal of restructuring charges.

31

---

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

The lower sales in the
third quarter of 2003 resulted primarily from the continued decline of Zip drive
and disk sales, partially offset by higher Other Mobile and Desktop sales. The
lower sales for the first nine months of 2003 resulted primarily from the
continued decline of Zip disk and drive sales, Jaz disk sales and Optical
product sales, partially offset by higher Other Mobile and Desktop sales and NSS
sales.

Zip product sales are
expected to continue to decline as the product completes its lifecycle. With
respect to the sourced product business (CD-RW drives, DVD rewritable drives,
HDD, Mini USB drives and external floppy disk drives), it is managements
goal to achieve sales increases during the traditionally strong fourth quarter.
The Company is also continuing to focus its research and development resources
on its two new magnetic storage technologies, Digital Capture Technology
(DCT) and Removable Rigid Disk (RRD). Original equipment
manufactures (OEMs) in the U.S., Europe and Asia have been
evaluating working prototypes of each technology in a variety of applications.
There have been no sales associated with New Technologies and no sales are
expected from RRD until the first quarter of 2004. No sales are expected from
DCT until sometime during the summer of 2004. This is several months later than
what was previously planned for DCT. It should also be noted that one of the
large prospective digital video camera OEMs has decided to delay its decision on
whether to incorporate DCT into its products until late 2004 or early 2005.

During the third quarter of
2003, the Company announced and began implementing plans to restructure its
operations. During the third quarter of 2003, the Company recorded restructuring
charges of $12.0 million and anticipates recording another $6 to $8 million of
restructuring charges, the majority of which will be recorded in the fourth
quarter of 2003 with some being recorded in the first quarter of 2004, as the
Company vacates facilities and employees who are on transition are released.
Substantially all of these charges are expected to be cash charges. The majority
of the cash charges are expected to be paid out in the second half of 2003. Some
of the cash charges will be paid beyond 2003 since the Company will most likely
continue to pay the lease payments associated with vacated facilities on a
monthly basis through the remaining life of the leases. The Company anticipates
these actions will result in annual cost and expense reductions of approximately
$35 million to $40 million as compared to first half 2003 run rates, when fully
implemented in the first quarter of 2004.

During the third quarter of
2003, the Board of Directors declared a one-time cash dividend of $5.00 per
share to stockholders of record as of the close of business on September 15,
2003, which was paid on October 1, 2003. The amount of the dividend paid was
$257.2 million.

The Company does not
believe that it will have a quarterly operating profit unless and until its new
technologies DCT and RRD are launched and profitable and, in the meantime, it is
imperative that the Company continue to control its costs and improve
efficiencies to minimize its operating losses. Additionally, gross margins are
expected to decline as higher margin Zip product sales are displaced with lower
margin sales from sourced branded products such as optical products, external
hard drives, Mini USB drives and external floppy disk drives.

32

---

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

## Application of
Critical Accounting Policies

The Companys
discussion and analysis of its financial condition and results of operations are
based upon the Companys condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these condensed consolidated
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the condensed consolidated financial
statements and the reported amounts of sales and expenses during the reporting
periods. Areas where significant judgments are made that are highly uncertain at
the time the estimate is made and are susceptible to material changes from
period to period include revenue recognition, price protection and rebate
reserves, marketing program accruals, allowance for doubtful accounts and
inventory valuation reserves. 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, 2002.

## Business
Segment Information

The Company has seven
reportable segments based primarily on the nature of the Companys
customers and products: Zip, Optical (formerly referred to as CD-RW), Jaz,
PocketZip, Other Mobile and Desktop Storage Products, Network Storage Systems
and New Technologies. Jaz, PocketZip and some of the Other Mobile and Desktop
Storage Products have been discontinued, as further discussed below. The Zip
segment involves the development, distribution and sale of Zip drives and disks
to retailers, distributors, resellers and OEMs throughout the world. The
Companys Optical segment involves the distribution and sale of CD-RW
drives and DVD rewritable drives (which began shipping in limited quantities in
the first quarter of 2003) to retailers, distributors and resellers throughout
the world. The Optical segment also includes HotBurn software which is bundled
with CD-RW and DVD rewritable drives and sold on a stand-alone basis on the
Companys website. The Jaz segment involved the development, manufacture,
distribution and sale of professional storage products and applications,
including Jaz disk and drive systems to resellers, distributors and retailers
throughout the world. The PocketZip segment involved the development,
manufacture, distribution and sale of PocketZip drives and disks for use with
portable digital products such as digital cameras, audio players, handheld
personal computers and notebook computers to retailers, distributors and
resellers throughout the world.

The Other Mobile and
Desktop Storage Products segment (formerly included in Other)
includes: Peerless drive systems; sourced branded products such as HDD, which
began shipping during the second quarter of 2002, Iomega Mini USB drives, which
began shipping during the fourth quarter of 2002 and external floppy disk
drives, which began shipping in the first quarter of 2003; Iomega software
products such as Iomega Automatic Backup software and other miscellaneous items.
The Other Mobile and Desktop Storage Products segment also includes products
that have been discontinued such as FotoShow, Iomega Microdrive miniature hard
drives, Iomega CompactFlashand Iomega SmartMedia memory cards.

The Network Storage Systems
segment (formerly included in Other) consists of the development,
distribution and sale of network attached storage (NAS) servers
targeted toward small and medium-size businesses and enterprise workgroups and
beginning late in the third quarter of 2003, sales of tape drive products,
primarily bundled with NAS servers.

The New Technologies
segment includes the research and development of two new high capacity removable
storage devices, including a small-form factor removable flexible magnetic
storage device (referred to as Digital Capture Technology or DCT)
that is expected to have a capacity of about 1.5 gigabytes (GB),
where gigabyte equals 1 billion bytes, and a removable hard disk storage system
(referred to as Removable Rigid Disk or RRD) that is expected to
have a capacity of approximately 35GB. There have been no sales associated with
New Technologies and no sales are expected from RRD until the first quarter of
2004. No sales are expected from DCT until sometime during the summer of 2004.
This is several months later than what was previously planned for DCT. It should
also be noted that one of the large prospective digital video camera OEMs has
decided to delay its decision on whether to incorporate DCT into its products
until late 2004 or early 2005.

33

---

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

In early 2002, the Company
discontinued the Jaz drive and PocketZip product line, including HipZip, which
was being reported in the PocketZip segment. Under the Other Mobile and Desktop
Storage Products category, the Company also discontinued in early 2002 its
FotoShow, Microdrive, CompactFlash and SmartMedia products. The Company has
continued to sell disks for Jaz and PocketZip products to support the installed
drive base of these products.

The Company evaluates
performance based on product profit margin (PPM) for each segment.
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,
selling expenses and amortization related to a segments operations. When
such costs and expenses exceed sales and other income, PPM is referred to as
product loss. The accounting policies of the segments are the same as those
described in Note 1 Significant Accounting Policies 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.

34

---

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

The information in the
following table was derived directly from the segments internal financial
information used for corporate management purposes. The Network Storage Systems
segment was previously presented in Other products and all 2002 amounts have
been reclassified for consistent presentation. The New Technologies segment was
previously presented in general corporate expenses and all 2002 amounts have
been reclassified for consistent presentation.

## Reportable
Operating Segment Information:

`For the Quarter Ended         For the Nine Months Ended
                                                   ----------------------        -------------------------
                                                   Sept. 28,    Sept. 29,        Sept. 28,       Sept. 29,
                                                      2003         2002             2003            2002
                                                   ---------    ---------        ---------       ---------
                                                                      (In thousands)
Sales:
Mobile and Desktop Storage Products:
  Zip                                              $  58,953    $ 110,726        $ 198,706       $ 368,073
  Optical                                             15,575       14,203           49,773          57,077
  Other Mobile and Desktop Storage
    Products                                          11,793        6,429           36,438          20,678
  Jaz                                                  1,024        2,621            3,931          11,733
  PocketZip                                               23          423              143             335
                                                   ---------    ---------        ---------       ---------
    Total Mobile and Desktop Storage
      Products                                        87,368      134,402          288,991         457,896
Network Storage Systems                                3,622        2,014            8,983           2,625
                                                  ----------    ---------        ---------       ---------
    Total sales                                    $  90,990    $ 136,416        $ 297,974       $ 460,521
                                                   =========    =========        =========       =========

PPM (Product Loss):
Mobile and Desktop Storage Products:
  Zip                                              $  14,993    $  31,426        $  70,907       $ 129,222
  Optical                                             (1,285)      (2,980)             414          (4,017)
  Other Mobile and Desktop Storage
    Products                                            (679)         (98)             (97)         (6,003)
  Jaz                                                   (218)       1,137            1,112           4,088
  PocketZip                                               (6)         497              147             819
                                                   ---------    ---------        ---------       ---------
    Total Mobile and Desktop Storage
      Products                                        12,805       29,982           72,483         124,109
Network Storage Systems                               (3,666)      (1,842)         (11,883)         (3,431)
New Technologies                                      (7,022)      (2,390)         (17,961)         (5,387)
                                                   ---------    ---------        ---------       ---------
    Total PPM                                          2,117       25,750           42,639         115,291

Common Expenses:
  General corporate expenses                         (17,743)     (20,091)         (52,471)        (69,027)
  Restructuring (charges) reversals                   (7,007)         217           (6,929)          2,398
  Interest and other income, net                         561        1,397            3,610           2,978
                                                   ---------    ---------        ---------       ---------
    Income (loss) before income taxes              $ (22,072)   $   7,273        $ (13,151)      $  51,640
                                                   =========    =========        =========       =========`

35

---

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

`For the Quarter Ended         For the Nine Months Ended
                                                   ----------------------        -------------------------
                                                   Sept. 28,    Sept. 29,        Sept. 28,       Sept. 29,
                                                      2003         2002             2003            2002
                                                   ---------    ---------        ---------       ---------
                                                       (In thousands, except Network Storage Systems)
Impairment Charges:
  Zip                                              $       -    $  10,581        $       -       $  10,581
  Jaz                                                      -          100                -             100
                                                   ---------    ---------        ---------       ---------
                                                   $       -    $  10,681        $       -       $  10,681
                                                   =========    =========        =========       =========

Restructuring Charges (Reversals):
  Zip                                              $   5,022    $       -        $   5,022       $       -
  Non-allocated                                        7,007         (217)           6,929          (2,398)
                                                   ---------    ---------        ---------       ---------
                                                   $  12,029    $    (217)       $  11,951       $  (2,398)
                                                   =========    =========        =========       =========

Drive Units:
Mobile and Desktop Storage Products:
  Zip                                                    582        1,015            1,803           3,100
  Optical                                                169          128              501             461
  Jaz                                                      -            -                -               2
  PocketZip                                                -            -                -              12
Network Storage Systems                                1,546          979            4,437           1,751

Disk Units:
Mobile and Desktop Storage Products:
  Zip                                                  3,317        6,789           11,344          22,150
  Jaz                                                     12           34               50             160
  PocketZip                                                1           11                3              38`

## Seasonality

The Companys sourced
branded business is typically strongest during the fourth quarter. The
Companys European sales are typically weakest during the third quarter due
to summer holidays. Zip sales to OEM customers are typically strongest during
the third quarter. There can be no assurance that this historic pattern will
continue and moreover this pattern could be adversely affected by the weakness
and uncertainty that currently exists in the United States and global economies
and consumer confidence levels. Given the continued expected decline of the Zip
business, the Company is unable to estimate or forecast any Zip product
seasonality in future quarters. As a result of the foregoing, sales for any
prior quarter are not necessarily indicative of the sales to be expected in any
future quarter.

## Sales

Sales for the quarter ended
September 28, 2003 of $91.0 million decreased $45.4 million, or 33%, when
compared to sales of $136.4 million for the quarter ended September 29, 2002.
This decrease was primarily a result of lower Zip drive and disk sales.

36

---

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

Zip product sales for the
third quarter of 2003 totaled $58.9 million, representing a decrease of $51.8
million, or 47%, compared to sales of $110.7 million for the third quarter of
2002. Sales of Zip products represented 65% of total sales for the third quarter
of 2003, compared to 81% for the third quarter of 2002. Zip drive sales of $38.8
million for the third quarter of 2003 decreased by $28.9 million, or 43%,
consistent with a 43% decrease in Zip drive units. Zip OEM drive units accounted
for approximately 54% of total Zip drive units in the third quarter of 2003
compared to approximately 56% in the third quarter of 2002. Zip disk sales of
$20.2 million for the third quarter of 2003 decreased by $22.8 million, or 53%,
while Zip disk units decreased by 51% from the third quarter of 2002.

Optical product sales for
the third quarter of 2003 totaled $15.6 million, representing an increase of
$1.4 million, or 10%, compared to sales of $14.2 million for the third quarter
of 2002. Sales of Optical products represented 17% of total sales for the third
quarter of 2003, compared to 10% for the third quarter of 2002. Optical units
increased 32% compared to the third quarter of 2002, primarily from DVD-based
products, which the Company began selling in the first quarter of 2003 and from
slightly higher CD-RW units. Optical units increased faster than Optical product
sales due primarily to lower prices on CD-RW based products.

Other Mobile and Desktop
Storage Products sales for the third quarter of 2003 totaled $11.8 million,
representing an increase of $5.4 million, or 83%, compared to sales of $6.4
million for the third quarter of 2002. The increase in Other Mobile and Desktop
Storage Products sales resulted primarily from Mini USB drive sales of $3.8
million which began shipping late in the fourth quarter of 2002, a $2.6 million
increase in HDD sales and from external floppy disk drive sales of $1.0 million
which began shipping in the first quarter of 2003, partially offset by a $1.9
million decrease in Peerless sales and a $0.1 million decrease in other products
such as CompactFlash, Microdrive, SmartMedia and FotoShow, all of which were
discontinued in early 2002.

Jaz product sales for the
third quarter of 2003 totaled $1.0 million, representing a decrease of $1.6
million, or 61%, compared to sales of $2.6 million for the third quarter of
2002. The Company discontinued the Jaz drive in early 2002.

PocketZip product sales
were less than $0.1 million for the third quarter of 2003 and represented a
decrease of over $0.4 million compared to the third quarter of 2002. The Company
discontinued the PocketZip product line in early 2002.

Network Storage Systems
sales for the third quarter of 2003 totaled $3.6 million, representing a $1.6
million increase, compared to sales of $2.0 million for the third quarter of
2002. The increase was due primarily to the expansion and refreshing of the
Companys NAS product offerings during the second and third quarters of
2003. Tape drive products were also introduced late in the third quarter of
2003.

Geographically, sales in
the Americas totaled $59.4 million, or 65% of total sales, in the third quarter
of 2003, compared to $93.0 million, or 68% of total sales, in the third quarter
of 2002. The decrease in sales dollars in the Americas was due primarily to
lower Zip sales. Sales in Europe totaled $23.6 million, or 26% of total sales,
in the third quarter of 2003, compared to $32.8 million, or 24% of total sales,
in the third quarter of 2002. The decrease in sales dollars in Europe was due
primarily to lower Zip sales, partially offset by Mini USB drive sales,
increased HDD and Optical product sales. Sales in Asia totaled $8.0 million, or
9% of total sales, in the third quarter of 2003, compared to $10.6 million, or
8% of total sales, in the third quarter of 2002. The decrease in sales dollars
in Asia was due primarily to lower Zip sales, partially offset by higher Optical
product sales, Mini USB drive sales and increased external hard drive product
sales.

37

---

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

Sales for the nine months
ended September 28, 2003 of $298.0 million decreased $162.5 million, or 35%,
when compared to sales of $460.5 million for the nine months ended September 29,
2002. This decrease was primarily a result of lower Zip drive and disk sales.

Zip product sales for the
nine months ended September 28, 2003 totaled $198.7 million, representing a
decrease of $169.4 million, or 46%, compared to sales of $368.1 million for the
nine months ended September 29, 2002. Sales of Zip products represented 67% of
total sales for the nine months ended September 28, 2003, compared to 80% for
the nine months ended September 29, 2002. Zip drive sales of $123.1 million for
the nine months ended September 28, 2003 decreased by $92.5 million, or 43%,
while Zip drive units decreased by 42% from the nine months ended September 29,
2002. Zip OEM drive units accounted for approximately 53% of total Zip drive
units in the nine months ended September 28, 2003, compared to approximately 54%
in the nine months ended September 29, 2002. Zip disk sales of $75.5 million for
the nine months ended September 28, 2003 decreased by $76.4 million, or 50%,
while Zip disk units decreased by 49% from the nine months ended September 29,
2002.

Optical product sales for
the nine months ended September 28, 2003 totaled $49.8 million, representing a
decrease of $7.3 million, or 13%, compared to sales of $57.1 million for the
nine months ended September 29, 2002. Sales of Optical products represented 17%
of total sales for the nine months ended September 28, 2003, compared to 12% for
the nine months ended September 29, 2002. Optical units for the nine months
ended September 28, 2003 increased 9% when compared to the nine months ended
September 29, 2002, primarily from DVD rewritable drives, which the Company
began selling in the first quarter of 2003, partially offset by lower CD-RW
units. Sales of Optical products decreased while units increased due primarily
to product mix and lower prices. The Company expects the product mix to continue
to shift from CD-RW products to DVD based products. The Company also expects
price competition to continue on both CD-RW and DVD products.

Other Mobile and Desktop
Storage Products sales for the nine months ended September 28, 2003 totaled
$36.4 million, representing an increase of $15.7 million, or 76%, compared to
sales of $20.7 million for the nine months ended September 29, 2002. The
increase in Other Mobile and Desktop Storage Products sales resulted primarily
from higher HDD sales of $15.5 million, Mini USB drive sales of $10.0 million
which began shipping late in the fourth quarter of 2002 and sales from external
floppy disk drives of $1.3 million which began shipping in the first quarter of
2003, partially offset by lower Peerless sales of $9.8 million and lower sales
of $1.3 million from other products such as CompactFlash, Microdrive, SmartMedia
and FotoShow, all of which were discontinued in early 2002.

Jaz product sales for the
nine months ended September 28, 2003 totaled $3.9 million, representing a
decrease of $7.8 million, or 67%, compared to sales of $11.7 million for the
nine months ended September 29, 2002. Sales of Jaz products represented 1% of
total sales for the nine months ended September 28, 2003, compared to 3% for the
nine months ended September 29, 2002. Jaz disk units decreased by 69% when
compared to the nine months ended September 29, 2002. The lower volumes resulted
from the Companys decision in early 2002 to discontinue the Jaz drive.

PocketZip product sales of
$0.1 million for the nine months ended September 28, 2003 decreased $0.2 million
from the nine months ended September 29, 2002. The Company discontinued the
PocketZip product line in early 2002.

38

---

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

Network Storage Systems
sales for the nine months ended September 28, 2003 totaled $9.0 million,
representing a $6.4 million increase, compared to sales of $2.6 million for the
nine months ended September 29, 2002. The increase was due to launching late in
the first quarter of 2002 the Companys NAS products and the expansion and
refreshing of the Companys NAS product offerings during the second and
third quarters of 2003.

Geographically, sales in
the Americas totaled $186.8 million, or 63% of total sales, in the nine months
ended September 28, 2003, compared to $300.8 million, or 65% of total sales, in
the nine months ended September 29, 2002. The decrease in sales dollars in the
Americas was due primarily to lower Zip sales and to a lesser extent, lower
Optical sales. Sales in Europe totaled $85.5 million, or 29% of total sales, in
the nine months ended September 28, 2003, compared to $122.9 million, or 27% of
total sales, in the nine months ended September 29, 2002. The decrease in sales
dollars in Europe was due primarily to lower Zip sales, partially offset by Mini
USB drive sales and increased HDD sales. Sales in Asia totaled $25.7 million, or
8% of total sales, in the nine months ended September 28, 2003, compared to
$36.8 million, or 8% of total sales, in the nine months ended September 29,
2002. The decrease in sales dollars in Asia was due primarily to lower Zip
sales.

## Gross Margin

The Companys overall
gross margin of $18.2 million, or 20%, in the third quarter of 2003 compares to
$46.0 million, or 34%, in the third quarter of 2002. Total gross margins in the
third quarter of 2003 decreased $27.8 million, or 61% from the third quarter of
2002, primarily from lower Zip volumes and Zip restructuring charges of $5.0
million, partially offset by $10.7 million of impairment charges in the third
quarter of 2002 related to the sale of the Penang Manufacturing Subsidiary. The
decrease in the gross margin percentage was primarily due to a lower proportion
of sales from the higher margin Zip products and the Zip restructuring charges
of $5.0 million, partially offset by $10.7 million of impairment charges in the
third quarter of 2002 related to the sale of the Penang Manufacturing
Subsidiary. The Zip gross margin percentage was 31% in the third quarter of 2003
compared to 40% in the third quarter of 2002. This decrease resulted primarily
from higher per unit costs due to declining volumes and $5.0 million of
restructuring charges, partially offset by $10.6 million of impairment charges
in the third quarter of 2002 related to the sale of the Penang Manufacturing
Subsidiary.

The Companys overall
gross margin of $89.6 million, or 30%, in the nine months ended September 28,
2003, compares to $173.5 million, or 38%, in the nine months ended September 29,
2002. Total gross margin in the nine months ended September 28, 2003 decreased
$83.9 million, or 48% from the nine months ended September 29, 2002, primarily
from lower Zip volumes and Zip restructuring charges of $5.0 million, partially
offset by $10.7 million of impairment charges in the third quarter of 2002
related to the sale of the Penang Manufacturing Subsidiary. The decrease in the
gross margin percentage was primarily due to a lower proportion of sales from
the higher margin Zip products. The Zip gross margin percentage was 42% in the
nine months ended September 28, 2003, compared to 45% in the nine months ended
September 29, 2002. This decrease resulted primarily from higher per unit costs
due to declining volumes and $5.0 million of restructuring charges, partially
offset by $10.6 million of impairment charges in the third quarter of 2002
related to the sale of the Penang Manufacturing Subsidiary.

Management does not expect
further material decreases in the Zip gross margin percentage in the fourth
quarter of 2003. However, management expects that the overall gross margin
percentages reported for the first nine months of 2003 will decline in future
periods as the product mix continues to shift from Zip products to NAS servers
and sourced branded products such as CD-RW, DVD rewritable, HDD, Mini USB drives
and external floppy disk drives, all of which have materially lower gross
margins.

39

---

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

Future gross margin
percentages will depend on a number of factors including: the future volume of
Zip products sold; pricing actions or promotions; the mix between Zip products
compared to NAS and sourced branded products; sales mix between aftermarket and
OEM or private label channels, as OEM and private label sales generally provide
lower gross margins than sales through other channels; sales mix of Zip 100
megabyte (MB), where megabyte equals 1 million bytes, Zip 250MB and
Zip 750MB drives and disks, as sales of the various Zip products have differing
gross margins; sales volumes of Zip disks, which generate significantly higher
gross margin percentages than the corresponding drives; the strength or weakness
of foreign currencies, especially the euro; the impact of any future material
cost changes; supply or other disruptions; the ability to avoid future inventory
and fixed asset charges; the ability to accurately forecast future product
demand; the ability to cover fixed costs associated with newly introduced
products; potential start-up costs associated with the introduction of new
products; price competition from other substitute third-party storage products
(including CD-RW and DVD products); significant price competition given that
CD-R, CD-RW and DVD discs are significantly cheaper than Zip disks; possible
payment of license royalties to resolve alleged patent infringement disputes and
general economic conditions.

## Product
Segment PPM

Zip PPM for the third
quarter of 2003 was $15.0 million and decreased by $16.4 million, or 52%,
compared to Zip PPM of $31.4 million for the third quarter of 2002. The third
quarter of 2003 Zip PPM included $5.0 million of restructuring charges and the
third quarter of 2002 Zip PPM included $10.6 million of impairment charges
related to the sale of the Companys Penang Manufacturing Subsidiary. Zip
PPM as a percentage of Zip sales decreased to 25% for the third quarter of 2003
from 28% for the third quarter of 2002. The decrease in Zip PPM and Zip PPM
percentage resulted primarily from lower gross margins as explained above,
partially offset by lower operating expenses resulting from a reduction of
resources such as sales and marketing and a redeployment of resources such as
research and development. The Company continues to redirect research and
development resources away from Zip and toward the development of the new
technologies, DCT and RRD.

Optical product loss for
the third quarter of 2003 was $1.3 million and improved by $1.7 million, or 57%,
compared to a product loss of $3.0 million for the third quarter of 2002.
Optical product loss as a percentage of Optical sales improved to a loss of 8%
in the third quarter of 2003 from a loss of 21% in the third quarter of 2002.
The Optical PPM improvement in the third quarter resulted primarily from lower
product costs and lower operating expenses. The Optical product loss for the
third quarter of 2003 resulted primarily from a higher proportion of sales of
lower margin DVD-based products and from start-up costs associated with the
Super DVD product.

Other Mobile and Desktop
Storage Products had a product loss of $0.7 million in the third quarter of
2003, representing a $0.6 million, or 593% increase, compared to a product loss
of $0.1 million in the third quarter of 2002. The $0.6 million higher product
loss resulted primarily from increased losses of $0.4 million on Peerless, $0.2
million on HDD and $0.2 million from other products such as CompactFlash,
Microdrive, SmartMedia and FotoShow, partially offset by a PPM of $0.2 million
from Mini USB drives.

Jaz product loss for the
third quarter of 2003 was $0.2 million, reflecting a $1.3 million, or 119%
decrease, compared to Jaz PPM of $1.1 million for the third quarter of 2002. The
Jaz product loss resulted primarily from lower units reflecting the
Companys decision in early 2002 to discontinue the Jaz drive. Jaz PPM as a
percentage of Jaz sales decreased to a loss of 21% for the third quarter of
2003, compared to a profit of 43% for the third quarter of 2002, primarily due
to lower volumes and a $0.4 million write-off of excess Jaz disk inventory.

40

---

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

PocketZip was near
break-even for the third quarter of 2003, reflecting a $0.5 million, or 101%
decrease, compared to a PocketZip PPM of $0.5 million in the third quarter of
2002, reflecting the Companys decision in early 2002 to discontinue
PocketZip. Third quarter 2002 PocketZip PPM of $0.5 million was higher than
PocketZip sales of $0.4 million for the same period due to the release of rebate
reserves, warranty reserves and excess and obsolete inventory reserves.

Network Storage Systems had
a product loss of $3.7 million in the third quarter of 2003 which represented a
$1.9 million higher loss, or 99%, compared to a product loss of $1.8 million in
the third quarter of 2002. The increased product loss resulted primarily from
under-absorbed operational overhead due to lower than planned volumes in the
third quarter of 2003 and higher sales and marketing and research and
development spending designed to broaden and refresh the Companys product
offering.

New Technologies product
loss of $7.0 million increased by $4.6 million, or 194%, in the third quarter of
2003 compared to a product loss of $2.4 million in the third quarter of 2002.
The higher loss resulted from increased spending (primarily research and
development) on the two new technologies under development, DCT and RRD. The
Company does not anticipate any sales from RRD until the first quarter of 2004.
No sales are expected from DCT until sometime during the summer of 2004. This is
several months later than what was previously planned for DCT. It should also be
noted that one of the large prospective digital video camera OEMs has decided to
delay its decision on whether to incorporate DCT into its products until late
2004 or early 2005.

With respect to both DCT
and RRD, the Companys two key development projects, for the fourth quarter
of 2003 the Company anticipates spending approximately $4 million to $6 million
in research and development and approximately $2 million of other expenses
(manufacturing expenses and sales and marketing). The Company also anticipates
spending approximately $2 million to $4 million in supplier tooling and
manufacturing equipment for DCT and RRD during the fourth quarter of 2003. The
Company anticipates that it will continue to incur significant research and
development expenses in 2004 on these two projects.

General corporate expenses
that were not allocated to PPM of $17.7 million in the third quarter of 2003,
decreased $2.4 million, or 12%, compared to $20.1 million for the third quarter
of 2002. The $2.4 million decrease resulted primarily from lower bonus and
profit sharing costs of $1.0 million, lower travel expenses of $0.9 million and
$0.5 million in other various cost decreases.

Zip PPM for the nine months
ended September 28, 2003 was $70.9 million and decreased by $58.3 million, or
45%, compared to Zip PPM of $129.2 million for the nine months ended September
29, 2002. Zip PPM for the nine months ended September 28, 2003 included $5.0
million of restructuring charges and Zip PPM for the nine months ended September
29, 2002 included $10.6 million of impairment charges related to the sale of the
Companys Penang Manufacturing Subsidiary. The decrease in Zip PPM resulted
primarily from the lower gross margins described above, partially offset by
lower operating expenses resulting from a reduction of resources such as sales
and marketing and a redeployment of resources such as research and development.
Zip PPM as a percentage of Zip sales increased slightly to 36% for the nine
months ended September 28, 2003 from 35% for the nine months ended September 29,
2002, reflecting the lower operating expenses. The Company redirected research
and development resources away from Zip and toward the development of the new
technologies, DCT and RRD.

41

---

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

Optical PPM for the nine
months ended September 28, 2003 was $0.4 million and improved by $4.4 million,
or 110%, compared to a product loss of $4.0 million for the nine months ended
September 29, 2002. Optical PPM as a percentage of Optical sales increased to 1%
in the nine months ended September 28, 2003 from a loss of 7% in the nine months
ended September 29, 2002. The Optical PPM improvement in the nine months ended
September 28, 2003 resulted from lower product costs and lower operating
expenses.

Other Mobile and Desktop
Storage Products had a profit loss of $0.1 million for the nine months ended
September 28, 2003 and improved $5.9 million, or 98%, compared to a product loss
of $6.0 million in the nine months ended September 29, 2002. The $5.9 million
PPM improvement resulted primarily from a $5.1 million improvement from Peerless
(primarily from a $3.8 million write-off of excess and obsolete Peerless
inventory in the nine months ended September 29, 2002), PPM of $1.2 million from
Mini USB drives and a $0.6 million improvement from HDD, partially offset by
$1.0 million of lower PPM from other products such as CompactFlash, Microdrive,
SmartMedia and FotoShow.

Jaz PPM for the nine months
ended September 28, 2003 was $1.1 million and decreased by $3.0 million, or 73%,
compared to Jaz PPM of $4.1 million for the nine months ended September 29,
2002. The lower Jaz PPM resulted primarily from lower units reflecting the
Companys decision in early 2002 to discontinue the Jaz drive. Jaz PPM as a
percentage of Jaz sales decreased to 28% for the nine months ended September 28,
2003, compared to 35% for the nine months ended September 29, 2002, primarily
from lower volumes and a $0.6 million write-off of excess Jaz disk inventory.

PocketZip PPM for the nine
months ended September 28, 2003 was $0.1 million and decreased $0.7 million, or
82%, compared to PocketZip PPM of $0.8 million for the nine months ended
September 29, 2002, reflecting the Companys decision to discontinue
PocketZip. For the nine months ended September 28, 2003, PocketZip PPM of $0.1
million was the same as PocketZip sales of $0.1 million primarily due to
warranty accrual releases in the first quarter of 2003. In the nine months ended
September 29, 2002, PocketZip PPM of $0.8 million was higher than PocketZip
sales by almost $0.5 million primarily from the favorable settlement in the
first quarter of 2002 of certain supplier claims and the release of rebate
reserves, warranty reserves and excess and obsolete inventory reserves.

Network Storage Systems had
a product loss of $11.9 million for the nine months ended September 28, 2003, an
increase of $8.5 million or 246%, compared to a product loss of $3.4 million for
the nine months ended September 29, 2002. The increased product loss resulted
primarily from under-absorbed operational overhead due to lower than planned
volumes in the first nine months of 2003 and from higher sales and marketing and
research and development spending designed to broaden the Companys NAS
product offering during the second and third quarters of 2003.

New Technologies product
loss of $18.0 million increased by $12.6 million, or 233%, in the nine months
ended September 28, 2003 compared to a product loss of $5.4 million in the nine
months ended September 29, 2002. The higher losses resulted from increased
spending (primarily research and development) on the two new technologies under
development, DCT and RRD. The Company does not anticipate any sales from RRD
until the first quarter of 2004. No sales are expected from DCT until sometime
during the summer of 2004. This is several months later than what was previously
planned for DCT. It should also be noted that one of the large prospective
digital video camera OEMs has decided to delay its decision on whether to
incorporate DCT into its products until late 2004 or early 2005.

42

---

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

General corporate expenses
that were not allocated to PPM of $52.5 million in the nine months ended
September 28, 2003, decreased $16.5 million, or 24%, compared to $69.0 million
for the nine months ended September 29, 2002. The $16.5 million decrease
resulted primarily from net favorable legal settlements of $10.9 million (a net
favorable settlement of $6.0 million during the first quarter of 2003, compared
to a net unfavorable legal settlement expense of $4.9 million during the first
nine months of 2002), lower bonus and profit sharing costs of $4.7 million and
$0.9 million from other various cost decreases.

## Selling,
General and Administrative Expenses

Selling, general and administrative
expenses of $26.3 million for the third quarter of 2003 decreased by $5.3
million, or 17%, compared to $31.6 million for the third quarter of 2002. The
$5.3 million decrease was comprised of a $1.7 million decrease in marketing
expenses despite releases in the third quarter of 2002 of $3.5 million (see
below for more detail) due to reduced marketing spending during 2003 to be in
line with declining sales, lower professional fees of $1.5 million, $0.7 million
decrease in travel expenses, $0.6 million decrease in depreciation due to
reduced spending on capital assets in the past several years and a $0.8 million
net decrease in various other costs.

Selling, general and
administrative expenses of $77.4 million for the nine months ended September 28,
2003 decreased by $25.4 million, or 25%, compared to $102.8 million for the nine
months ended September 29, 2002. The $25.4 million decrease was comprised of net
favorable legal settlements of $10.9 million (a net favorable settlement of $6.0
million during the first quarter of 2003, compared to a net unfavorable legal
settlement expense of $4.9 million during the first nine months of 2002), lower
professional fees of $4.6 million, lower marketing expenses of $3.7 million
despite releases in the nine months ended September 29, 2002 of $7.9 million
(see below for more detail) due to reduced marketing spending during 2003 to be
in line with declining sales, a $2.7 million decrease in bonus and profit
sharing costs, lower depreciation of $2.2 million due to reduced spending on
capital assets in the past several years and $1.3 million decrease in various
other costs.

As the Company attempted to
reverse the declining trends of revenue in 2000 and 2001, the volume of
marketing programs increased significantly. The volume of marketing programs
decreased during 2002. During 2002, the Company evaluated the marketing programs
and the related processes, accruals and deductions. Based on these efforts which
occurred throughout 2002, the Company revised its estimates of required
marketing program accruals during the first, second and third quarters of 2002
and released approximately $3.5 million in marketing program accruals in the
third quarter of 2002 that related primarily to changes in estimates associated
with prior period programs (included in the $1.7 million third quarter 2003
decrease in expenditures mentioned above). Also as part of these efforts, the
Company released approximately $7.9 million in marketing program accruals in the
first nine months of 2002 that related primarily to changes in estimates
associated with prior period programs (included in the $3.7 million decrease in
the first nine months of 2003 of marketing expenditures mentioned above).

Selling, general and
administrative expenses increased as a percentage of sales to 29% for the third
quarter of 2003, from 23% in the third quarter of 2002, as sales declined at a
faster rate than overall selling, general and administrative costs. For the
third quarter of 2002, the $3.5 million marketing accrual releases equated to
almost 3% as a percentage of sales. Selling, general and administrative expenses
increased as a percentage of sales to 26% for the nine months ended September
28, 2003, from 22% in the nine months ended September 29, 2002, as sales
declined at a faster rate than overall selling, general and administrative
costs. For the nine months ended September 28, 2003, the net favorable legal
settlements of $6.0 million equated to almost 2% as a percentage of sales. For
the nine months ended September 29, 2002, the net unfavorable legal settlements
of $4.9 million and the marketing accrual releases of $7.9 million combined to
equal almost 1% as a percentage of sales.

43

---

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

## Bad Debt

For the third quarter of
2003, a bad debt credit of less than $0.1 million was recorded, reflecting a
$0.2 million, or 86%, decrease compared to a bad debt credit of $0.3 million for
the third quarter of 2002. The $0.2 million decrease in bad debt credit resulted
primarily from a larger improvement in collections during the third quarter of
2002. The Company transitioned its collections to a third party in the third
quarter of 2003.

For the nine months ended
September 28, 2003, a bad debt credit of $1.7 million was recorded, reflecting a
$0.5 million, or 21%, decrease compared to a bad debt credit of $2.2 million for
the nine months ended September 29, 2002. The $0.5 million decrease in bad debt
credit resulted primarily from a larger improvement in overall customer accounts
during the nine months ended September 29, 2002 than during the nine months
ended September 28, 2003. At September 28, 2003, the Company had $1.0 million in
trade receivables in excess of 180 days past due compared to $1.8 million at
December 31, 2002.

## Research and
Development Expenses

Research and development expenses
of $7.5 million for the third quarter of 2003 were $1.5 million, or 17%, lower
than research and development expenses of $9.1 million during the third quarter
of 2002. Lower research and development expenses on Zip were partially offset by
increased research and development expenses on DCT and RRD. Research and
development expenses increased as a percentage of sales to 8% in the third
quarter of 2003, compared to 7% in the third quarter of 2002 due primarily to
lower sales in 2003.

Research and development
expenses of $23.8 million for the nine months ended September 28, 2003 were $2.8
million, or 11%, lower than research and development expenses of $26.6 million
during the nine months ended September 29, 2002. Lower research and development
expenses on Zip were partially offset by increased research and development
expenses on DCT and RRD. Research and development expenses increased as a
percentage of sales to 8% in the nine months ended September 28, 2003, compared
to 6% in the nine months ended September 29, 2002 due primarily to lower sales
in 2003.

With respect to both DCT
and RRD, the Companys two key development projects, for the fourth quarter
of 2003 the Company anticipates spending approximately $4 million to $6 million
in research and development and approximately $2 million of other expenses
(manufacturing expenses and sales and marketing). The Company also anticipates
investing approximately $2 million to $4 million in supplier tooling and
manufacturing equipment for DCT and RRD during the fourth quarter of 2003. The
Company anticipates that it will continue to incur significant research and
development expenses in 2004 on these two projects.

## Restructuring
Charges/Reversals

Third Quarter 2003 Restructuring Actions

During the third quarter of
2003, the Company recorded pre-tax restructuring charges of $12.0 million, of
which $11.1 million was for restructuring actions initiated during the third
quarter of 2003 and $0.9 million was associated with restructuring actions
initiated during the third quarter of 2001 related to lease expenses for a
facility vacated in 2001 and which the Company has been unable to sublease (see
the Third Quarter 2001 Restructuring Actions discussion below for more detail).
The $11.1 million charge for the third quarter 2003 restructuring actions
included $5.5 million for severance and benefits for 203 regular and temporary
personnel worldwide, or approximately 25% of the Companys worldwide
workforce, $3.0 million to exit contractual obligations and $2.6 million to
reimburse a strategic supplier for its restructuring expenses (see below for
more detail).

44

---

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

Of the $12.0 million in
total restructuring charges recorded in the third quarter of 2003, $5.0 million
was charged to cost of sales with the remaining $7.0 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 segment and
the remaining $7.0 million was not allocated to any of the business segments.
All of the $12.0 million restructuring charge will be paid in cash. During the
third quarter of 2003, the Company made cash payments of $7.1 million related to
these restructuring actions.

Of the $5.5 million
severance and benefits charges for the 203 regular and temporary personnel, $3.6
million was for 150 North American employees, $1.6 million was for 35 European
employees and $0.3 million was for 18 Asian employees. The worldwide workforce
reduction was across all business functions and across all levels of the Company
and was in response to the continued sales decline. At September 28, 2003, of
the 203 individuals worldwide whose positions were identified for elimination in
the third quarter of 2003, 69 employees were scheduled to work on a transition
basis through the fourth quarter of 2003 and 14 employees were scheduled to work
on a transition basis through the first quarter of 2004. 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, job level and transition
time and included health insurance continuance payments. Separation payments are
made after the last day of employment after separation agreements have been
signed by the employees. The Company anticipates that the total separation
payments or liability for the 203 employees notified during the third quarter of
2003 will be $7.4 million. The $5.5 million severance and benefits costs
recognized during the third quarter of 2003 included the costs associated with
those employees whose positions were eliminated during the third quarter of 2003
and the ratable recognition of the severance and benefits costs to be paid to
the 83 employees who will remain in transition beyond the minimum retention
period (60 days) as defined by SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. The remaining $1.9 million of
severance and benefits costs related to the 83 transition employees will be
recognized ratably over the future transition period. The Company anticipates
recording additional costs of $1.3 million in the fourth quarter of 2003 and
$0.6 million in the first quarter of 2004.

The $3.0 million of charges
to exit contractual obligations included $2.4 million to discontinue a
third-party manufacturing relationship as part of the Companys efforts to
consolidate its Zip disk manufacturing. The manufacturing contract was
terminated as a result of continued declining Zip disk volumes. The $2.4 million
charge was a negotiated amount based upon the net book value of manufacturing
equipment that the third-party contractor had purchased for the manufacture of
Zip disks, for which the Company was under contract to reimburse in the event of
terminating the manufacturing agreement. Also included in the $3.0 million
charges to exit contractual obligations was $0.5 million to exit an information
technologies contract related to the maintenance and hosting of the
Companys servers and $0.1 million for other miscellaneous contract
cancellations. The information technology maintenance function and hosting will
now be performed by Company employees within the Companys facilities.

45

---

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

The $2.6 million charge to
reimburse a strategic supplier for its restructuring expenses related to
restructuring charges incurred by a strategic supplier of the Companys
products in an effort to reduce product costs charged to the Company. Due to the
continuing decline in sales of Zip products, the Company had requested the
supplier to reduce their overhead costs. In order to induce the supplier to
reduce its overhead costs to a level commensurate with current Zip drive volumes
and at an accelerated rate compared to the overhead cost reductions called for
in the contract between the parties, the Company agreed to reimburse the
restructuring costs incurred by the supplier.

The Company anticipates
recording another $6 million to $8 million of restructuring charges in the
fourth quarter of 2003 related to the third quarter restructuring actions,
bringing the total charges for the third quarter 2003 restructuring actions to
$18 million to $20 million. The charges in the fourth quarter will occur once
the Company has vacated various facilities and has incurred the liability for
the severance charges for employees on transition. The Company also anticipates
recording an estimated charge of $0.6 million in the first quarter of 2004 for
severance and benefits for those employees whose transition period will end
during the first quarter of 2004. None of these remaining charges will be
allocated to any of the business segments.

Remaining restructuring
reserves in the amount of $4.3 million are included in the Companys other
current liabilities and accounts payable as of September 28, 2003. The third
quarter 2003 restructuring charges and utilization of the reserves during the
three months ended September 28, 2003 are summarized below:

`Third Quarter 2003                           Original     Utilized      Balance
    Restructuring Actions                         Charge      in Cash       09/28/03
                                                 --------     --------      --------
                                                           (In thousands)

    Severance and benefits                       $  5,525     $ (2,571)     $ 2,954
    Contract cancellations                          2,945       (1,640)       1,305
    Supplier restructuring reimbursement            2,629       (2,629)           -
                                                 --------     --------      -------
                                                 $ 11,099     $ (6,840)     $ 4,259
                                                 ========     ========      =======

    Balance Sheet Breakout:
      Other current liabilities                  $  8,707     $ (5,255)     $ 3,452
      Accounts payable                              2,392       (1,585)         807
                                                 --------     --------      -------
                                                 $ 11,099     $ (6,840)     $ 4,259
                                                 ========     ========      =======`

46

---

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

Third Quarter 2001 Restructuring Actions

During the third quarter of
2001, the Company recorded pre-tax restructuring charges of $33.3 million.
During the third quarter of 2003, the Company recorded an additional $0.9
million for Europe lease termination costs as a result of the Company not being
able to locate a tenant for the Ireland facility. For more information on the
third quarter 2001 restructuring actions, see Note 4 of the notes to the
condensed consolidated financial statements. Remaining restructuring reserves in
the amount of $3.8 million and $0.3 million are included in the Companys
other current liabilities and fixed asset reserves, respectively, as of
September 28, 2003. Utilization of and other activity relating to the third
quarter 2001 restructuring reserves during the three months ended September 28,
2003 are summarized below:

`Third Quarter 2001                           Balance        Utilized                         Balance
                                                       -------------------
Restructuring Actions                        06/29/03   Cash      Non-Cash     Additions     09/28/03
                                             --------  ------     --------     ---------     -------
                                                               (In thousands)
North America Reorganization:
  Lease cancellations (a)                    $ 2,645   $ (241)     $   -         $   -       $ 2,404
  Leasehold improvements and
    furniture (b)                                365        -        (33)            -           332
                                             -------   ------      -----         -----       -------
                                               3,010     (241)       (33)            -         2,736
                                             -------   ------      -----         -----       -------

Europe Reorganization:
  Lease cancellations (a)                        468      (13)         -           930         1,385
                                             -------   ------      -----         -----       -------
                                             $ 3,478   $ (254)     $ (33)        $ 930       $ 4,121
                                             =======   ======      =====         =====       =======

Balance Sheet Breakout:
  Other current liabilities (a)              $ 3,113   $ (254)     $   -         $ 930       $ 3,789
  Fixed asset reserves (b)                       365        -        (33)            -           332
                                             -------   ------      -----         -----       -------
                                             $ 3,478   $ (254)     $ (33)        $ 930       $ 4,121
                                             =======   ======      =====         =====       =======`

|(a) | Amounts represent primarily cash charges.
|--- | -----------------------------------------

|(b) | Amounts represent primarily non-cash charges.
|--- | ---------------------------------------------

47

---

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

Utilization of and other
activity relating to the third quarter 2001 restructuring reserves during the
nine months ended September 28, 2003 are summarized below:

`Third Quarter 2001                           Balance           Utilized        Additions/    Balance
                                                       ----------------------
Restructuring Actions                        12/31/02    Cash     Non-Cash    (Reversals)    09/28/03
                                             -------   -------    --------     ----------    --------
                                                               (In thousands)

North America Reorganization:
  Severance and benefits (a)                 $    78   $     -     $   -         $ (78)      $     -
  Lease cancellations (a)                      3,194      (790)        -             -         2,404
  Leasehold improvements and
    furniture (b)                                431         -       (99)            -           332
                                             -------   -------     -----         -----       -------
                                               3,703      (790)      (99)          (78)        2,736
                                             -------   -------     -----         -----       -------

Europe Reorganization:
  Lease cancellations (a)                        727      (272)        -           930         1,385
                                             -------   -------     -----         -----       -------
                                             $ 4,430   $(1,062)    $ (99)        $ 852       $ 4,121
                                             =======   =======     =====         =====       =======

Balance Sheet Breakout:
  Other current liabilities (a)              $ 3,999   $(1,062)    $   -         $ 852       $ 3,789
  Fixed asset reserves (b)                       431         -       (99)            -           332
                                             -------   -------     -----         -----       -------
                                             $ 4,430   $(1,062)    $ (99)        $ 852       $ 4,121
                                             =======   =======     =====         =====       =======`

|(a) | Amounts represent primarily cash charges.
|--- | -----------------------------------------

|(b) | Amounts represent primarily non-cash charges.
|--- | ---------------------------------------------

As of September 28, 2003,
the remaining leasehold improvements are associated with subleased facilities
and cannot be disposed of until the 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. During the first quarter of 2003,
severance and benefit reserves of $0.1 million were reversed due to the original
estimates being higher than what was utilized. During the third quarter of 2003,
the Company recorded an additional $0.9 million for Europe lease termination
costs as a result of the Company not being able to locate a tenant for the
Ireland facility.

## Interest and
Other Income and Expense

Interest income of $1.2
million in the third quarter of 2003 decreased $0.8 million, or 38%, from $2.0
million in the third quarter of 2002. The decrease in interest income resulted
from significantly lower interest rates that were partially offset by higher
average cash, cash equivalents and temporary investment balances. The lower
interest rates were partly attributable to the Companys efforts during the
third quarter of 2003 to liquidate its temporary investments to have cash on
hand to pay the one-time cash dividend on October 1, 2003.

Interest and other expense
of $0.7 million during the third quarter of 2003 increased $0.1 million from
interest and other expense of $0.6 million in the third quarter of 2002.

48

---

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

Interest income of $4.7
million in the nine months ended September 28, 2003 decreased $2.0 million, or
29%, from $6.7 million in the nine months ended September 29, 2002. The decrease
in interest income resulted from significantly lower interest rates that were
partially offset by higher average cash, cash equivalents and temporary
investment balances. The lower interest rates were partly attributable to the
Companys efforts during the third quarter of 2003 to liquidate its
temporary investments to have cash on hand to pay the one-time cash dividend on
October 1, 2003.

Interest and other expense
of $1.1 million during the nine months ended September 28, 2003 decreased $2.6
million from interest and other expense of $3.7 million in the nine months ended
September 29, 2002. The $2.6 million decrease resulted primarily from lower
other expense (the nine months ended September 29, 2002 included $1.5 million
for the write-down of a research and development venture investment), higher
realized gains on temporary investments and lower interest expense, partially
offset by higher foreign currency losses.

Interest income is expected
to decrease as the Company has liquidated its temporary investments and paid
$257.2 million for the one-time cash dividend on October 1, 2003. The resulting
lower cash balances will significantly reduce the Companys interest income
in the fourth quarter and beyond.

## Income Taxes

For the quarter ended
September 28, 2003, the Company recorded an income tax benefit of $9.0 million
on a pre-tax loss of $22.1 million reflecting an effective tax benefit rate of
41%. This compares to an income tax provision of $33.0 million on pre-tax income
of $7.3 million, reflecting an income tax provision of $6.2 million and a net
provision of $26.8 million related to the sale of the Companys Penang
Manufacturing Subsidiary for the quarter ended September 29, 2002. The $26.8
million net provision related to the Penang Manufacturing Subsidiary was
comprised of a $39.6 million increase associated with foreign earnings for which
no U.S. tax provision had previously been provided and a $12.8 million decrease
in the valuation allowance for net deferred tax assets. Excluding the increased
provision related to the provision on foreign earnings and the valuation
allowance release, the adjusted effective tax rate for the third quarter of 2002
was 85%. The 85% adjusted effective tax rate in the third quarter of 2002
resulted primarily from the fact that $10.7 million of impairment charges
related to the sale of the Companys Penang Manufacturing Subsidiary were
not deductible for tax purposes.

At September 28, 2003, the
Company had $36.7 million of deferred tax assets related to U.S. federal and
state net operating loss carryforwards (NOLs). Of the total NOL
deferred tax assets, $29.7 million related to U.S. federal NOLs and $7.0 million
related to state NOLs. The federal NOLs reflect a tax benefit of approximately
$85 million in future U.S. federal tax deductions. The state NOLs reflect a tax
benefit of approximately $175 million in future state tax deductions. The
difference in the amount of future federal and state tax deductions related to
the NOLs is largely the result of differences between federal and state NOL
carryback rules which have allowed the use of federal NOLs in instances where
state NOLs could not be utilized. The U.S. federal NOLs expire at various dates
beginning in 2022 and the state NOLs expire at various dates beginning in 2004.
With the repatriation of cash during the fourth quarter of 2003 for the payment
of the one-time cash dividend (see Note 6, Other Matters, of the
notes to condensed consolidated financial statements, for more detail on the
impacts of the one-time cash dividend), the Company anticipates that it will
fully utilize its current federal NOLs in 2003.

49

---

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

The Company continues to
maintain a full valuation allowance of $13.2 million for deferred tax assets
related to foreign NOLs, which reflect the tax benefit of approximately $35.7
million in future foreign tax deductions. These NOLs expire at various dates
beginning in 2004. These deferred tax assets remain fully reserved because their
realization is dependent on earning future foreign taxable income in the tax
jurisdictions to which the NOLs were generated. The largest of these foreign
NOLs relate to the Companys French subsidiary, Nomai S.A. This
subsidiarys operations are inactive and therefore, the foreign NOL related
to Nomai S.A. is not likely to be realized in the future.

Net deferred tax
liabilities for the Company at September 28, 2003 were $18.7 million. As of
September 28, 2003, deferred tax liabilities for estimated U.S. federal and
state taxes of $98.3 million have been accrued on unremitted foreign earnings of
$252.1 million.

For the nine months ended
September 28, 2003, the Company recorded an income tax benefit of $9.8 million
on a pre-tax loss of $13.2 million which included a benefit of $4.6 million for
research tax credits. Excluding the $4.6 million of research tax credits, the
adjusted effective tax rate for the nine months ended September 28, 2003 was
39%. This compares to an income tax provision of $34.7 million on pre-tax income
of $51.6 million in the nine months ended September 29, 2002, reflecting an
income tax provision of $24.4 million, an additional tax provision of $39.6
million related to the Companys earnings previously considered to be
permanently invested in non-U.S. operations and a $29.3 million decrease in the
valuation allowance for net deferred tax assets. The $39.6 million provision
resulted from the sale of the Companys Penang Manufacturing Subsidiary.
Excluding the $39.6 million increase related to the sale of the Penang
Manufacturing Subsidiary and the $29.3 million decrease in the valuation
allowance, the adjusted effective tax rate for the nine months ended September
29, 2002 was 47%. The 47% effective tax rate adjusted for the valuation
allowance and increased provision on foreign earnings in the first nine months
of 2002 resulted primarily from $10.7 million in impairment charges related to
the sale of the Companys Penang Manufacturing Subsidiary that were not
deductible for tax purposes and from the expiration of foreign tax credits due
to the carryback of the 2001 net operating loss to 1996, as allowed by the Job
Creation and Worker Assistance Act of 2002.

## Liquidity and
Capital Resources

At September 28, 2003, the
Company had total cash, cash equivalents and temporary investments of $438.0
million, compared to $453.9 million at December 31, 2002, a decrease of $15.9
million or 3%. At September 28, 2003, $257.2 million of the total cash and cash
equivalents was reserved for the payment of the one-time cash dividend on
October 1, 2003. At September 28, 2003, another $0.2 million of the total cash
on deposit was restricted in its use, compared to $3.8 million at December 31,
2002 (see below for more detail).

On July 17, 2003, the
Companys Board of Directors declared a one-time cash dividend of $5.00 per
share to stockholders of record as of the close of business on September 15,
2003, that was paid on October 1, 2003. The total amount of the dividend was
$257.2 million.

At September 28, 2003,
$164.1 million of cash, cash equivalents and temporary investments were on
deposit in the U.S., of which approximately $137 million was reserved for the
one-time cash dividend, compared to $168.7 million at December 31, 2002.

50

---

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

At September 28, 2003, the
remaining $273.9 million of total cash, cash equivalents and temporary
investments were on deposit in foreign countries (primarily Western Europe), of
which approximately $120 million was reserved for the one-time cash dividend,
compared to $285.2 million at December 31, 2002. With respect to the foreign
cash that will be repatriated during the fourth quarter of 2003 for the payment
of the one-time cash dividend, the amount of cash ultimately required for U.S.
federal and state taxes will be less than the Companys regular 39% rate
due to the Companys existing federal and state operating losses, tax
credit carryforwards and certain states exclusions of foreign dividend
income. The Company currently anticipates that the incremental cash paid for
taxes, as a result of the repatriation of foreign cash to pay the one-time cash
dividend, will be less than $10 million primarily due to the utilization of
federal NOLs. The Company anticipates that it will fully utilize its federal
NOLs in 2003. The repatriation of any of the remaining $153.9 million of foreign
cash not used to fund the one-time cash dividend, to the U.S. will be taxable
income in the U.S. for federal and state tax purposes at a rate of approximately
39%. Any taxes paid on the repatriation of cash to the U.S. would not impact the
statement of operations as taxes have already been provided on these foreign
earnings.

Working capital of $156.7
million at September 28, 2003 decreased by $275.0 million, or 64%, compared to
$431.7 million at December 31, 2002. The decrease in working capital resulted
primarily from the recording of the payable for the $257.2 one-time cash
dividend which was paid on October 1, 2003 and from the $15.9 million decrease
in total cash, cash equivalents and temporary investments. Lower trade
receivables, lower inventories, lower current deferred income taxes and lower
other current assets were mostly offset by lower accounts payable and lower
other current liabilities.

For the nine months ended
September 28, 2003, cash used in operating activities amounted to $3.8 million,
a decrease of $74.7 million compared to cash provided by operating activities of
$70.9 million for the nine months ended September 29, 2002. The change in cash
used in operating activities resulted primarily from the net loss in the current
year and changes in current assets (as described below), partially offset by
changes in current liabilities (as described below) and the receipt of $7.5
million from a legal settlement in the first quarter of 2003.

Accounts receivable
decreased in the nine months ended September 28, 2003 primarily from lower
sales. Days sales outstanding (DSO) in receivables increased to 36
days at September 28, 2003, when compared to December 31, 2002 (DSO is
calculated by multiplying the September 28, 2003 receivables balance by 90 and
dividing that amount by the sales for the quarter ended September 28, 2003),
primarily due to intra-quarter seasonality resulting from back-to-school
programs, back-to-work programs in Europe and shipments of new products such as
Super DVD that all occurred at the end of the quarter resulting
in higher sales at the end of the quarter.  Accounts payable decreased
primarily from approximately $20 million in initial purchases of inventory from
the Companys former Penang manufacturing subsidiary (which was sold on
November 1, 2002) that were not due as of December 31, 2002 and from lower
inventory purchases during the first nine months of 2003. Other current
liabilities decreased primarily from lower margin on deferred sales and lower
marketing accruals. Inventory decreased primarily due to lower levels of Zip
inventories and a concentrated program to lower inventory in light of declining
sales.

During the nine months
ended September 28, 2003, the Company did not repurchase any shares of the
Companys Common Stock. For the nine months ended September 29, 2002, the
Company repurchased 340,400 shares of the Companys Common Stock for $2.9
million. As of September 28, 2003, approximately $122.3 million remained
available for future repurchases under the stock repurchase plan authorized by
the Companys Board of Directors on September 8, 2000. Any repurchase of
shares is expected to be funded using the Companys available working
capital.

51

---

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

The Company anticipates
investing approximately $2 million to $4 million in supplier tooling and
manufacturing equipment for DCT and RRD during the fourth quarter of 2003.
During the first nine months of 2003, the Company has invested $2.9 million in
supplier tooling and manufacturing equipment for DCT and RRD. The Company also
anticipates incurring an additional $6 million to $8 million in expenses
developing DCT and RRD during the fourth quarter of 2003. The Company
anticipates that it will continue to incur significant research and development
expenses in 2004 on these two projects.

During the third quarter of
2003, the Company announced plans to restructure its operations and began
implementing these restructuring actions. During the third quarter of 2003, the
Company recorded restructuring charges of $12.0 million and anticipates
recording another $6 million to $8 million of restructuring charges in the
fourth quarter of 2004. Substantially all of these charges are expected to be
cash charges. During the third quarter of 2003, the Company paid $7.1 million in
cash related to restructuring actions. The majority of the cash charges are
expected to be paid out in the second half of 2003. Some of the cash charges
will be paid beyond 2003 since the Company will most likely continue to pay the
lease payments associated with vacated facilities on a monthly basis through the
remaining life of the leases.

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

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

52

---

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

## Other Matters

Securities and Exchange Commission Review

As previously disclosed in
the Companys Annual Reports on Form 10-K for the years ended December 31,
2000, December 31, 2001 and December 31, 2002, in connection with a review of
the Companys periodic Securities and Exchange Commission (SEC)
reports, the Company has received comments from the staff of the SEC requesting
various supplemental information and certain additional disclosures. The staff
also has questioned aspects of the Companys accounting for its 1998
acquisition of Nomai, the subsequent evaluation of impairment of goodwill
relating to the Nomai acquisition and the restructuring charges recorded by the
Company in 1999.

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

The Companys
management believes that the Companys accounting for each of these matters
is in accordance with accounting principles generally accepted in the United
States of America. However, there can be no assurance that the Company will
prevail in its position. If the Company does not prevail, the Company may be
required to restate its consolidated financial statements in order to adjust the
manner in which it has accounted for the Nomai acquisition in 1998, the
subsequent evaluation in 1999 of the impairment of the goodwill relating to the
Nomai acquisition and the 1999 restructuring actions. The Company does not
believe that any such restatement would have a material adverse effect on the
Companys current financial condition or future results of operations.

Recent Accounting Pronouncements

In January of 2003, the
Financial Accounting Standards Board (FASB) issued Interpretation
No. 46, Consolidation of Variable Interest Entities, and Interpretation of
Accounting Research Bulletin No. 51 (FIN 46). FIN 46 provides
guidance for determining whether and how to consolidate variable interest
entities (VIEs). Variable interests are contractual, ownership or
other interests in an entity that expose their holders to the risks and rewards
of the VIE. Variable interests include equity investments, loans, leases,
derivatives, guarantees and other instruments whose values change with changes
in the VIEs assets. Any of these instruments may require its holder to
consolidate the VIE. The party with the majority of the variability in gains or
losses of the VIE is required to consolidate the VIE. In October of 2003, the
FASB announced that it has deferred the effective date of FIN 46 until the
fourth quarter of 2003. The Company plans on adopting FIN 46 during the fourth
quarter of 2003. The Company does not have an interest in a VIE that meets FIN
46s requirements and thus the Company believes that FIN 46 will not
currently impact the Company.

53

---

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, in large part, upon the Companys ability to
achieve and maintain a significant market demand and presence for its products
and to operate profitably and efficiently. The Companys ability to
accomplish this will depend on a number of factors, including the following:

- Market demand for digital storage products in general;
- Price, performance, quality, and other characteristics of the Companys
products and of competing and substitute products rumored, announced or
introduced by other vendors;
- Emergence of any competing solutions as industry standards;
- Success of the Company in
meeting targeted availability dates for new and enhanced products;
- Success of
the Company in establishing and maintaining OEM arrangements and meeting OEM
quality, supply and other requirements;
- Willingness of OEMs to
promote products containing the Companys drives;
- Success of the
Companys efforts to provide and maintain customer service and
satisfaction;
- Public perception of the Company and its products, including
statements made by industry analysts or
consumers and adverse publicity resulting from such statements or from litigation filed
against the Company;
- Worldwide economic conditions, including overall market demand for personal
computers and other products with which the Companys products can be used;
- Ability of the Company to profitably and efficiently manage its supply of
products and key components, and to avoid disruptions in the supply thereof;
- Ability of the Company to maintain profitable relationships with distributors,
retailers and other resellers of the Companys products;
- Ability of the Company to comply with applicable laws, regulations, ordinances
and other legal requirements in the numerous countries in which it does
business;
- Ability of the Company to successfully manage litigation, including enforcing
its rights, protecting its interests and defending itself from claims made
against it and
- Ability of the Company to successfully implement its announced restructuring of
operations, to achieve and maintain an appropriate cost structure and to
minimize unforeseen and extraordinary expenses.

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

54

---

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

Zip Drives and Disks

Since 1996, sales of Zip
products have accounted for a significant majority of the Companys
revenues and profits. However, these sales have declined significantly over the
past several years, both in terms of unit volumes and sales dollars. For
example, for the first nine months of 2003, Zip sales were $198.7 million, a
decrease of $169.4 million, or 46%, from the first nine months of 2002.
Shipments of the Companys Zip drive units for the first nine months of
2003 decreased 42% from the first nine months of 2002 and shipments of Zip disk
units decreased 49% compared to same time period. The Company expects continuing
declines in Zip unit sales and revenues, due to factors such as the following:

- Abandonment of Zip drive and disk usage by existing Zip drive customers as the
Zip technology reaches the end of its lifecycle;
- The prevalence of optical drives (CD-RW and DVD) being built into new computers,
their availability in the aftermarket and the low cost of optical media;
- The continued widespread proliferation of other low cost storage devices and
media such as external hard drives and USB flash drives;
- Increasing difficulty in generating demand for Zip products through promotions and
- Potential disruptions in the supply of Zip drives and disks from the
Companys suppliers as Zip volumes continue to decline.

The Company is developing
new products (DCT and RRD), has launched a line of NAS products, and has
broadened its line of sourced branded products (for example, Optical, HDD, Mini
USB and external floppy disk drives) in an attempt to create additional revenue
streams. In the meantime, the Companys profitability remains entirely
dependent on maximizing, to the extent possible, sales of Zip drives and disks,
which generate significantly higher gross and product profit margins than other
Company products. However, the Companys profitability and/or results of
operations will continue to be adversely affected by Zip sales declines unless
and until the Companys other product lines become consistently profitable.
There can be no assurance that they will ever do so.

As the Companys Zip
drive and disk sales have declined, it has become increasingly difficult for the
Company to maintain its presence and shelf space with its key resellers and
retailers. The Company anticipates continued challenges in this area for the
foreseeable future. Although the Company attempts to offer competitive sales and
marketing programs to induce channel customers to continue to purchase Zip
products and other offerings, there is no assurance that the Company will be
successful in this regard.

The Company sells a
significant percentage of its total volume of Zip drives to a relatively small
number of computer OEMs. The Companys OEM customers are not obligated to
purchase any minimum volume of Zip drives. Moreover, the fact that the number of
OEM customers is relatively small presents a risk that the loss of one or more
key OEM accounts would have an immediate, material adverse effect on the
Companys financial condition or operating results. There is a growing
trend among personal computer OEM customers to adopt CD-RW and DVD rewritable
drives as standard product features. The Company believes that this trend, which
has had a material adverse impact on the Companys Zip business, is
irreversible.

As the Companys Zip
volumes continue to decline, suppliers of certain critical components of both
Zip drives and disks have begun indicating that they will stop producing, or
End of Life, such components. The End of Life of such components
raises a number of business risks, including risks such as the following:

- Risks that the Company
will order insufficient or excess quantities of key components;
- Risks of
irreparable quality problems manifesting in certain components only after Iomega
has completed last time buys of such components and
- Risks that certain suppliers may produce excess inventory of key components in
the absence of firm orders from Iomega, leading to potential disputes regarding
payment obligations.

55

---

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

The Company will need to
properly manage the End of Life processes for such components to ensure ongoing
Zip profitability. The Company can give no assurance that it will be able to do
so.

In addition, as the
Companys Zip volumes continue to decline, it becomes increasingly
difficult for the Company to forecast Zip revenue streams, to manage the
Companys supply of Zip products and to manage inventory of Zip products at
distributors and retailers. The Company can give no assurance that it will be
able to successfully manage these factors.

Notwithstanding the
foregoing challenges and risks, the Companys ability to minimize, to the
extent possible, the decline in Zip unit volumes and sales will be critical to
the Companys future profitability unless and until other product lines
become consistently profitable. Despite all of the Companys initiatives to
promote the Zip business, it has continued to decline. Zip sales are
significantly lower in 2003 than they were in 2002, and the Company expects this
trend to continue. The Company has been unable to accurately forecast and
predict the actual rate of Zip decline over time. Any significant negative
change in the rate of the decline, from quarter to quarter, will have a negative
impact on financial results because the Company is generally unable to quickly
make a corresponding reduction in operating expenses or other costs.
Consequently, there is no assurance that the Company will be able to maintain
its Zip business and profitability.

Optical Products

The Company ships a variety
of rewritable optical (CD-RW and DVD) drives. The Companys Optical
business strategy differs fundamentally from its Zip product strategy. Material
differences between the Optical and Zip businesses include the following: a) the
Company does not own any significant intellectual property relating to optical
drives; b) unlike Zip drives, optical drives use very low-cost, non-proprietary
discs available from many sources; c) there is intense competition between
different providers of optical drives and d) the Company obtains significantly
lower overall gross margins on sales of optical drives than on Zip drives. The
overall optical business is characterized by low gross margins, continuing end
user price reductions, the frequent introduction of performance upgrades and
intense competition from both brand name and generic, low-cost competitors. One
or more of these factors could compel the Company to initiate an inventory
write-down with respect to its Optical drives. In light of these factors, the
Company must accurately forecast demand and closely monitor its inventory
levels, product transitions, sales channel inventory, purchase commitments,
advertising and other marketing expenses in order to compete effectively and
profitably. There is no assurance that the Company can consistently achieve
these objectives, and historically it has failed to do so. Since it entered the
optical market in 1999, the Company has reported product losses on its Optical
business every year through 2002.

In spite of these
challenges, the Company believes it must maintain a presence in the optical
market 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. The Companys Optical business
activities are focused on reducing product costs and operating expenses,
improving inventory management processes, receiving more favorable contract
terms, improving product life cycle management and revising channel marketing
programs with the ultimate goal to minimize product losses. However, there is no
assurance that the Companys activities in this regard will be successful.
The suppliers, as the original manufacturers, have certain competitive
advantages over the Company in the marketplace, including the ability at any
time to sell substantially identical drives at lower prices than the Company. In
addition, the Company believes that the overall market for aftermarket external
CD-RW drives is shrinking, due to factors such as the following: a) OEMs
continue to offer, and customers continue to choose, internal CD-RW drives as a
standard product feature, thereby minimizing market demand for external CD-RW
drives; b) customers continue to transition from CD-RW drives to DVD rewritable
drives and c) aftermarket internal drives are now significantly less expensive
than external drives. The Company is trying to mitigate the impact of the
shrinking aftermarket external CD-RW drive market by offering external DVD drive
products; however, there is no guarantee that this strategy will work.

56

---

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

Iomega HDD, Iomega Mini USB Drives and Other Sourced Branded Products

In 2002, the Company began
shipping a series of portable and desktop HDD drives and, in November 2002, the
Company began shipping a series of USB flash drives. The Company may ship
additional sourced branded products (finished products which contain little or
no Iomega intellectual property and are procured from third-party suppliers).
The Company will face many of the same challenges with these sourced branded
products that it has in the optical market. For example, a) the Company does not
own any significant intellectual property relating to HDD and USB flash drives
and is unlikely to own significant intellectual property rights in other sourced
branded products; b) there is intense competition between different providers of
HDD and USB flash drives and such competition is likely to exist between
suppliers of other sourced branded products and c) there is a need to
continually requalify new drives and products as existing drives and products
come into short supply or become obsolete.

There are other risks
associated with shipping sourced branded products. Such products may infringe
another partys protected intellectual property, may lack adequate quality
or may otherwise expose the Company to liability. The overall sourced product
market is characterized by low gross margins, continuing end user price
reductions, the frequent introduction of upgraded products and intense
competition from both brand name and generic, low-cost competitors. In order to
successfully compete in this market, the Company must accurately forecast
demand, secure quality products, meet aggressive product price and performance
targets, create market demand for its particular brand of products and avoid
holding excessive inventory. In addition, the Company must ensure access to an
adequate supply of products in the face of potential shortages of particular
products or of key components thereof. For example, there is a current worldwide
shortage of flash memory products, which the Company expects to last at least
through the first half of calendar year 2004. This shortage is expected to have
a negative impact upon the Companys sales of Mini USB drives or other
products which incorporate flash memory. In addition, one of the Companys
key suppliers of hard disk drives has announced a product shortage on a certain
capacity hard disk drive, which could negatively impact the Companys HDD
business. There is no assurance that the Company can or will be able to
successfully manage any of these risks set forth above or achieve sustainable
profitability on these products.

Network Storage Systems

In 2002, the Company
introduced a line of Network Attached Storage (NAS) servers. The
Company has continued to expand its product line and now offers NAS devices with
capacities ranging from 160GB to 2.0TB. The NAS market is dominated by large
computer providers (including Dell and Hewlett Packard/Compaq), is highly price
competitive, primarily relies upon value added resellers (VARs) and
requires core competencies in server, software, systems integration and
networking technologies. The Company has little historic expertise in these
areas and is attempting to implement a strategy to address these requirements
and challenges. The NAS market is an emerging market and attempts to predict
development of this market are inherently speculative. Moreover, the Company has
not yet demonstrated an ability to operate profitably in this market. In 2002,
the Company incurred start-up expenses relating to NAS product qualification,
launch and customer support in excess of its expectations. In the first nine
months of 2003, the Company recorded product losses of $11.9 million on its NAS
operations due to under-absorbed operational overhead due to lower than planned
volumes and from higher sales and marketing and research and development
spending designed to broaden the Companys NAS product offerings. Indeed,
the Company has recorded NAS product losses in each quarter it has shipped the
product. The Company has not yet successfully developed, nor can there be any
assurance that the Company will, successfully develop the necessary core
competencies to compete in this market segment, that the Companys NAS
products will be successful, that the Company will be successful in implementing
its Network Storage Systems strategy, that the Company will be able
to resolve any of the other challenges set forth above or that the Company will
ever achieve profitability on this product line. The Company regularly reviews
the financial performance of its business segments. In reviewing its NSS
business, if the Company were to decide to discontinue the business or redirect
its strategy, the Company would incur material restructuring and other charges.

57

---

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

During the third quarter of
2003, the Company began shipping tape drive products primarily bundled with NAS
servers. Similar to all of the risks and challenges outlined above relating to
NAS, there is no assurance that the Company will achieve market acceptance of
its tape drive products or that the Company will be able to sell tape drive
products profitably.

Development and Introduction of New Products and New Revenue Streams

In light of continuing
declines in the Zip business, the Company believes that it must develop or
acquire new products that are profitable in order to remain viable. However, the
Companys efforts in this regard have been unsuccessful in recent years.
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 desktop and portable HDD drives, NAS servers and Iomega Mini
USB drives. The Company has not been able to maintain profitable operations with
respect to any of these products, or with respect to its Optical products, for
any sustained period of time.

The Company has spent, and
plans to continue to spend, significant resources on efforts to develop two new
high capacity removable storage devices (DCT and RRD). In addition, the Company
expects to review new business opportunities in multiple areas including digital
storage, software, disks, networking, services and other related areas. The
Company may spend significant resources attempting to develop new technology
products or attempting to market new products incorporating such products or
applications. There is no assurance that the Company will be successful in any
of these endeavors. Moreover, the Companys planned introduction of DCT,
RRD and any additional new products entails risks relating to factors such as
the following:

- Unforeseen manufacturing and technical challenges or delays;
- Inability to reach acceptable agreements with key suppliers or manufacturers;
- Performance,  quality or other issues that are only  discovered  in the context of usage by large  numbers
of end users;
- Lack of defensible
intellectual property;
- Lack of relevant core competencies or market expertise;
- Intense competition from substitute technologies;
- Lack of market acceptance;
- Any failure to achieve significant OEM adoption of the products;
- Significant product launch and sales and marketing expenses which could cause on-going
product losses;
- Significant expenditures for tooling and inventory before any
market demand is validated and
- Risk that third parties may assert intellectual
property claims against new products.

58

---

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

In addition to the general
risks set forth above, the Company faces specific risks with respect to its
planned introduction of RRD and DCT products in 2004. Technical challenges exist
with respect to both products. The manufacturing lines and production processes
for these products are still being developed and unforeseen problems with the
supply chain may arise with respect to either or both of the products. In
addition, the Company believes that it is unlikely that either product,
especially in the case of DCT, will be commercially successful in the absence of
agreements with key OEMs to incorporate such products and, as of this date, no
agreements with any such OEMs have been executed. There can be no assurance that
the Company will be able to successfully resolve any of these challenges,
problems or risks. Any such challenges, problems or risks, if unresolved, could
cause the DCT or RRD new products to be cancelled before or after launch, and in
such event, the Company would incur material restructuring and other charges.

General Economic Conditions

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

The Company believes that
economic conditions in the personal computer industry remain somewhat stagnant
and that these conditions have affected the computer resellers, distributors and
retailers who sell the Companys products. In addition, worldwide economic
conditions are unsettled. The instability in Iraq, political tensions in other
areas of the world, recent terrorist and counter terrorist activities and other
events continue to create an atmosphere of uncertainty. The Company believes
that these events and continued economic weakness have adversely affected the
Company.

Collection Risks

Although the Company uses
commercially reasonable steps to manage the credit granted to its customers,
certain receivable balances from one or more of its customers may become
uncollectible. This event could adversely affect the Companys financial
results. The Company may be required to increase its allowance for doubtful
accounts in the future. In addition, there is a risk that key resellers,
distributors and resellers who sell the Companys products may require the
Company to offer them increasingly favorable credit and purchase terms and
conditions in exchange for continuing to carry the Companys products. Such
terms could have an adverse effect upon the Company.

Information Technology System Upgrade

During the third quarter of
2003, the Company began a project to upgrade the Companys information
technology system and re-engineer its business processes. The goal of this
project is to reduce costs by reducing the number of systems needed to be
maintained and to simplify business processes. There is no assurance that the
Company will reduce costs or simplify processes, or avoid operational and
informational interruptions as a result of the system upgrade and business
process changes.

59

---

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

Company Operations

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

Inventory Management

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

- Company's and competitors' 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.

Product Procurement

On November 1, 2002, the
Company sold its Penang manufacturing subsidiary to a third party. The Company
entered into a five-year manufacturing services agreement with Venture for the
manufacture and supply of Zip drives and certain other products. There is no
assurance that this transaction will allow the Company to reduce costs or
otherwise be beneficial to the Company. As a result of this transaction, the
Company faces new risks including the following:

- The Company no longer has direct control over the manufacturing processes of Zip
drives and other products;
- The Company's ability to quickly increase or decrease production rates may be impaired;
- The Company  may incur  continuing  increased  product or  operational  costs.  Specifically,  the product
prices
agreed to with the vendor are contingent upon the Company purchasing certain
volumes. The Company has incurred significant incremental costs as a result of
not meeting the targeted volumes on Zip drives and the Company may incur
additional such costs in the future;
- The Company faces new
risks related to order management, supply and distribution issues;
- The
Companys lack of control over its manufacturing process may increase the
risk that quality or reliability
problems may arise with respect to its products;
- Possible turn-over of
knowledgeable personnel or loss of technical skill sets;
- Distribution risks in
the Asia Pacific region and
- Other risks associated with the fact that a third party owns the only
manufacturing facility producing Zip drives and disks and thus plays a key role
in the Companys supply and sale of Zip products, increasing the
significance of any difficulties encountered at that facility.

60

---

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

Product Procurement Costs

The Company believes that
it must continually reduce the procurement costs of its products in order to
remain viable. However, with the sale of the Companys Penang manufacturing
subsidiary, the Company has limited involvement in the manufacturing of any of
the products it sells. Thus, in order to reduce product costs, the Company
believes that it must successfully negotiate lower product procurement costs
from suppliers. In the case of Zip in particular, the supplier may not be able
to meet contractual obligations to reduce operational overhead or introduce
business from other non-Iomega sources rapidly enough to offset the decline in
Zip unit production, causing further price adjustments.

The Company has also
consolidated all Zip disk manufacturing with one supplier with the goal to
reduce costs. This consolidation entails a number of risks, including risks of
disruption in the supply of Zip disks in the event of labor, quality or other
problems at the Zip disk manufacturer and risks that the consolidation will not
lead to reduced costs or efficiencies. 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 and, consequently, has become more
reliant upon the computer systems of its outsourcing partners. The Company faces
risks that these systems may have communication, control or reliability
problems. In the outsourcing of its European distribution and logistics
function, disparate computer systems between the Company and its outsourcing
partners necessitated the creation of manual processes in order to record
certain transactions. The Company will automate the manual processes as part of
the system upgrade that was undertaken in the third quarter of 2003.

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

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
comprehensive 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.

61

---

IOMEGA
CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (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
sold its Penang manufacturing subsidiary, the Company has retained
responsibility for the supply of certain key components. The Company has
experienced difficulty in the past and may experience difficulty in the future,
in obtaining a sufficient supply of many key components on a timely and cost
effective basis. Many components incorporated or used in the manufacture of the
Companys products are currently available only from single or sole source
suppliers or from a limited number of suppliers and are purchased by the Company
without guaranteed supply arrangements. In addition, the Company has only one
supplier of certain key products. As Zip product volumes have declined, multiple
suppliers have imposed component price increases, which increase the overall
cost of the Zip products. There can be no assurance that the Company will be
able to obtain a sufficient supply of components on a timely and cost effective
basis.

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

- The Company might be
unable to produce sufficient quantities of its products to satisfy market
demand;
- In the case of a component purchased exclusively from one supplier,
the Company could be prevented from producing
any quantity of the affected product(s) until such component becomes available
from an alternative source;
- The Company might be forced to delay product shipments;
- The Companys
material 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 based on the lead times associated
with the specific component or sourced product. The quantities on the purchase
order are based on estimated sales requirements. In the case of new products or
products with declining sales, it is difficult to forecast product demand, which
could result in either insufficient or excess products and/or purchase
commitments. The Company has recorded significant charges in the past relating
to supplier purchase commitments and inventory reserves. The Company may be
required to take similar charges attributable to forecasting inaccuracies in the
future.

62

---

IOMEGA
CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (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 in order to
continue to market and distribute one or more of the Companys current or
future products;
- A requirement that the
Company pay royalties to third parties for past product shipments;
- A requirement that the Company devote unplanned resources to developing
modifications to its products or marketing programs;
- A requirement that the Company indemnify third parties who have distributed the
infringing product with the Companys permission or
- Significant legal fees incurred by the Company.

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

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 devastating 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 service, supply, resale, distribution,
development and other agreements in multiple jurisdictions throughout the world.
In addition, as of September 28, 2003, the Company employed approximately 640
people throughout the world. Although the Company attempts to fulfill all of its
obligations and enforce all of its rights under these agreements and
relationships, there is no assurance that it will be able to do so. The Company
has been sued and may be sued, under numerous legal theories, including breach
of contract, tort, products liability, intellectual property infringement and
other theories. Complaints have been filed and may be filed, against the Company
by contract partners, third parties, employees and other individuals or
entities. Such litigation may have an adverse effect upon the Companys
profitability or public perception.

63

---

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

Restructuring and Other Cost Reduction Activities

The Company significantly
restructured its operations during the third quarter of 2003. In conjunction
with this restructuring, the Company notified 203 regular and temporary
personnel that their positions were being eliminated. Of these, 191 have either
already been terminated or are scheduled to leave in the fourth quarter of
calendar year 2003; the remaining individuals will leave Iomega in 2004. In
conjunction with the restructuring, Iomega incurred a pre-tax restructuring
charge of $12 million, which reflects expenses associated with reductions in the
Companys worldwide workforce described above; reimbursement of
restructuring expenses incurred by strategic suppliers; termination of
contractual obligations and lease expenses associated with unutilized
facilities. There is no assurance that these restructuring actions will lead to
sustainable cost reductions or will otherwise benefit the Company. In addition,
in carrying out these actions, the Company is at risk that key personnel and
experience may have been lost. The Company may experience short-term disruptions
of information technology systems and other business operations, or strategic
suppliers may experience similar disruptions as a result of their restructuring.
The Company may incur legal liability and claims associated with the
restructuring actions and layoff.

Changes to the Company's Board of Directors

On October 15, 2003, David
Dunn, who has served as the Chairman of the Board of Directors of Iomega
Corporation since its incorporation, announced that he would not stand for
re-election to the Board of Directors at the next annual meeting of
shareholders, currently scheduled for May 2004. In addition, on October 15,
2003, the Company announced the resignation of Mr. Louis Caldera from its Board
of Directors in conjunction with his appointment as President of the University
of New Mexico. There can be no assurance that the Company will be able to
attract qualified persons to replace Messrs. Dunn and Caldera on its Board of
Directors.

Retention of Key Employees

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 have voluntarily resigned from the Company during the third quarter
and there is a risk of additional resignations by such employees, particularly
in light of recent restructuring activities and the Companys recent
financial performance.

One-Time Cash Dividend

On July 17, 2003, the
Companys Board of Directors declared a one-time cash dividend of $5.00 per
share, to stockholders of record as of the close of business on September 15,
2003, which was paid on October 1, 2003. The total amount of the dividend was
$257.2 million. As a result of paying the dividend, the Companys cash
balances have been significantly reduced and the Company may be subject to
greater liquidity risks in the future.

Other Risk Factors

During the third quarter of
1999, the Company announced plans to cease its Nomai manufacturing operations in
Avranches, France and ceased such operations shortly thereafter. The Company may
be forced to incur additional legal or other costs relating to this matter. See
Note 5 of the notes to condensed consolidated financial statements in Part I,
Item 1, for more information concerning Nomai litigation.

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. Fluctuation 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).

64

---

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

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.

Effective January 1, 2003,
the Company began expensing the cost of stock options that the Company grants to
employees. The Company is expensing stock options under the prospective method,
which is one of the three transition methods allowed by Statement of Financial
Accounting Standards (SFAS) No. 148 Accounting for Stock-Based
Compensation  Transition and Disclosure. Under the prospective
method, the Company will begin expensing under the fair value method prescribed
by SFAS No. 123 Accounting for Stock-Based Compensation only stock
options that are granted or modified after January 1, 2003. However, as a result
of the payment of the one-time cash dividend on October 1, 2003, after the
payment, all of the Companys outstanding stock options will be accounted
for under the fair value method of SFAS 123. The Company estimates that the
impact of this action will be an additional charge in the fourth quarter of 2003
of less than $0.6 million and an additional $2.2 million that will be amortized
to the income statement over the remaining vesting period of the outstanding
options. It is difficult to estimate the impact that expensing stock options
will have on the Companys statement of operations as this expense is
dependent upon variables that are difficult to predict, such as the number of
options to be granted during a period, the price of the Companys Common
Stock at the time of grant, the stock price volatility, the risk free interest
rate during the period and the expected average life of the option. A slight
change in any one of these variables can materially affect the amount of expense
to be recorded.

In summary, a number of
factors could adversely affect the Company or could cause actual events or
results to differ materially from those indicated by any forward-looking
statements. Such factors include the ability of management to manage an
increasingly complex business in a highly competitive environment,
transportation issues, product and component pricing, changes in analysts
earnings estimates, competition, technological changes and advances, adoption of
technology or communications standards affecting the Companys products,
intellectual property rights, litigation, general economic conditions,
seasonality and changes or slowdowns in overall market demand for personal
computer products and other consumer products which utilize the Companys
products.

65

---

# IOMEGA
CORPORATION AND SUBSIDIARIES

# 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 exposure. The contracts are primarily in European currencies and the
Singapore dollar. The Company enters into contracts throughout the month as
necessary. These contracts have maturities that do not exceed 40 days.

When hedging net balance
sheet exposure, all gains and losses on forward contracts are recognized in
other income and expense in the same period that the gains and losses on
remeasurement of the foreign currency denominated assets and liabilities occur.
All gains and losses related to foreign exchange contracts are included in cash
flows from operating activities in the condensed consolidated 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 $1.1 million at
September 28, 2003. However, these forward exchange contracts are hedges,
consequently any market value gains or losses arising from these foreign
exchange contracts should be offset by foreign exchange losses or gains on the
underlying net assets and liabilities. Calculations of the above effects assume
that each rate changed in the same direction at the same time relative to the
U.S. dollar. The calculations reflect only those differences resulting from
mechanically replacing one exchange rate with another. They do not factor in any
potential effects that changes in currency exchange rates may have on statement
of operations translation, sales volume and prices and on local currency costs
of production. As of September 28, 2003, 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, net income 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.

66

---

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

The Company did not have
any significant debt outstanding at September 28, 2003. 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% point
(100 basis points), interest income would have hypothetically increased or
decreased by $3.4 million during the first nine months of 2003. This
hypothetical analysis does not take into consideration the effects of the
economic conditions that would give rise to such an interest rate change or the
Companys response to such hypothetical conditions. The Company minimizes
its credit risk associated with temporary investments by using investment grade,
liquid securities. The Company has classified all of its temporary investments
as available-for-sale securities. Temporary investments at September 28, 2003
primarily consisted of corporate obligations, U.S. treasuries, U.S. agencies,
asset-backed securities and mortgage-backed securities. None of the
Companys temporary investments have an effective maturity greater than 24
months and at September 28, 2003, the average duration of the Companys
temporary investments was less than 90 days, as compared to just under six
months at June 29, 2003. The lower duration was attributable to the Company
liquidating its temporary investments during the third quarter of 2003 to pay
the one-time cash dividend on October 1, 2003. Investments with maturities in
excess of three months at the time of purchase are classified as temporary
investments until maturity or sale. Cash and cash equivalents include all
marketable securities purchased with maturities of three or fewer months. Cash
equivalents consist primarily of investment grade corporate obligations, money
market funds, repurchase agreements, asset-backed securities, mortgage-backed
securities, U.S. agencies and U.S. treasuries.

## 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 September 28, 2003.In designing and
evaluating the Companys disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving their objectives
and management necessarily applied its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on this evaluation, the
Companys chief executive officer and chief financial officer concluded
that as of September 28, 2003, the Companys disclosure controls and
procedures were (1) designed to ensure that material information relating to the
Company, including its consolidated subsidiaries, is made known to the
Companys chief executive officer and chief financial officer by others
within those entities, particularly during the period in which this report was
being prepared and (2) effective, in that they provide reasonable assurance that
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SECs rules and forms.

During the third quarter of
2003, the Company experienced material changes in certain of its internal
controls as a result of the outsourcing of the Companys collections and
cash application function. The Company has performed an internal audit to review
the internal controls of the outsourcing partner and management has concluded
that the internal controls of the outsourcing partner have been designed and
such controls appear to be effective, to ensure that transactions are properly
processed, summarized and reported. No other changes in the Companys
internal controls over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) occurred during the third quarter that has
materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.

67

---

# IOMEGA
CORPORATION AND SUBSIDIARIES
PART II OTHER INFORMATION

## ITEM 1. LEGAL
PROCEEDINGS:

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

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

The Company did not sell
any equity securities during the third quarter of 2003 that were not registered
under the Securities Act of 1933.

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

|(a) | Exhibits.  The  exhibits  listed on the  Exhibit  Index filed as a part of
this  Quarterly  Report on Form 10-Q are incorporated herein by reference.                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                  
|(b) | Reports on Form 8-K. On October 15, 2003, the Company  furnished a Form 8-K  announcing the Company's  financial
results for the quarter ending September 28, 2003 under Item 12,
 "Disclosure of Results of Operations and Financial Condition".

68

---

# 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: November 12, 2003
Dated: November 12, 2003 | IOMEGA CORPORATION
        (Registrant)/s/ Werner T. Heid
    Werner T. Heid
    President and Chief Executive Officer    /s/ Barry Zwarenstein
Barry Zwarenstein
    Vice President, Finance and
        Chief Financial Officer
|------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

69

---

## IOMEGA CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX

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

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

|31.3 | Section 302 certification letter from Werner T. Heid, President and Chief Executive Officer.
|---- | --------------------------------------------------------------------------------------------

|31.4 | Section 302 certification letter from Barry Zwarenstein, 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 Barry Zwarenstein, Vice President, Finance
and Chief Financial Officer.
|---- | -------------------------------------------------------------------------------------------------------------

70

---