---

# UNITED STATESSECURITIES
AND EXCHANGE COMMISSION

                                                        WASHINGTON, D.C. 20549

---

# FORM 10-Q

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

## FOR THE QUARTERLY PERIOD ENDED JUNE 29, 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 August 1, 2003.

|Common Stock, par value $.03 1/3(Title of each class) | 51,375,664(Number of shares)
|----------------------------------------------------- | ----------------------------

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# 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 June 29, 2003
             and December 31, 2002.................................................................       3

         Condensed Consolidated Statements of Operations for the Quarters
             ended June 29, 2003 and June 30, 2002.................................................       5

         Condensed Consolidated Statements of Operations for the Six Months
             ended June 29, 2003 and June 30, 2002.................................................       6

         Condensed Consolidated Statements of Cash Flows for the Six Months
             ended June 29, 2003 and June 30, 2002.................................................       7

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

Item 2.  Management's Discussion and Analysis of Financial
             Condition and Results of Operations...................................................      28

Item 3.  Quantitative and Qualitative Disclosures About Market Risk................................      61

Item 4.  Controls and Procedures...................................................................      62

                                             PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.........................................................................      63

Item 2.  Changes in Securities and Use of Proceeds.................................................      63

Item 4.  Submission of Matters to a Vote of Security Holders.......................................      63

Item 6.  Exhibits and Reports on Form 8-K..........................................................      64

Signatures.........................................................................................      65

Exhibit Index......................................................................................      66`

---

Copyright © 2003
Iomega Corporation. All rights reserved. Iomega, the stylized i
logo, Zip, Jaz, Peerless, PocketZip, HipZip, HotBurn, FotoShow, Active Disk,
Destination Storage, ioLink and ioClub 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 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 1.5GB 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 the planned new products DCT and
RRD; expected spending levels on DCT and RRD development in 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; estimated
income statement and balance sheet impacts and estimated utilization of net operating
loss carryforward (NOL) deferred tax assets, resulting from the one-time cash dividend
announced July 17, 2003; the overall objective to be viewed as a full line
supplier of digital storage devices for the Companys retail, catalog and
online customers and to achieve the goal of creating Destination Storage in the
retail and catalog channels; plans to mitigate the continued decline in the
Companys core Zip business; the need for 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 belief that NAS represents a sales growth
opportunity and the goal to launch new NAS products during 2003; the goal to
grow the Companys sales; 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 one-time
dividend, will be sufficient to operate the existing business on an ongoing
basis; the factors affecting future gross margins; expected sales levels due to
seasonal demand; the expectation that the Company can obtain sufficient product
and components thereof to meet business requirements; anticipated hedging
strategies; the possible effects of an adverse outcome in the review of the
Companys SEC filings described under the caption Other Matters
in Managements Discussion and Analysis of Financial Condition and Results
of Operations; the expected impact of the adoption of 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)

`June 29,            December 31,
                                                                             2003                  2002
                                                                          ---------            -----------
                                                                         (Unaudited)
Current Assets:
   Cash and cash equivalents                                              $ 188,759             $ 241,519
   Restricted cash                                                              200                 3,800
   Temporary investments                                                    263,270               208,545
   Trade receivables, less allowance for doubtful accounts of
      $3,074 and $5,462, respectively                                        36,371                54,477
   Inventories                                                               32,887                40,525
   Income taxes receivable                                                      558                     -
   Deferred income taxes                                                     20,253                27,573
   Other current assets                                                      10,992                14,490
                                                                          ---------             ---------
      Total Current Assets                                                  553,290               590,929
                                                                          ---------             ---------

Property and Equipment, at Cost                                             154,468               155,376
Accumulated Depreciation and Amortization                                  (138,629)             (137,274)
                                                                          ---------             ---------
      Net Property and Equipment                                             15,839                18,102
                                                                          ---------             ---------

Goodwill                                                                     11,691                11,691
                                                                          ---------             ---------
Other Intangibles, Net                                                        5,566                 6,755
                                                                          ---------             ---------
Other Assets                                                                     93                   122
                                                                          ---------             ---------
    Total Assets                                                          $ 586,479             $ 627,599
                                                                          =========             =========`

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

3

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

`June 29,            December 31,
                                                                             2003                  2002
                                                                          ---------            -----------
                                                                         (Unaudited)
Current Liabilities:
   Accounts payable                                                       $  33,351             $  60,131
   Other current liabilities (Note 1)                                        81,935                98,456
   Income taxes payable                                                           -                   622
                                                                          ---------             ---------
      Total Current Liabilities                                             115,286               159,209
                                                                          ---------             ---------

Other Long-Term Liabilities                                                   1,358                 2,244
                                                                          ---------             ---------

Deferred Income Taxes                                                        48,237                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 54,789,431 and 54,645,278 shares,
      respectively                                                            1,829                 1,822
   Additional paid-in capital                                               308,548               307,716
   Less: 3,426,288 Common Stock treasury shares, at cost                    (33,791)              (33,791)
   Retained earnings                                                        145,012               135,292
                                                                          ---------             ---------
      Total Stockholders' Equity                                            421,598               411,039
                                                                          ---------             ---------
         Total Liabilities and Stockholders' Equity                       $ 586,479             $ 627,599
                                                                          =========             =========`

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

4

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

`For the Quarter Ended
                                                                          -------------------------------
                                                                           June 29,              June 30,
                                                                             2003                  2002
                                                                          ---------             ---------
                                                                                    (Unaudited)
Sales                                                                     $ 100,802             $ 145,208
Cost of sales                                                                66,440                90,262
                                                                          ---------             ---------
Gross margin                                                                 34,362                54,946
                                                                          ---------             ---------

Operating Expenses:
   Selling, general and administrative                                       27,818                33,073
   Research and development                                                   7,635                 8,885
   Restructuring reversals                                                        -                (2,181)
   Bad debt expense (credit)                                                    279                (1,235)
                                                                          ---------             ---------
      Total Operating Expenses                                               35,732                38,542
                                                                          ---------             ---------

Operating income (loss)                                                      (1,370)               16,404
Interest income                                                               1,646                 2,406
Interest and other expense                                                     (485)               (1,041)
                                                                          ---------             ---------

Income (loss) before income taxes                                              (209)               17,769
Benefit (provision) for income taxes                                          4,616                (6,312)
                                                                          ---------             ---------
Net Income                                                                $   4,407             $  11,457
                                                                          =========             =========


Net income per basic and diluted common share                             $    0.09             $    0.22
                                                                          =========             =========

Weighted average common shares outstanding                                   51,329                51,170
                                                                          =========             =========
Weighted average common shares outstanding -
   assuming dilution                                                         51,355                51,429
                                                                          =========             =========`

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

5

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

`For the Six Months Ended
                                                                          -------------------------------
                                                                           June 29,              June 30,
                                                                             2003                  2002
                                                                          ---------             --------
                                                                                    (Unaudited)
Sales                                                                     $ 206,984             $ 324,105
Cost of sales                                                               135,512               196,633
                                                                          ---------             ---------
Gross margin                                                                 71,472               127,472
                                                                          ---------             ---------

Operating Expenses:
   Selling, general and administrative                                       51,158                71,269
   Research and development                                                  16,223                17,529
   Restructuring reversals                                                      (78)               (2,181)
   Bad debt credit                                                           (1,703)               (1,931)
                                                                          ---------             ---------
      Total Operating Expenses                                               65,600                84,686
                                                                          ---------             ---------

Operating income                                                              5,872                42,786
Interest income                                                               3,512                 4,726
Interest and other expense                                                     (463)               (3,145)
                                                                          ---------             ---------

Income before income taxes                                                    8,921                44,367
Benefit (provision) for income taxes                                            799                (1,701)
                                                                          ---------             ---------
Net Income                                                                $   9,720             $  42,666
                                                                          =========             =========


Net income per basic and diluted common share                             $    0.19             $    0.83
                                                                          =========             =========

Weighted average common shares outstanding                                   51,297                51,226
                                                                          =========             =========
Weighted average common shares outstanding -
    assuming dilution                                                        51,316                51,407
                                                                          =========             =========`

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

6

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

`For the Six Months Ended
                                                                          -------------------------------
                                                                           June 29,              June 30,
                                                                             2003                  2002
                                                                          ---------             ---------
                                                                                    (Unaudited)
Cash Flows from Operating Activities:
   Net income                                                             $   9,720             $  42,666
   Non-Cash Revenue and Expense Adjustments:
      Depreciation and amortization                                           6,810                12,411
      Deferred income taxes                                                     450                13,696
      Non-cash inventory write-offs                                               -                 3,752
      Amortization on temporary investments                                   1,796                   566
      Bad debt credit                                                        (1,703)               (1,931)
      Other                                                                     261                 2,261
                                                                          ---------             ---------
                                                                             17,334                73,421
   Changes in Assets and Liabilities:
      Restricted cash                                                         3,600                 2,223
      Trade receivables                                                      19,809                37,430
      Inventories                                                             7,638                18,058
      Other current assets                                                    3,498                (2,250)
      Accounts payable                                                      (26,780)              (33,197)
      Other current liabilities                                             (15,635)              (20,372)
      Accrued restructuring                                                    (886)               (9,355)
      Income taxes                                                           (1,180)              (11,401)
                                                                          ---------             ---------
         Net cash provided by operating activities                            7,398                54,557
                                                                          ---------             ---------

Cash Flows from Investing Activities:
   Purchases of property and equipment                                       (3,413)               (5,575)
   Purchases of temporary investments                                      (463,908)              (92,401)
   Sales of temporary investments                                           407,387                97,742
   Net change in other assets and other liabilities                            (558)                  270
                                                                          ---------             ---------
      Net cash (used in) provided by investing activities                   (60,492)                   36
                                                                          ---------             ---------

Cash Flows from Financing Activities:
   Proceeds from sales of Common Stock                                          334                    91
   Purchases of Common Stock                                                      -                (2,924)
   Payments on other obligations                                                  -                  (563)
                                                                          ---------             ---------
      Net cash provided by (used in) financing activities                       334                (3,396)
                                                                          ---------             ---------
Net (Decrease) Increase in Cash and Cash Equivalents                        (52,760)               51,197
Cash and Cash Equivalents at Beginning of Period                            241,519               219,949
                                                                          ---------             ---------
Cash and Cash Equivalents at End of Period                                $ 188,759             $ 271,146
                                                                          =========             =========`

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

7

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

## (1)
Significant Accounting Policies

In the opinion of the
Companys management, the accompanying unaudited, condensed consolidated
financial statements reflect all adjustments which are necessary to present
fairly the financial position of the Company as of June 29, 2003 and December
31, 2002, the results of operations for the quarters and six months ended June
29, 2003 and June 30, 2002 and cash flows for the six months ended June 29, 2003
and June 30, 2002.

The results of operations
for the quarter and six months ended June 29, 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
and there are no special purpose or variable interest entities.

Pervasiveness of Estimates

The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of sales and expenses during the reporting
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 in sales and trade receivables in the
accompanying condensed consolidated financial statements. The reserves for
estimated returns totaled $4.4 million and $6.0 million at June 29, 2003 and
December 31, 2002, respectively.

8

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# 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 channels
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. No adjustment is made
for those customers that do not report inventory and sell-through information.
The Company defers estimated sales and cost of sales associated with estimated
excess channel inventory in its condensed consolidated financial statements. The
gross margin associated with deferral of sales for estimated excess channel
inventory totaled $9.3 million and $17.9 million at June 29, 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 $0.4 million at June 29,
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 $20.3 million and $29.2 million at June 29,
2003 and December 31, 2002, respectively and are netted against trade
receivables in the accompanying condensed consolidated balance sheets.

9

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

Temporary Investments

Investments purchased with
maturities in excess of three months are classified as temporary investments.
Temporary investments at June 29, 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 June 29, 2003, the average duration of
the Companys temporary investments was just under six months. 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:

`June 29,          December 31,
                                                                             2003                2002
                                                                           --------          ------------
                                                                                 (In thousands)
         Raw materials                                                     $  2,852            $  2,249
         Finished goods                                                      30,035              38,276
                                                                           --------            --------
                                                                           $ 32,887            $ 40,525
                                                                           ========            ========`

Other Current Liabilities

Other current liabilities
consist of the following:

`June 29,          December 31,
                                                                             2003                2002
                                                                           --------          ------------
                                                                                  (In thousands)
         Margin on deferred sales                                          $  9,878            $ 19,102
         Accrued payroll, vacation, bonus and profit sharing                  9,097               9,589
         Accrued marketing (a)                                                8,938              15,426
         Accrued warranty                                                     6,474               8,035
         Other accrued liabilities (b)                                       47,548              46,304
                                                                           --------            --------
                                                                           $ 81,935            $ 98,456
                                                                           ========            ========`

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

| | (b) | Includes  accruals for royalties,  professional  fees,  self-insurance  liabilities,  employee
relocation costs,  restructuring  charges,  purchase  commitments,  litigation,  VAT, deferred revenue,
sales and other taxes and other miscellaneous liabilities.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 six
months ended June 30, 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.

10

---

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

Stock compensation expense
for the restricted stock plan, which was approved by stockholders during the
second quarter of 2003, has been accounted for under SFAS 123, with the fair
value of the restricted stock being recognized over the vesting period of the
restricted stock.

Effective January 1, 2003,
the Company adopted the fair value recognition provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation (SFAS 123). The Company selected the
prospective method, which is 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 six months ended June 29, 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 and earnings per share if the fair value
based method had been applied to all outstanding and unvested awards in each
period.

`For the Quarter Ended         For the Six Months Ended
                                                  ----------------------        ------------------------
                                                  June 29,      June 30,        June 29,        June 30,
                                                    2003         2002             2003            2002
                                                  --------      --------        --------        --------
                                                          (In thousands, except per share data)

Net income as reported                            $ 4,407       $ 11,457        $ 9,720         $ 42,666
    Add: Stock compensation expense
       included in reported net income,
       net of related tax effects                      28              -             44                -
    Less: Total stock compensation
       expense determined under fair
       value method for all awards, net
       of related tax effects                       (489)           (729)          (824)          (1,391)
                                                  -------       --------        -------         --------
Pro forma net income                              $ 3,946       $ 10,728        $ 8,940         $ 41,275
                                                  =======       ========        =======         ========

Basic EPS:
    As reported                                   $  0.09       $   0.22        $  0.19         $   0.83
                                                  =======       ========        =======         ========
    Pro forma                                     $  0.08       $   0.21        $  0.17         $   0.81
                                                  =======       ========        =======         ========

Diluted EPS:
    As reported                                   $  0.09       $   0.22        $  0.19         $   0.83
                                                  =======       ========        =======         ========
    Pro forma                                     $  0.08       $   0.21        $  0.17         $   0.80
                                                  =======       ========        =======         ========`

11

---

# 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 Six Months Ended
                                                  ----------------------        ------------------------
                                                  June 29,      June 30,        June 29,        June 30,
                                                   2003           2002            2003            2002
                                                  --------      --------        -------         --------
                                                                      (In thousands)

Balance at beginning of period                    $ 7,202        $ 9,806        $ 8,035         $ 10,856
    Accruals/additions                              1,709          2,541          4,119            5,905
    Claims/charges                                 (2,437)        (3,352)        (5,680)          (7,766)
                                                  -------        -------        -------         --------
Balance at end of period                          $ 6,474        $ 8,995        $ 6,474         $  8,995
                                                  =======        =======        =======         ========`

Net Income Per Common Share

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

12

---

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

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

`Net
                                                                    Income             Shares          Per Share
                                                                  (Numerator)       (Denominator)        Amount
                                                                  -----------       -------------       --------
                                                                       (In thousands, except per share data)
         For the Quarter Ended:
         June 29, 2003:
         Basic EPS                                                  $  4,407           51,329            $ 0.09
                                                                                                              -
            Effect of options                                              -               26                 -
                                                                    --------           ------            ------
         Diluted EPS                                                $  4,407           51,355            $ 0.09
                                                                    ========           ======            ======

         June 30, 2002:
         Basic EPS                                                  $ 11,457           51,170            $ 0.22
            Effect of options                                              -              259                 -
                                                                    --------           ------            ------
         Diluted EPS                                                $ 11,457           51,429            $ 0.22
                                                                    ========           ======            ======

         For the Six Months Ended:
         June 29, 2003:
         Basic EPS                                                  $  9,720           51,297            $ 0.19
                                                                                                              -
            Effect of options                                              -               19                 -
                                                                    --------           ------            ------
        Diluted EPS                                                 $  9,720           51,316            $ 0.19
                                                                    ========           ======            ======

         June 30, 2002:
         Basic EPS                                                  $ 42,666           51,226            $ 0.83
            Effect of options                                              -              181                 -
                                                                    --------           ------            ------
         Diluted EPS                                                $ 42,666           51,407            $ 0.83
                                                                    ========           ======            ======`

For the quarters ended June
29, 2003 and June 30, 2002, there were outstanding options to purchase 1,355,555
and 1,648,838 shares, respectively, that had an exercise price greater than the
average market price of the common shares for the respective quarters. For the
six months ended June 29, 2003 and June 30, 2002, there were outstanding options
to purchase 1,384,888 and 1,650,506 shares, respectively, that had an exercise
price greater than the average market price of the common shares for the
respective six month periods. These shares would have had an anti-dilutive
effect on EPS and were therefore excluded from the Diluted EPS calculation
above.

Recent Accounting Pronouncements

In November of 2002, the
Emerging Issues Task Force (EITF) reached a consensus on Issue No.
00-21, Revenue Arrangements with Multiple Deliverables (EITF
00-21). EITF 00-21 addresses certain aspects of accounting for
arrangements whereby a vendor performs multiple revenue-generating activities.
EITF 00-21 also discusses how to determine whether an arrangement involving
multiple deliverables contains more than one unit of accounting and how the
related revenue should be measured and allocated to the separate units of
accounting. EITF 00-21 is effective for revenue arrangements entered into for
fiscal periods beginning after June 15, 2003. The Company adopted EITF 00-21 on
June 30, 2003. The Company believes that the effect of EITF 00-21 on the
Companys results of operations, financial position or liquidity will not
be material as the Company currently only has a small number of multiple
deliverable revenue arrangements related to the Companys emerging Network
Storage Systems business.

13

---

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

In January of 2003, the
Financial Accounting Standards Board 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. FIN 46 would apply to the
Company beginning in the third quarter of 2003; however, the Company believes
that it does not have an interest in any VIE and thus FIN 46 will not currently
impact the Company.

## (2) Income
Taxes

For the quarter ended June
29, 2003, the Company recorded an income tax benefit of $4.6 million on a
pre-tax loss of $0.2 million reflecting $4.6 million of research tax credits
that were recorded following the completion of a research tax credit study and
an IRS audit. Excluding the $4.6 million in research tax credits, the adjusted
effective tax rate for the second quarter of 2003 was 13%. The 13% provision
rate resulted from a less than $0.1 million increase in the valuation allowance
for deferred foreign tax assets and permanent non-deductible items, which offset
the tax benefit on the $0.2 million pre-tax loss. This compares to an income tax
provision of $6.3 million on a pre-tax income of $17.8 million reflecting an
income tax provision of $7.0 million in the second quarter of 2002, partially
offset by a $0.7 million decrease in the valuation allowance for net deferred
tax assets for the second quarter of 2002. Excluding the $0.7 million decrease
in the valuation allowance, the adjusted effective tax rate for the second
quarter of 2002 was 39%.

14

---

# 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:

`June 29,      December 31,
                                                                               2003            2002
                                                                             ---------     ------------
                                                                                  (In thousands)
              Deferred Tax Assets (Liabilities):
              Current Deferred Tax Assets:
                 Trade receivable reserves                                   $   6,794       $ 11,259
                 Inventory reserves                                              2,862          3,042
                 Accrued expense reserves                                       10,578         13,030
                 Other                                                              19            242
                                                                             ---------       --------
              Total current deferred tax assets                                 20,253         27,573
                                                                             ---------       --------

              Non-Current Deferred Tax Assets:
                 Fixed asset reserves                                              794          1,185
                 Tax credit carryforwards                                       23,463         19,058
                 Accelerated depreciation/amortization                           4,797          4,301
                 Foreign net operating loss carryforwards                       13,125         15,199
                 U.S. net operating loss carryforwards                          35,007         34,444
                 Other                                                             933            884
                                                                             ---------       --------
              Total non-current deferred tax assets                             78,119         75,071
                                                                             ---------       --------
              Total deferred tax assets                                         98,372        102,644
                                                                             ---------       --------

              Non-Current Deferred Tax Liabilities:
                 Tax on unremitted foreign earnings                           (108,323)      (109,988)
                 Nomai goodwill and intangible asset                            (4,908)        (4,991)
                                                                             ---------       --------
              Total non-current deferred tax liabilities                      (113,231)      (114,979)
                                                                             ---------       --------
              Non-current valuation allowance                                  (13,125)       (15,199)
                                                                             ---------       --------
                 Net deferred tax assets (liabilities)                       $ (27,984)      $(27,534)
                                                                             =========       ========

              As Reported on the Balance Sheet:
                 Current deferred tax assets                                 $  20,253       $ 27,573
                                                                             =========       ========
                 Non-current deferred tax liabilities                        $ (48,237)      $(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 June 29, 2003, the
Company had $35.0 million of deferred tax assets related to U.S. federal and
state net operating loss carryforwards (NOLs). Of the total NOL
deferred tax assets, $28.2 million related to U.S. federal NOLs and $6.8 million
related to state NOLs. The federal NOLs reflect a tax benefit of approximately
$81 million in future U.S. federal tax deductions. The state NOLs reflect a tax
benefit of approximately $171 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 used. The U.S. federal NOLs expire at various dates
beginning in 2022 and the state NOLs expire at various dates beginning in 2004.

15

---

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

The Company continues to
maintain a full valuation allowance of $13.1 million for deferred tax assets
related to foreign NOLs, which reflect the tax benefit of approximately $36
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 June 29, 2003 were $28.0 million. As of June 29,
2003, deferred tax liabilities for estimated U.S. federal and state taxes of
$108.3 million have been accrued on unremitted foreign earnings of $277.8
million.

For the six months ended
June 29, 2003, the Company recorded an income tax benefit of $0.8 million on
pre-tax income of $8.9 million reflecting $4.6 million in research tax credits
partially offset by an income tax provision of $3.8 million. Excluding the $4.6
million of research tax credits, the adjusted effective tax rate for the six
months ended June 29, 2003 was 43%. This compares to an income tax provision of
$1.7 million on pre-tax income of $44.4 million in the six months ended June 30,
2002, reflecting an income tax provision of $18.2 million, partially offset by a
$16.5 million decrease in the valuation allowance for net deferred tax assets
for the six months ended June 30, 2002. Excluding the $16.5 million decrease in
the valuation allowance, the adjusted effective tax rate for the six months
ended June 30, 2002 was 41%.

## (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 called 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 category (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 Iomega Automatic Backup software and other miscellaneous items.
The Other Mobile and Desktop Storage Products category also includes products
that have been discontinued such as FotoShow, Iomega Microdrive miniature hard
drives, Iomega CompactFlashand Iomega SmartMedia memory cards.

16

---

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

The Network Storage Systems
segment (formerly included in Other) consists of the distribution
and sale of network attached storage (NAS) servers targeted toward
small and medium-size businesses and enterprise workgroups.

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 before 2004.

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.

17

---

# 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. Network Storage Systems were
previously presented in Other products and all 2002 amounts have been
reclassified for consistent presentation. New Technologies were 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 Six Months Ended
                                                     -----------------------          --------------------------
                                                     June 29,       June 30,           June 29,         June 30,
                                                       2003           2002               2003             2002
                                                     ---------     ---------          ---------        ---------
                                                                          (In thousands)
Sales:
Mobile and Desktop Storage Products:
   Zip                                               $  66,444     $ 114,281          $ 139,753        $ 257,347
   Optical                                              18,852        20,277             34,198           42,874
   Jaz                                                   1,023         3,239              2,907            9,112
   PocketZip                                                13          (107)               120              (88)
   Other Mobile and Desktop Storage
      Products                                          11,389         7,014             24,645           14,249
                                                     ---------     ---------          ---------        ---------
      Total Mobile and Desktop Storage
         Products                                       97,721       144,704            201,623          323,494
Network Storage Systems                                  3,081           504              5,361              611
                                                     ---------     ---------          ---------        ---------
      Total sales                                    $ 100,802     $ 145,208          $ 206,984        $ 324,105
                                                     =========     =========          =========        =========

PPM (Product Loss):
Mobile and Desktop Storage Products:
   Zip                                               $  26,558     $  40,484          $  55,914        $  97,796
   Optical                                               1,464        (1,106)             1,699           (1,037)
   Jaz                                                      67         1,007              1,330            2,951
   PocketZip                                               (38)         (415)               153              322
   Other Mobile and Desktop Storage
      Products                                             695        (1,678)               582           (5,905)
                                                     ---------     ---------          ---------        ---------
      Total Mobile and Desktop Storage
         Products                                       28,746        38,292             59,678           94,127
Network Storage Systems                                 (4,173)         (916)            (8,217)          (1,589)
New Technologies                                        (6,081)       (1,876)           (10,939)          (2,997)
                                                     ---------     ---------          ---------        ---------
      Total PPM                                         18,492        35,500             40,522           89,541

Common Expenses:
   General corporate expenses                          (19,862)      (21,277)           (34,728)         (48,936)
   Restructuring reversals                                   -         2,181                 78            2,181
   Interest and other income, net                        1,161         1,365              3,049            1,581
                                                     ---------     ---------          ---------        ---------
      Income (loss) before income taxes              $    (209)    $  17,769          $   8,921        $  44,367
                                                     =========     =========          =========        =========`

18

---

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

## (4)
Restructuring Charges/Reversals

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. 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.

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.

19

---

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

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 June 30, 2002
to manage operations that were outsourced effective April 1, 2002. This
workforce reduction resulted in charges of $1.9 million for severance and
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.

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.

20

---

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

Remaining restructuring
reserves in the amount of $3.1 million and $0.4 million are included in the
Companys other current liabilities and fixed asset reserves, respectively,
as of June 29, 2003. Utilization of the third quarter 2001 restructuring
reserves during the three months ended June 29, 2003 are summarized below:

`Third Quarter 2001                           Balance            Utilized             Balance
                                                          --------------------
Restructuring Actions                        03/30/03      Cash       Non-Cash       06/29/03
---------------------                        --------     ------      --------       --------
                                                              (In thousands)
North America Reorganization:
   Lease cancellations (a)                   $ 2,883      $ (238)      $   -         $ 2,645
   Leasehold improvements and
      furniture (b)                              398           -         (33)            365
                                             -------      ------       -----         -------
                                               3,281        (238)        (33)          3,010
                                             -------      ------       -----         -------

Europe Reorganization:
   Lease cancellations (a)                       661        (193)          -             468
                                             -------      ------       -----         -------
                                             $ 3,942      $ (431)      $ (33)        $ 3,478
                                             =======      ======       =====         =======

Balance Sheet Breakout:
   Other current liabilities (a)             $ 3,544      $ (431)      $   -         $ 3,113
   Fixed asset reserves (b)                      398           -         (33)            365
                                             -------      ------       -----         -------
                                             $ 3,942      $ (431)      $ (33)        $ 3,478
                                             =======      ======       =====         =======

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

21

---

# 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
six months ended June 29, 2003 are summarized below:

`Third Quarter 2001                           Balance            Utilized                              Balance
                                                          --------------------
Restructuring Actions                        12/31/02      Cash       Non-Cash        Reversal        06/29/03
                                             --------     ------      --------        --------        --------
                                                                      (In thousands)

North America Reorganization:
   Severance and benefits (a)                $    78      $    -       $   -           $ (78)         $     -
   Lease cancellations (a)                     3,194        (549)          -               -            2,645
   Leasehold improvements and
      furniture (b)                              431           -         (66)              -              365
                                             -------      ------       -----           -----          -------
                                               3,703        (549)        (66)            (78)           3,010
                                             -------      ------       -----           -----          -------

Europe Reorganization:
   Lease cancellations (a)                       727        (259)          -               -              468
                                             -------      ------       -----           -----          -------
                                             $ 4,430      $ (808)      $ (66)          $ (78)         $ 3,478
                                             =======      ======       =====           =====          =======

Balance Sheet Breakout:
   Other current liabilities (a)             $ 3,999      $ (808)      $   -           $ (78)         $ 3,113
   Fixed asset reserves (b)                      431           -         (66)              -              365
                                             -------      ------       -----           -----          -------
                                             $ 4,430      $ (808)      $ (66)          $ (78)         $ 3,478
                                             =======      ======       =====           =====          =======

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

As of June 29, 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.

22

---

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

## (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.

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 Report on Form 10-Q for the quarter ended March 30,
2003, Nomai is engaged in certain litigation matters that revolve around (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 August 1, 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 $17,100) until Nomai invested FF 48
million (approximately USD $8.2 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 $17,100) for each day of
noncompliance. On November 23, 2001, the Court ordered Nomai to proceed with the
required investments and to put in place the technical and human means to which
it is engaged, subject to a daily penalty of FF 50,000 (approximately USD
$8,550) 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 $9.6 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 $1.1 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 euro (approximately USD $9.6 million) judgment from October 11, 2002 and
all daily penalties that had accrued. Presently, 5 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 not material, totaling approximately
190,000 euros (approximately $214,000 USD). The Company intends to vigorously
defend against the remaining claims involving the former employees.

23

---

# 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 $22.1 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 $2.1 million). This amount was in addition to the 8.5 million
euro (approximately USD $9.6 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 the 1.9 million euro (approximately USD $2.1 million)
judgment, with the Company agreeing to pay an amount of 450,000 euros
(approximately USD $506,000) to resolve the dispute. This settlement is subject
to approval by French courts and possible appeals.

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.
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.

24

---

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

Manufacturing Relationships

The Company relies on
independent third parties to manufacture, on a contract basis, the
Companys products or components. Not all of the Companys
manufacturing relationships are covered by binding contracts and certain of the
relationships are subject to unilateral termination by the Companys
manufacturing partner. The Company is evaluating the consolidation of Zip disk
manufacturing with the goal to reduce costs. In the event the Company implements
any such consolidation, the Company would likely be required to record charges
for discontinuing certain manufacturing relationships.

## (6) Other
Matters

Other Intangible Assets

At June 29, 2003, the Company
had $5.6 million in net intangible assets, all of which are subject to
amortization. During the quarter ended June 29, 2003, amortization expense was
$0.5 million. Amortization expense for the six months ended June 29, 2003 was
$1.2 million. Amortization expense for each of the next five fiscal years is
anticipated to be approximately $1 million for the remainder of 2003, $2 million
in 2004, $2 million in 2005, $0.5 million in 2006 and zero thereafter. As of
June 29, 2003, the weighted-average useful life of the Companys intangible
assets is approximately 2 3/4 years.

`June 29,           December 31,
                                                            2003                 2002
                                                          --------           ------------
                                                                 (In thousands)
Intangible Assets:
   Gross value (1)                                        $ 11,791             $ 12,955
   Accumulated amortization                                 (6,225)              (6,200)
                                                          --------             --------
      Net intangible assets                               $  5,566             $  6,755
                                                          ========             ========`

| | (1) | The change in the gross value of intangible  assets  between  December 31, 2002 and June 29, 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
June 29, 2003, sales to Ingram Micro, Inc. and Tech Data Corporation accounted
for 16% and 11% of consolidated sales, respectively. Ingram Micro, Inc.
accounted for 16% of consolidated sales for the quarter ended June 30, 2002. No
other single customer accounted for more than 10% of consolidated sales for
these periods.

During the six months ended
June 29, 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 six months ended June 30, 2002.
No other single customer accounted for more than 10% of consolidated sales for
these periods.

25

---

# 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 June 29, 2003, outstanding forward
exchange buy/(sell) contracts, which all mature in August 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                              (600,000)               0.6080                0.6080
      European Currency Unit                   (7,300,000)               0.8752                0.8752
      Singapore Dollar                            900,000                1.7557                1.7557
      Swiss Franc                                 400,000                1.3507                1.3507`

Legal Settlements

On January 22, 2003, the
Company signed a settlement agreement resolving a dispute with an insurance
carrier over coverage related to a 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

## (7) Subsequent
Events

Anticipated Restructuring Actions

On July 17, 2003, the
Company announced plans to restructure its operations. The restructuring
charges, which are anticipated to be recorded during the second half of 2003,
are expected to range between $20 million to $25 million, with the majority
being recorded in the third quarter. These charges are expected to reflect
expenses associated with a reduction in the Companys worldwide workforce
of approximately 200 employees; reimbursement of restructuring expenses incurred
by strategic suppliers; lease expenses associated with unutilized facilities;
termination of contractual obligations; asset write-downs and other
miscellaneous charges. Substantially all of these charges are expected to be
cash charges.

One-Time Cash Dividend

On July 17, 2003, the
Company announced that its 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, to be paid on October 1, 2003. Based on the number of common
shares outstanding as of August 1, 2003, the total amount of the dividend will
be approximately $257 million.

26

---

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

As required by the
Companys 1997 Stock Incentive Plan, an adjustment to reflect the dividend
will be made to the approximately 1.9 million stock options outstanding under
this plan. The outstanding options will be 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 less than $0.5 million for the impact of modifying vested
options and an additional $2.5 million that will be amortized to the income
statement over the remaining vesting period of the outstanding options. After
this modification, all of the Companys stock options under the 1997 Stock
Incentive Plan will be accounted for under the fair value method of SFAS 123.

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 income
statement over the remaining vesting period of the outstanding options.

After October 2, 2003, all
of the Companys outstanding stock options will be accounted for under the
fair value method of SFAS 123.

27

---

# 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 and various software titles. Network Storage Systems consists of a wide
selection of network attached storage (NAS) servers with capacities
of 160GB to 1.4TB that supplement the storage capacity of company networks in
small and medium-size businesses and enterprise workgroups.

During the second quarter
of 2003, the Company reported net income of $4.4 million on sales of $100.8
million, compared to net income in the second quarter of 2002 of $11.5 million
on sales of $145.2 million. Net income for the second quarter of 2003 was
favorably impacted by the recording of $4.6 million of research tax credits.
Second quarter 2002 net income included a $2.6 million release of
pre-tax marketing accruals, a pre-tax $2.2 million reversal of restructuring
charges, a $1.5 million unfavorable legal settlement and a $0.7 million decrease
in the Companys valuation allowance for net deferred tax assets.

For the six months ended
June 29, 2003, the Company reported net income of $9.7 million on sales of
$207.0 million, compared to net income for the six months ended June 30, 2002 of
$42.7 million on sales of $324.1 million. Net income for the six months ended
June 29, 2003 was favorably impacted by $6.0 million of pre-tax net legal
settlements and the recording of $4.6 million of research tax credits. Net
income for the first six months of 2002 included $4.9 million of pre-tax net
unfavorable legal settlements, a $4.4 million release of pre-tax marketing
accruals, a pre-tax $2.2 million reversal of restructuring charges and a $16.5
million decrease in the Companys valuation allowance for net deferred tax
assets.

For the second quarter of
2003, the Company had an operating loss of $1.4 million, compared to an
operating profit of $16.4 million in the second quarter of 2002. Operating
income for the second quarter of 2002 included a $2.6 million release of pre-tax
marketing accruals, a pre-tax $2.2 million reversal of restructuring charges and
a $1.5 million unfavorable legal settlement. For the first six months of 2003,
the Company had an operating profit of $5.9 million, compared to an operating
profit of $42.8 million for the first six months of 2002. Operating income for
the six months ended June 29, 2003 included $6.0 million of favorable pre-tax
net legal settlements while operating income for the six months ended June 30,
2002 included $4.9 million of pre-tax net unfavorable legal settlements, a $4.4
million release of pre-tax marketing accruals and a pre-tax $2.2 million
reversal of restructuring charges.

The lower sales in the
second quarter and the first six months of 2003 resulted primarily from the
continued decline of Zip disk and drive sales. Optical product sales also
declined in both the second quarter and the first six months of 2003 as
declining CD-RW sales were only partially offset by sales of DVD rewritable
drives which the Company began shipping late in the first quarter of 2003. The
declines in Zip and Optical product sales were slightly offset by increased
Other Mobile and Desktop sales and from higher NAS sales.

28

---

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

During the second quarter
of 2003, the Company expanded its NAS product offerings and now has products for
all three major NAS market segments. The Company is also continuing to focus its
research and development resources on two new magnetic storage technologies,
Digital Capture Technology (DCT) and Removable Rigid Disk
(RRD). During the second quarter of 2003, the Company delivered
working prototypes of both DCT and RRD to original equipment manufactures
(OEMs) in both the U.S. and Asia and the Company continues to work
on developing OEM and other channel partnerships with the goal to enable
widespread adoption of these new technologies in 2004. The Company does not
expect any sales from these new technologies until the second quarter of 2004,
assuming successful completion of development, product launches and eventual
market acceptance.

As a result of the
operating loss in the second quarter of 2003, the expected continued decline of
Zip sales and the need to continue in the development of DCT and RRD, the
Company announced plans to restructure its operations. The restructuring
charges, which are anticipated to be recorded during the second half of 2003,
are expected to range between $20 million and $25 million, with the majority
being recorded in the third quarter. These charges are expected to reflect
expenses associated with a reduction in the Companys worldwide workforce
of approximately 200 employees; reimbursement of restructuring expenses incurred
by strategic suppliers; lease expenses associated with unutilized facilities;
termination of contractual obligations; asset write-downs and other
miscellaneous charges. Substantially all of these charges are expected to be
cash charges. 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.

The Company currently has
cash, cash equivalents and temporary investments that are in excess of what is
needed to for current operations. The Board of Directors has looked at multiple
opportunities, inside and outside the storage industry, domestically and
internationally, to improve the stockholders return on the Companys
excess cash. After considering various opportunities in the context of the
Boards key goals of attractive returns and safety, combined with the
recently reduced tax rate on dividends, 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, to be paid on October 1, 2003. Based on
the number of common shares outstanding as of August 1, 2003, the total amount
of the dividend will be approximately $257 million.

The Company believes that
it is very unlikely that in the third quarter of 2003 it will achieve an
operating profit before restructuring charges as the expected lower operating
expenses from the restructuring will not be fully implemented until the first
quarter of 2004. Zip product sales are expected to continue to decline as the
product completes its lifecycle. Thus, gross margins are expected to decline as
high 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. With the restructuring, the Company is
continuing to focus on cost reduction as it continues to invest in its new
technologies, DCT and RRD.

## 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.

29

---

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

## Business
Segment Information

The Company has seven
reportable segments based primarily on the nature of the Companys
customers and products: Zip, Optical (formerly called 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 category (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 Iomega Automatic Backup software and other miscellaneous items.
The Other Mobile and Desktop Storage Products category 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 distribution
and sale of network attached storage (NAS) servers targeted toward
small and medium-size businesses and enterprise workgroups.

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 DCT) that is expected to have a capacity of about
1.5GB and a removable hard disk storage system (referred to as 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 before 2004.

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.

30

---

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

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.

31

---

# 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. Network Storage Systems were
previously presented in Other products and all 2002 amounts have been
reclassified for consistent presentation. New Technologies were 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 Six Months Ended
                                                     -----------------------          --------------------------
                                                     June 29,       June 30,           June 29,         June 30,
                                                       2003           2002               2003             2002
                                                     ---------     ---------          ---------        ---------
                                                                          (In thousands)
Sales:
Mobile and Desktop Storage Products:
   Zip                                               $  66,444     $ 114,281          $ 139,753        $ 257,347
   Optical                                              18,852        20,277             34,198           42,874
   Jaz                                                   1,023         3,239              2,907            9,112
   PocketZip                                                13          (107)               120              (88)
   Other Mobile and Desktop Storage
      Products                                          11,389         7,014             24,645           14,249
                                                     ---------     ---------          ---------        ---------
      Total Mobile and Desktop Storage
         Products                                       97,721       144,704            201,623          323,494
Network Storage Systems                                  3,081           504              5,361              611
                                                     ---------     ---------          ---------        ---------
      Total sales                                    $ 100,802     $ 145,208          $ 206,984        $ 324,105
                                                     =========     =========          =========        =========

PPM (Product Loss):
Mobile and Desktop Storage Products:
   Zip                                               $  26,558     $  40,484          $  55,914        $  97,796
   Optical                                               1,464        (1,106)             1,699           (1,037)
   Jaz                                                      67         1,007              1,330            2,951
   PocketZip                                               (38)         (415)               153              322
   Other Mobile and Desktop Storage
      Products                                             695        (1,678)               582           (5,905)
                                                     ---------     ---------          ---------        ---------
      Total Mobile and Desktop Storage
         Products                                       28,746        38,292             59,678           94,127
Network Storage Systems                                 (4,173)         (916)            (8,217)          (1,589)
New Technologies                                        (6,081)       (1,876)           (10,939)          (2,997)
                                                     ---------     ---------          ---------        ---------
      Total PPM                                         18,492        35,500             40,522           89,541

Common Expenses:
   General corporate expenses                          (19,862)      (21,277)           (34,728)         (48,936)
   Restructuring reversals                                   -         2,181                 78            2,181
   Interest and other income, net                        1,161         1,365              3,049            1,581
                                                     ---------     ---------          ---------        ---------
      Income (loss) before income taxes              $    (209)    $  17,769          $   8,921        $  44,367
                                                     =========     =========          =========        =========`

32

---

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

`For the Quarter Ended            For the Six Months Ended
                                                     -----------------------          --------------------------
                                                      June 29,      June 30,           June 29,         June 30,
                                                        2003          2002               2003             2002
                                                     ---------     ---------          ---------        ---------
                                                             (In thousands, except Network Storage Systems)
Drive units:
Mobile and Desktop Storage Products:
   Zip                                                     621           969              1,221            2,085
   Optical                                                 173           179                332              333
   Jaz                                                       -             -                  -                2
   PocketZip                                                 -             -                  -               12
   Other Mobile and Desktop Storage
      Products                                              97            26                203               42
Network Storage Systems                                  1,618           693              2,891              772


Disk units:
Mobile and Desktop Storage Products:
   Zip                                                   3,351         6,262              8,027           15,361
   Jaz                                                      14            54                 38              126
   PocketZip                                                 -            19                  2               27
   Other Mobile and Desktop Storage
      Products                                               2            21                 10               43`

## Seasonality

The Companys source
branded business, which includes optical products, external hard drives, Mini
USB drives and external floppy disk drives, is typically strongest during the
fourth quarter, while the Companys European sales are typically weakest
during the third quarter due to summer holidays. There can be no assurance that
this historic pattern will continue and moreover this pattern could be 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.

## Results of
Operations

The Company reported net
income of $4.4 million, or $0.09 per diluted share, for the quarter ended June
29, 2003. Net income for the second quarter of 2003 was favorably impacted by
the recording of $4.6 million of research tax credits following the completion
of a research tax credit study and an IRS audit. In comparison, second quarter
2002 net income was $11.5 million, or $0.22 per diluted share, which
included a $2.6 million release of pre-tax marketing accruals, a $2.2 million
reversal of pre-tax restructuring charges, $1.5 million of pre-tax unfavorable
legal settlements and a $0.7 million decrease in the Companys valuation
allowance for net deferred tax assets.

33

---

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

For the six months ended
June 29, 2003, the Company reported net income of $9.7 million, or $0.19 per
diluted share. Net income for the six months ended June 29, 2003 was favorably
impacted by $6.0 million of pre-tax net legal settlements and the recording of a
$4.6 million tax benefit related to research tax credits following the
completion of a research tax credit study and an IRS audit. This compares to net
income for the six months ended June 30, 2002 of $42.7 million, or $0.83 per
diluted share. Net income for this period included $4.9 million of pre-tax net
unfavorable legal settlements, a $4.4 million release of pre-tax marketing
accruals, a $2.2 million reversal of pre-tax restructuring charges and a $16.5
million decrease in the Companys valuation allowance for net deferred tax
assets.

## Sales

Sales for the quarter ended
June 29, 2003 of $100.8 million decreased $44.4 million, or 31%, when compared
to sales of $145.2 million for the quarter ended June 30, 2002. This decrease
was primarily a result of lower Zip drive and disk sales.

Zip product sales for the
second quarter of 2003 totaled $66.4 million, representing a decrease of $47.9
million, or 42%, compared to sales of $114.3 million for the second quarter of
2002. Sales of Zip products represented 66% of total sales for the second
quarter of 2003, compared to 79% for the second quarter of 2002. Zip drive sales
of $44.2 million for the second quarter of 2003 decreased by $22.3 million, or
34%, while Zip drive units decreased by 36% from the second quarter of 2002. Zip
drive units decreased more than Zip drive sales primarily due to a change in
product mix trending away from lower priced Zip 100MB drives towards higher
priced Zip 250MB and Zip 750MB drives, lower promotional and pricing activity
during the second quarter of 2003 partially offset by Zip 100MB and Zip 250MB
price decreases that occurred in the third quarter of 2002 following the
introduction of the Zip 750MB. Zip OEM drive units accounted for approximately
56% of total Zip drive units in the second quarter of 2003 compared to
approximately 57% in the second quarter of 2002. Zip disk sales of $22.2 million
for the second quarter of 2003 decreased by $25.4 million, or 53%, while Zip
disk units decreased by 46% from the second quarter of 2002. Zip disk sales
decreased more than Zip disk units primarily due to Zip 100MB and Zip 250MB
price decreases that occurred in the third quarter of 2002 following the
introduction of the Zip 750MB, partially offset by a change in product mix
trending away from lower priced Zip 100MB disks towards higher priced Zip 250MB
and Zip 750MB disks. While it is difficult to precisely calculate the sales
impact of product mix changes, price changes and volume changes, the following
is the Companys best estimate of those impacts. When compared to the
second quarter of 2002, the decrease in Zip product sales resulted primarily
from lower unit volumes (net of product mix) of approximately $42 million and
lower prices of approximately $6 million.

Optical product sales for
the second quarter of 2003 totaled $18.9 million, representing a decrease of
$1.4 million, or 7%, compared to sales of $20.3 million for the second quarter
of 2002. Sales of Optical products represented 19% of total sales for the second
quarter of 2003, compared to 14% for the second quarter of 2002. Optical units
decreased 3% compared to the second quarter of 2002. Sales of Optical products
decreased faster than units due primarily to product mix and lower prices. The
decrease in Optical sales resulted primarily from an expected reduction of CD-RW
stock keeping units (skus) as the Company began the transition
to selling DVD-based products and from the continued decline of the market for
aftermarket, external CD-RW drives. While it is difficult to precisely calculate
the sales impact of product mix changes, price changes and volume changes, the
following is the Companys best estimate of those impacts. When compared to
the second quarter of 2002, lower prices of approximately $4 million were
partially offset by favorable product mix (net of slightly lower unit volumes)
of approximately $3 million and accounted for the decrease in Optical sales.

34

---

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

Jaz product sales for the
second quarter of 2003 totaled $1.0 million, representing a decrease of $2.2
million, or 68%, compared to sales of $3.2 million for the second quarter of
2002. Sales of Jaz products represented 1% of total sales for the second quarter
of 2003, compared to 2% for the second quarter of 2002. Jaz disk units decreased
by 74% when compared to the second quarter of 2002. The lower volumes resulted
from the Companys decision in early 2002 to discontinue the Jaz drive.

PocketZip product sales
were less than $0.1 million for both the second quarter of 2003 and 2002. The
Company discontinued the PocketZip product line in early 2002.

Other Mobile and Desktop
Storage Products sales for the second quarter of 2003 totaled $11.4 million,
representing an increase of $4.4 million, or 62%, compared to sales of $7.0
million for the second quarter of 2002. The increase in Other Mobile and Desktop
Storage Products sales resulted primarily from Mini USB drive sales of $3.6
million which began shipping late in the fourth quarter of 2002 and a $1.0
million increase in external hard drive product sales. These increases were
partially offset by lower sales of CompactFlash, Microdrive, SmartMedia and
FotoShow, all of which were discontinued in early 2002.

Network Storage Systems
sales (comprised entirely of the sales of NAS products) for the second quarter
of 2003 totaled $3.1 million, representing a $2.6 million increase, compared to
sales of $0.5 million for the second quarter of 2002. The increase was due to
launching late in the first quarter of 2002 the Companys NAS products and
the expansion of the Companys NAS product offerings during the fourth
quarter of 2002. Since the product offering in the second quarter of 2003 is
completely different than what was offered during the second quarter of 2002,
the increase in NAS product sales resulted primarily from higher unit volumes
and changes in product mix.

Geographically, sales in
the Americas totaled $62.1 million, or 61% of total sales, in the second quarter
of 2003, compared to $97.1 million, or 67% of total sales, in the second quarter
of 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 $30.1 million, or 30% of total sales, in the second quarter of 2003,
compared to $34.1 million, or 23% of total sales, in the second quarter of 2002.
The decrease in sales dollars in Europe was due primarily to lower Zip sales,
partially offset by Mini USB drive sales and increased external hard drive
product sales. Sales in Asia totaled $8.6 million, or 9% of total sales, in the
second quarter of 2003, compared to $14.0 million, or 10% of total sales, in the
second quarter of 2002. The decrease in sales dollars in Asia was due primarily
to lower Zip sales.

Sales for the six months
ended June 29, 2003 of $207.0 million decreased $117.1 million, or 36%, when
compared to sales of $324.1 million for the six months ended June 30, 2002. This
decrease was primarily a result of lower Zip drive and disk sales.

Zip product sales for the
six months ended June 29, 2003 totaled $139.7 million, representing a decrease
of $117.6 million, or 46%, compared to sales of $257.3 million for the six
months ended June 30, 2002. Sales of Zip products represented 68% of total sales
for the six months ended June 29, 2003, compared to 79% for the six months ended
June 30, 2002. Zip drive sales of $84.4 million for the six months ended June
29, 2003 decreased by $63.6 million, or 43%, while Zip drive units decreased by
41% from the six months ended June 30, 2002. Zip drive sales decreased more than
Zip drive units primarily due to Zip 100MB and Zip 250MB price decreases that
occurred in the third quarter of 2002 following the introduction of the Zip
750MB, partially offset by a change in product mix trending away from lower
priced Zip 100MB drives towards higher priced Zip 250MB and Zip 750MB drives and
lower promotional and pricing activity during the second quarter of 2003. Zip
OEM drive units accounted for approximately 52% of total Zip drive units in the
six months ended June 29, 2003, compared to approximately 54% in the six months
ended June 30, 2002. Zip disk sales of $55.4 million for the six months ended
June 29, 2003 decreased by $53.6 million, or 49%, while Zip disk units decreased
by 48% from the six months ended June 30, 2002. Zip disk sales decreased more
than Zip disk units primarily due to Zip 100MB and Zip 250MB price decreases
that occurred in the third quarter of 2002 following the introduction of the Zip
750MB, partially offset by a change in product mix trending away from lower
priced Zip 100MB disks towards higher priced Zip 250MB and Zip 750MB disks.
While it is difficult to precisely calculate the sales impact of product mix
changes, price changes and volume changes, the following is the Companys
best estimate of those impacts. When compared to the six months ended June 30,
2002, the decrease in Zip product sales resulted primarily from lower unit
volumes (net of product mix) of approximately $106 million and lower prices of
approximately $12 million.

35

---

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

Optical product sales for
the six months ended June 29, 2003 totaled $34.2 million, representing a
decrease of $8.7 million, or 20%, compared to sales of $42.9 million for the six
months ended June 30, 2002. Sales of Optical products represented 17% of total
sales for the six months ended June 29, 2003, compared to 13% for the six months
ended June 30, 2002. Optical units for the six months ended June 29, 2003
remained flat compared to the six months ended June 30, 2002. Sales of Optical
products decreased while units remained flat due primarily to product mix and
lower prices. Decreases in CD-RW units were offset by DVD rewritable units as
the Company began selling DVD rewritable drives in the first quarter of 2003.
While it is difficult to precisely calculate the sales impact of product mix
changes, price changes and volume changes, the following is the Companys
best estimate of those impacts. When compared to the six months ended June 30,
2002, lower prices of approximately $12 million, taken to meet competitive
pressures, were partially offset by favorable product mix of approximately $3
million and accounted for the decrease in Optical sales.

Jaz product sales for the
six months ended June 29, 2003 totaled $2.9 million, representing a decrease of
$6.2 million, or 68%, compared to sales of $9.1 million for the six months ended
June 30, 2002. Sales of Jaz products represented 1% of total sales for the six
months ended June 29, 2003, compared to 3% for the six months ended June 30,
2002. Jaz disk units decreased by 70% when compared to the second quarter of
2002. No Jaz drives were sold in either quarter. 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 six months ended June 29, 2003 increased $0.2 million from
the six months ended June 30, 2002. The Company discontinued the PocketZip
product line in early 2002.

Other Mobile and Desktop
Storage Products sales for the six months ended June 29, 2003 totaled $24.6
million, representing an increase of $10.4 million, or 73%, compared to sales of
$14.2 million for the six months ended June 30, 2002. The increase in Other
Mobile and Desktop Storage Products sales resulted primarily from Mini USB drive
sales of $6.3 million which began shipping late in the fourth quarter of 2002
and a $5.0 million increase in external hard drive product sales. These
increases were partially offset by lower sales of CompactFlash, Microdrive,
SmartMedia and FotoShow, all of which were discontinued in early 2002.

Network Storage Systems
sales (comprised entirely of the sales of NAS products) for the six months ended
June 29, 2003 totaled $5.4 million, representing a $4.8 million increase,
compared to sales of $0.6 million for the six months ended June 30, 2002. The
increase was due to launching late in the first quarter of 2002 the
Companys NAS products and the expansion of the Companys NAS product
offerings during the fourth quarter of 2002. Since the product offering for the
six months ended June 29, 2003 is completely different than what was offered
during the six months ended June 30, 2002, the increase in NAS product sales
resulted primarily from higher unit volumes and changes in product mix.

36

---

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

Geographically, sales in
the Americas totaled $127.3 million, or 61% of total sales, in the six months
ended June 29, 2003, compared to $207.8 million, or 64% of total sales, in the
six months ended June 30, 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 $61.8 million, or 30% of total sales, in the six
months ended June 29, 2003, compared to $90.0 million, or 28% of total sales, in
the six months ended June 30, 2002. The decrease in sales dollars in Europe was
due primarily to lower Zip sales, partially offset by Mini USB drive sales and
increased external hard drive product sales. Sales in Asia totaled $17.8
million, or 9% of total sales, in the six months ended June 29, 2003, compared
to $26.3 million, or 8% of total sales, in the six months ended June 30, 2002.
The decrease in sales dollars in Asia was due primarily to lower Zip sales.

## Gross Margin

The Companys overall
gross margin of $34.4 million, or 34.1%, in the second quarter of 2003 compares
to $54.9 million, or 37.8%, in the second quarter of 2002. Total gross margins
in the second quarter of 2003 decreased $20.5 million, or 37% from the second
quarter of 2002, primarily from lower Zip volumes. 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 45.9% in the
second quarter of 2003 compared to 45.0% in the second quarter of 2002. This
increase resulted primarily from lower promotions and pricing actions, partially
offset by higher per unit costs due to declining volumes.

The Companys overall
gross margin of $71.5 million, or 34.5%, in the six months ended June 29, 2003,
compares to $127.5 million, or 39.3%, in the six months ended June 30, 2002.
Total gross margins in the six months ended June 29, 2003 decreased $56.0
million, or 44% from the six months ended June 30, 2002, primarily from lower
Zip volumes. 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 46.2% in the six months ended June 29, 2003, compared to
47.0% in the six months ended June 30, 2002. This decrease resulted primarily
higher per unit costs due to the declining volumes, partially offset by lower
promotions and pricing actions.

Management expects that the
gross margin percentages reported for the second quarter and first six months of
2003 will decline in future periods as the product mix continues to shift from
Zip products to NAS servers and other sourced branded products such as CD-RW,
DVD rewritable, HDD, Mini USB drives and external floppy disk drives, which have
materially lower gross margins.

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 such as CD-RW, DVD rewritable, HDD,
Mini USB drives and external floppy disk drives; sales mix between aftermarket
and OEM or private label channels, as OEM and private label sales generally
provide lower gross margins than sales through other channels; sales mix of Zip
100MB, Zip 250MB and Zip 750MB drives and disks, as sales of 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.

37

---

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

## Product
Segment PPM

Zip PPM for the second
quarter of 2003 was $26.6 million and decreased by $13.9 million, or 34%,
compared to Zip PPM of $40.5 million for the second quarter of 2002. The
decrease in Zip PPM resulted primarily from lower volumes, 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 to 40% for the second quarter of
2003 from 35% for the second quarter of 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.

Optical PPM for the second
quarter of 2003 was $1.5 million and increased by $2.6 million, or 232%,
compared to a product loss of $1.1 million for the second quarter of 2002.
Optical PPM as a percentage of Optical sales increased to 8% in the second
quarter of 2003 from a loss of 6% in the second quarter of 2002. The Optical PPM
improvement in the second quarter resulted primarily from lower product costs
and lower operating expenses.

Jaz PPM for the second
quarter of 2003 was $0.1 million and decreased by $0.9 million, or 93%, compared
to Jaz PPM of $1.0 million for the second quarter of 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 7% for the second quarter of 2003, compared to 31% for the second
quarter of 2002, primarily due to lower volumes and a $0.2 million write-off of
excess Jaz disk inventory.

PocketZip was near
break-even, improving $0.4 million, or 91%, in the second quarter of 2003,
compared to a PocketZip product loss of $0.4 million in the second quarter of
2002, reflecting the Companys decision in early 2002 to discontinue
PocketZip.

Other Mobile and Desktop
Storage Products PPM for the second quarter was $0.7 million in the second
quarter of 2003 which represented a $2.4 million, or 141% improvement, compared
to a product loss of $1.7 million in the second quarter of 2002. The $2.4
million PPM improvement resulted primarily from a $2.7 million PPM improvement
from external hard drives resulting primarily from a $1.5 million write-off of
excess and obsolete Peerless inventory in the second quarter of 2002 and from
PPM of $0.5 million from Mini USB drives which began shipping late in the fourth
quarter of 2002, partially offset by $0.8 million of product losses from other
miscellaneous products.

Network Storage Systems had
a product loss of $4.2 million in the second quarter of 2003 which represented
an increased loss of $3.3 million, or 356% compared to a product loss of $0.9
million in the second quarter of 2002. The increased product loss resulted
primarily from higher research and development and sales and marketing spending
designed to broaden the Companys NAS product offering beginning in the
second quarter of 2003 and from under-absorbed operational overhead due to lower
than planned volumes in the second quarter of 2003.

38

---

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

New Technologies product
loss of $6.1 million increased by $4.2 million, or 224%, in the second quarter
of 2003 compared to a product loss of $1.9 million in the second quarter of
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 these products until 2004. With
respect to both DCT and RRD, the Companys two most prominent development
projects, for the remainder of 2003 the Company anticipates spending
approximately $10 million classified as research and development and $2 million
to $5 million of other expenses (manufacturing expenses and sales and
marketing). The Company also anticipates spending approximately $8 million to $9
million in supplier tooling and manufacturing equipment for DCT and RRD for the
remainder of 2003. The Company anticipates that it will incur significant
research and development expenses in 2004 at approximately the same quarterly
rate as the second half of 2003.

General corporate expenses
that were not allocated to PPM of $19.9 million in the second quarter of 2003,
decreased $1.4 million, or 7%, compared to $21.3 million for the second quarter
of 2002. The $1.4 million decrease resulted primarily from lower bonus and
profit sharing costs of $1.7 million and other various cost decreases of $1.1
million, partially offset by higher marketing and advertising expenditures of
$1.4 million due primarily to marketing accrual releases during the second
quarter of 2002 (see selling, general and administrative expenses discussion
below for more information).

Zip PPM for the six months
ended June 29, 2003 was $55.9 million and decreased by $41.9 million, or 43%,
compared to Zip PPM of $97.8 million for the six months ended June 30, 2002. The
decrease in Zip PPM resulted primarily from lower volumes, 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 to 40% for the six months ended
June 29, 2003 from 38% for the six months ended June 30, 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.

Optical PPM for the six
months ended June 29, 2003 was $1.7 million and increased by $2.7 million, or
264%, compared to a product loss of $1.0 million for the six months ended June
30, 2002. Optical PPM as a percentage of Optical sales increased to 5% in the
six months ended June 29, 2003 from a loss of 2% in the six months ended June
30, 2002. The Optical PPM improvement in the six months ended June 29, 2003
resulted from lower product costs and lower operating expenses.

Jaz PPM for the six months
ended June 29, 2003 was $1.3 million and decreased by $1.6 million, or 55%,
compared to Jaz PPM of $2.9 million for the six months ended June 30, 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 increased to 46% for the six months ended June 29, 2003, compared to
32% for the six months ended June 30, 2002, primarily due to no lower margin
drive sales for the six months ended June 29, 2003.

PocketZip PPM for the six
months ended June 29, 2003 was $0.1 million and decreased $0.2 million, or 53%,
compared to PocketZip PPM of $0.3 million in for the six months ended June 30,
2002, reflecting the Companys decision in early 2002 to discontinue
PocketZip. For the six months ended June 29, 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 six months ended June 30,
2002, PocketZip PPM of $0.3 million was higher than PocketZip sales by almost
$0.4 million primarily from the favorable settlement in the first quarter of
2002 of certain supplier claims.

39

---

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

Other Mobile and Desktop
Storage Products PPM for the six months ended June 29, 2003 was $0.6 million and
improved $6.5 million compared to a product loss of $5.9 million in the six
months ended June 30, 2002. The $6.5 million PPM improvement resulted primarily
from a $6.4 million improvement from external hard drives resulting primarily
from a $3.8 million write-off of excess and obsolete Peerless inventory in the
six months ended June 30, 2002 and PPM of $0.9 million from Mini USB drives,
which began shipping late in the fourth quarter of 2002, partially offset by
$0.8 million of product losses from other miscellaneous products.

Network Storage Systems had
a product loss of $8.2 million for the six months ended June 29, 2003, an
increase of $6.6 million or 417%, compared to a product loss of $1.6 million for
the six months ended June 30, 2002. The increased product loss resulted
primarily from higher research and development and sales and marketing spending
designed to broaden the Companys NAS product offering beginning in the
second quarter of 2003 and from under-absorbed operational overhead due to lower
than planned volumes in the first six months of 2003.

New Technologies product
loss of $10.9 million increased by $7.9 million, or 265%, in the six months
ended June 29, 2003 compared to a product loss of $3.0 million in the six months
ended June 30, 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 these
products until 2004.

General corporate expenses
that were not allocated to PPM of $34.7 million in the six months ended June 29,
2003, decreased $14.2 million, or 29%, compared to $48.9 million for the six
months ended June 30, 2002. The $14.2 million decrease resulted primarily from
favorable net legal settlements of $10.9 million (a net 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 six months of 2002), lower
bonus and profit sharing costs of $3.7 million and $1.3 million from other cost
reductions, partially offset by $1.7 million in higher marketing and advertising
expenditures due primarily to marketing accrual releases during the six months
ended June 30, 2002 (see selling, general and administrative expenses discussion
below for more information).

## Selling,
General and Administrative Expenses

Selling, general and administrative
expenses of $27.8 million for the second quarter of 2003 decreased by $5.3
million, or 16%, compared to $33.1 million for the second quarter of 2002. The
$5.3 million decrease was comprised of a $3.3 million decrease in marketing
expenses (see below for more detail), lower bonus and profit sharing costs of
$1.6 million and a $0.4 million net decrease in various other costs.

Selling, general and
administrative expenses of $51.2 million for the six months ended June 29, 2003
decreased by $20.1 million, or 28%, compared to $71.3 million for the six months
ended June 30, 2002. The $20.1 million decrease was comprised of favorable net
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 six months of 2002), $6.0 million
decrease in marketing expenses (see below for more detail), a $2.8 million
decrease in bonus and profit sharing costs and $0.4 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 and second quarters of 2002 and
released approximately $2.6 million in marketing program accruals in the second
quarter of 2002 that related primarily to changes in estimates associated with
prior period programs (included in the $3.3 million second quarter 2003 decrease
in expenditures mentioned above). Also as part of these efforts, the Company
released approximately $4.4 million in marketing program accruals in the first
six months of 2002 that related primarily to changes in estimates associated
with prior period programs (included in the $6.0 million decrease in the first
six months of 2003 of marketing expenditures mentioned above).

40

---

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

Selling, general and
administrative expenses increased as a percentage of sales to 28% for the second
quarter of 2003, from 23% in the second quarter of 2002, as sales declined at a
faster rate than overall selling, general and administrative costs. Selling,
general and administrative expenses increased as a percentage of sales to 25%
for the six months ended June 29, 2003, from 22% in the six months ended June
30, 2002, as sales declined at a faster rate than overall selling, general and
administrative costs. For the six months ended June 29, 2003, the favorable net
legal settlements of $6.0 million equated to almost 3% as a percentage of sales.
For the six months ended June 30, 2002, the unfavorable net legal settlements of
$4.9 million equated to almost 2% as a percentage of sales.

Selling, general and
administrative expenses in dollars are expected to decline for the remainder of
2003 reflecting the effects of the Companys third quarter 2003
restructuring actions.

## Bad Debt

For the second quarter of
2003, a bad debt expense of $0.3 million was recorded, reflecting a $1.5
million, or 123%, increase compared to a bad debt credit of $1.2 million for the
second quarter of 2002. The $1.5 million increase in bad debt expense resulted
primarily from a larger improvement in collections during the second quarter of
2002 and from the establishment in the second quarter of 2003 of specific $0.3
million reserves for collection issues with Latin American customers.

For the six months ended
June 29, 2003, a bad debt credit of $1.7 million was recorded, reflecting a $0.2
million, or 12%, decrease compared to a bad debt credit of $1.9 million for the
six months ended June 30, 2002. The $0.2 million decrease in bad debt credit
resulted primarily from a larger improvement in collections during the six
months ended June 30, 2002 than during the six months ended June 29, 2003 and
from the establishment in the second quarter of 2003 of specific $0.3 million
reserves for collection issues with Latin American customers. At June 29, 2003,
the Company had $0.6 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 $7.6 million for the second quarter of 2003 were $1.3 million, or 14%, lower
than research and development expenses of $8.9 million during the second 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 second
quarter of 2003, compared to 6% in the second quarter of 2002 due primarily to
lower sales in 2003.

Research and development
expenses of $16.2 million for the six months ended June 29, 2003 were $1.3
million, or 8%, lower than research and development expenses of $17.5 million
during the six months ended June 30, 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 six months ended June 29, 2003, compared to 5%
in the six months ended June 30, 2002 due primarily to lower sales in 2003.

41

---

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

With respect to both DCT
and RRD, the Companys two most prominent development projects, for the
remainder of 2003 the Company anticipates spending approximately $10 million
classified as research and development and $2 million to $5 million of other
expenses (manufacturing expenses and sales and marketing). The Company also
anticipates spending approximately $8 million to $9 million in supplier tooling
and manufacturing equipment for DCT and RRD throughout the remainder of 2003.
The Company currently anticipates that it will incur significant research and
development expenses in 2004 at approximately the same quarterly rate as the
second half of 2003.

## Restructuring
Charges/Reversals

During the third quarter of
2001, the Company recorded pre-tax restructuring charges of $33.3 million. 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 $3.1 million and $0.4 million are
included in the Companys other current liabilities and fixed asset
reserves, respectively, as of June 29, 2003. Utilization of the third quarter
2001 restructuring reserves during the three months ended June 29, 2003 are
summarized below:

`Third Quarter 2001                           Balance            Utilized             Balance
                                                          --------------------
Restructuring Actions                        03/30/03      Cash       Non-Cash       06/29/03
---------------------                        --------     ------      --------       --------
                                                              (In thousands)
North America Reorganization:
   Lease cancellations (a)                   $ 2,883      $ (238)      $   -         $ 2,645
   Leasehold improvements and
      furniture (b)                              398           -         (33)            365
                                             -------      ------       -----         -------
                                               3,281        (238)        (33)          3,010
                                             -------      ------       -----         -------

Europe Reorganization:
   Lease cancellations (a)                       661        (193)          -             468
                                             -------      ------       -----         -------
                                             $ 3,942      $ (431)      $ (33)        $ 3,478
                                             =======      ======       =====         =======

Balance Sheet Breakout:
   Other current liabilities (a)             $ 3,544      $ (431)      $   -         $ 3,113
   Fixed asset reserves (b)                      398           -         (33)            365
                                             -------      ------       -----         -------
                                             $ 3,942      $ (431)      $ (33)        $ 3,478
                                             =======      ======       =====         =======

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

42

---

# 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
six months ended June 29, 2003 are summarized below:

`Third Quarter 2001                           Balance            Utilized                              Balance
                                                          --------------------
Restructuring Actions                        12/31/02      Cash       Non-Cash        Reversal        06/29/03
                                             --------     ------      --------        --------        --------
                                                                      (In thousands)

North America Reorganization:
   Severance and benefits (a)                $    78      $    -       $   -           $ (78)         $     -
   Lease cancellations (a)                     3,194        (549)          -               -            2,645
   Leasehold improvements and
      furniture (b)                              431           -         (66)              -              365
                                             -------      ------       -----           -----          -------
                                               3,703        (549)        (66)            (78)           3,010
                                             -------      ------       -----           -----          -------

Europe Reorganization:
   Lease cancellations (a)                       727        (259)          -               -              468
                                             -------      ------       -----           -----          -------
                                             $ 4,430      $ (808)      $ (66)          $ (78)         $ 3,478
                                             =======      ======       =====           =====          =======

Balance Sheet Breakout:
   Other current liabilities (a)             $ 3,999      $ (808)      $   -           $ (78)         $ 3,113
   Fixed asset reserves (b)                      431           -         (66)              -              365
                                             -------      ------       -----           -----          -------
                                             $ 4,430      $ (808)      $ (66)          $ (78)         $ 3,478
                                             =======      ======       =====           =====          =======

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

As of June 29, 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.

## Interest and
Other Income and Expense

Interest income of $1.6
million in the second quarter of 2003 decreased $0.8 million, or 32%, from $2.4
million in the second 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.

Interest and other expense
of $0.5 million during the second quarter of 2003 decreased $0.5 million from
interest and other expense of $1.0 million in the second quarter of 2002. The
$0.5 million decrease resulted primarily from lower other expense (the second
quarter of 2002 included $1.0 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.

43

---

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

Interest income of $3.5
million in the six months ended June 29, 2003 decreased $1.2 million, or 26%,
from $4.7 million in the six months ended June 30, 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.

Interest and other expense
of $0.5 million during the six months ended June 29, 2003 decreased $2.6 million
from interest and other expense of $3.1 million in the six months ended June 30,
2002. The $2.6 million decrease resulted primarily from lower other expense (the
six months ended June 30, 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 liquidates its temporary investments and pays the
one-time cash dividend on October 1, 2003. The resulting lower cash balances in
the fourth quarter will significantly reduce the Companys interest income.

## Income Taxes

For the quarter ended June
29, 2003, the Company recorded an income tax benefit of $4.6 million on a
pre-tax loss of $0.2 million reflecting $4.6 million of research tax credits
that were recorded following the completion of a research tax credit study and
an IRS audit. Excluding the $4.6 million in research tax credits, the adjusted
effective tax rate for the second quarter of 2003 was 13%. The 13% provision
rate resulted from a less than $0.1 million increase in the valuation allowance
for deferred foreign tax assets and permanent non-deductible items, which offset
the tax benefit on the $0.2 million pre-tax loss. This compares to an income tax
provision of $6.3 million on a pre-tax income of $17.8 million reflecting an
income tax provision of $7.0 million in the second quarter of 2002, partially
offset by a $0.7 million decrease in the valuation allowance for net deferred
tax assets for the second quarter of 2002. Excluding the $0.7 million decrease
in the valuation allowance, the adjusted effective tax rate for the second
quarter of 2002 was 39%.

At June 29, 2003, the
Company had $35.0 million of deferred tax assets related to U.S. federal and
state net operating loss carryforwards (NOLs). Of the total NOL
deferred tax assets, $28.2 million related to U.S. federal NOLs and $6.8 million
related to state NOLs. Based on the current expectation of the repatriation of
foreign earnings needed to partially fund the one-time cash dividend of $5.00
per share, the federal NOL deferred tax asset will be completely utilized and
the state NOL deferred tax asset will decrease by approximately $3 million. The
federal NOLs reflect a tax benefit of approximately $81 million in future U.S.
federal tax deductions. The state NOLs reflect a tax benefit of approximately
$171 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 used.
The U.S. federal NOLs expire at various dates beginning in 2022 and the state
NOLs expire at various dates beginning in 2004.

The Company continues to
maintain a full valuation allowance of $13.1 million for deferred tax assets
related to foreign NOLs, which reflect the tax benefit of approximately $36
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.

44

---

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

Net deferred tax
liabilities for the Company at June 29, 2003 were $28.0 million. As of June 29,
2003, deferred tax liabilities for estimated U.S. federal and state taxes of
$108.3 million have been accrued on unremitted foreign earnings of $277.8
million.

For the six months ended
June 29, 2003, the Company recorded an income tax benefit of $0.8 million on
pre-tax income of $8.9 million reflecting $4.6 million in research tax credits
partially offset by an income tax provision of $3.8 million. Excluding the $4.6
million of research tax credits, the adjusted effective tax rate for the six
months ended June 29, 2003 was 43%. This compares to an income tax provision of
$1.7 million on pre-tax income of $44.4 million in the six months ended June 30,
2002, reflecting an income tax provision of $18.2 million, partially offset by a
$16.5 million decrease in the valuation allowance for net deferred tax assets
for the six months ended June 30, 2002. Excluding the $16.5 million decrease in
the valuation allowance, the adjusted effective tax rate for the six months
ended June 30, 2002 was 41%.

## Liquidity and
Capital Resources

At June 29, 2003, the
Company had total cash, cash equivalents and temporary investments of $452.2
million, compared to $453.9 million at December 31, 2002, a decrease of $1.7
million or less than 1%. At June 29, 2003, $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 details).

On July 17, 2003, the
Company announced that its 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, to be paid on October 1, 2003. Based on the number of common
shares outstanding as of August 1, 2003, the total amount of the dividend will
be approximately $257 million.

The estimated impact of the
one-time dividend to the balance sheet will be as follows:

- Cash, cash equivalents and temporary investments will decrease by approximately
$257 million from the payment of the dividend. Cash, cash equivalents and
temporary investments will also decrease by an additional estimated $10 million
to $25 million for the payment of taxes on the repatriated cash depending upon
the amount of cash to be repatriated from Europe and usage of the related net
operating loss carry-forwards. The total decrease in cash, cash equivalents and
temporary investments is therefore estimated between $267 million and $282
million. Based upon the June 29, 2003 balance sheet total cash, cash equivalents
and temporary investments amount of approximately $452 million, following
payment of the dividend, the Company would have estimated cash, cash equivalents
and temporary investments balances of between $170 million and $185 million.
- Current taxes receivable will increase by an estimated $7 million to $10 million
for foreign withholding taxes that can be reclaimed against the Companys
federal tax return.
- Deferred tax liabilities will decrease by an estimated $5 million to $20 million
depending on the amount of cash repatriated from Europe.
- Stockholders equity
will decrease by approximately $257 million for the payment of the dividend.

At June 29, 2003, $158.2
million of cash, cash equivalents and temporary investments were on deposit in
the U.S., compared to $168.7 million at December 31, 2002.

45

---

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

At June 29, 2003, the
remaining $294.0 million of total cash, cash equivalents and temporary
investments were on deposit in foreign countries (primarily Western Europe),
compared to $285.2 million at December 31, 2002. With the upcoming payment of
the one-time cash dividend, the repatriation of any portion of the $294.0
million of foreign cash to the U.S. would be considered taxable in the U.S. for
federal and state tax purposes at a rate of approximately 39%. However, the
amount of cash ultimately required for U.S. federal and state taxes would be
less than the approximate 39% rate due to the Companys existing operating
loss and tax credit carryforwards. The Company has not yet determined what
portion of the foreign cash will be repatriated for the payment of the one-time
cash dividend. 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 $438.0
million at June 29, 2003 increased by $6.3 million, or 1%, compared to $431.7
million at December 31, 2002. Lower accounts payable and lower other current
liabilities were mostly offset by lower trade receivables, lower inventories and
lower current deferred income taxes.

For the six months ended
June 29, 2003, cash provided by operating activities amounted to $7.4 million, a
decrease of $47.2 million compared to cash provided by operating activities of
$54.6 million for the six months ended June 30, 2002. The lower cash provided
from operating activities resulted primarily from lower net income and changes
in current assets and 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 six months ended June 29, 2003 primarily from lower sales. Days
sales outstanding (DSO) in receivables remained flat at 32 days at
June 29, 2003, when compared to December 31, 2002 (DSO is calculated by
multiplying the June 29, 2003 receivables balance by 90 and dividing that amount
by the sales for the quarter ended June 29, 2003). 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 six 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 six months ended
June 29, 2003, the Company did not repurchase any shares of the Companys
Common Stock. For the six months ended June 30, 2002, the Company repurchased
340,400 shares of the Companys Common Stock for $2.9 million. As of June
29, 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.

The Company anticipates
spending approximately $8 million to $9 million in supplier tooling and
manufacturing equipment for DCT and RRD throughout the remainder of 2003. The
Company also anticipates incurring an additional $12 million to $15 million in
expenses developing DCT and RRD throughout the remainder of 2003. The Company
currently anticipates that it will incur significant research and development
expenses in 2004 at approximately the same quarterly rate as the second half of
2003.

46

---

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

On July 17, 2003, the
Company announced plans to restructure its operations. The restructuring charges
are expected to range between $20 million to $25 million. 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, however, with respect to
lease cancellation charges, the Company will most likely pay the lease charges
on a monthly basis through the remaining life of the leases.

The Company believes that
its balance of unrestricted cash, cash equivalents and temporary investments,
together with cash flows from future operations, will be sufficient to fund the
Companys payment of the one-time cash dividend, 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, competitive price
pressures, worldwide economic conditions, the availability of critical
components, the adequate supply of products from the Companys sourcing
partners, the progress of the Companys product development efforts, the
financial stability of the Companys customers, the necessity for future
restructuring or other charges which might consume cash and the success of the
Company in managing its inventory, forecasting accuracy, 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 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 cash, cash equivalents and temporary investments is its
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.

## 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.

47

---

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

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 November of 2002, the
Emerging Issues Task Force (EITF) reached a consensus on Issue No.
00-21, Revenue Arrangements with Multiple Deliverables (EITF
00-21). EITF 00-21 addresses certain aspects of accounting for
arrangements whereby a vendor performs multiple revenue-generating activities.
EITF 00-21 also discusses how to determine whether an arrangement involving
multiple deliverables contains more than one unit of accounting and how the
related revenue should be measured and allocated to the separate units of
accounting. EITF 00-21 is effective for revenue arrangements entered into for
fiscal periods beginning after June 15, 2003. The Company adopted EITF 00-21 on
June 30, 2003. The Company believes that the effect of EITF 00-21 on the
Companys results of operations, financial position or liquidity will not
be material as the Company currently only has a small number of multiple
deliverable revenue arrangements related to the Companys emerging Network
Storage Systems business.

In January of 2003, the
Financial Accounting Standards Board 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. FIN 46 would apply to the
Company beginning in the third quarter of 2003; however, the Company believes
that it does not have an interest in any VIE and thus FIN 46 will not currently
impact the Company.

48

---

# 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

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 computers and other 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 it supply of products and key components;
- Ability of the Company to maintain profitable relationships with distributors,
retailers and other resellers of the Company's products;
- Ability of the Company to avoid disruptions in the supply of the Companys
products from the Companys suppliers, in the distribution process, in the
Companys relationships with key retailers, distributors or resellers or
other factors that could result in product unavailability;
- 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 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.

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 six months of 2003, Zip sales were $139.7 million, a
$117.6 million or 46% decrease from the first six months of 2002. The
Companys Zip drive units in the first six months of 2003 decreased 0.9
million units from the first six months of 2002 and Zip disk units decreased 7.3
million units over the same time period.

49

---

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

The Companys sales of
its proprietary Zip drives and disks (both in terms of unit volumes and sales
dollars) have been declining on a year-over-year basis in recent years. The
Company is developing new products (DCT and RRD), has launched a line of NAS
products and is attempting to broaden 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. If the Company continues to
be unable to minimize year-over-year declines in Zip drive and disk sales, the
Companys profitability and/or results of operations will continue to be
adversely affected. Factors which could lead to accelerated rates of decline in
Zip drive and disk sales include the following:

- The prevalence of CD-RW drives being built into new computers, their
availability in the aftermarket and the low cost of CD-R and CD-RW media;
- The emergence of DVD rewritable drives;
- The continued proliferation of other low cost storage devices and media such as
external hard drives and USB flash drives;
- The Company may not
succeed in its strategy to maintain Zip disk usage by existing Zip drive
customers;
- The sales mix and tie rate between Zip disks and Zip
drives may fall below levels anticipated by the Company;
- The Company may not
succeed in maintaining shelf space or skus with retailers or distributors;
- The loss of one or more OEM, VAR, retailer or distributor customers;
- Price
reductions or promotions on Zip drives or disks may fail to produce a
commensurate increase in demand, thereby reducing anticipated sales and
- Disruptions in the supply of Zip drives and disksfrom the Companys
suppliers, in the distribution process, in the Companys relationships with
key retailers, distributors or resellers or other factors that could result in
product unavailability.

As the Companys Zip
drive and disk sales have declined, it has become increasingly difficult for the
Company to maintain its presence and shelf space with its key resellers and
retailers. During July 2003, one of the Companys largest retail customers
indicated that it intended to discontinue carrying Zip drive products in their
retail stores. The Company is negotiating with such retail customer to reverse
this decision, but there can be no assurance that these negotiations will be
successful. The Company anticipates continued challenges in this area throughout
the remainder of 2003. 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.

The Company sells a
significant volume of Zip drives to a relatively small number of computer OEMs.
The Companys OEM customers are not obligated to purchase any minimum
volume of Zip drives. Moreover, the fact that the number of OEM customers is
relatively small presents a risk that the loss of one or more key OEM accounts
would have an immediate, material adverse effect 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. This trend has had a material adverse impact on the Companys Zip
business. In order to maintain a profitable level of Zip drive sales to OEMs,
the Company must successfully maintain market demand for Zip drives and reduce
the cost of Zip drives. There can be no assurance that the Company will be able
to do so.

50

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

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. For example, during the first six
months of 2003, the PPM for the Zip business was $55.9 million compared to a
combined product loss of $15.4 million on all other products. Despite all of the
Companys efforts to promote the Zip business, it has continued to decline
and the Company expects that Zip sales will be significantly lower in 2003
compared to 2002. Although the overall decline is expected to continue, the
Company has been unable to accurately forecast and predict the actual rate of
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. In particular, the Company was
unable to affect fixed manufacturing overhead cost reductions during the first
six months of 2003 at its Zip product contract manufacturer, Venture Corporation
Limited (Venture) and, as a result, experienced material product
price increases on Zip drives and disks. Consequently, there is no assurance
that the Company will be able to maintain its Zip business and profitability.

Optical Products

The majority of the
Companys Optical products are currently CD-RW drives. The Company began
shipping DVD rewritable drives in the first quarter of 2003. 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. 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 and in order to achieve its goal of
creating Destination Storage in the retail and catalog channels. The
Companys Optical business activities are focused on reducing product costs
and operating expenses, improving inventory management processes, 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 CD-RW drives.

51

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# 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) in
2003. 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. There is no assurance that the Company can or will
be able to achieve profitability on these products. For example, the Company has
incurred product losses on its HDD business since it entered the market in 2002.

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 1.4TB. The NAS market is dominated by large
computer providers (including Dell and Hewlett Packard/Compaq), is highly price
competitive, primarily relies upon VARs and requires core competencies in
server, software 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
there is no assurance that the market will develop as anticipated. For example,
an industry analysts (Gartner, Inc.) final estimate of the NAS market for
2002 was approximately 20% smaller than it had originally estimated in the
segment for NAS units with price points below $25,000. 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 six
months of 2003, the Company recorded product losses of $8.2 million on its NAS
operations due to higher research and development and sales and marketing
spending designed to broaden the Companys NAS product offerings and from
under-absorbed operational overhead due to lower than planned volumes. As a
result, the Company has recorded NAS product losses in each quarter it has
shipped the product. There can be no assurance that the Company will
successfully develop the necessary core competencies to compete in this market
segment, that the Companys NAS products will be successful, that the
Company will be successful in implementing its Network Storage
Systems strategy or that the Company will achieve profitability on this
product line in 2003 or thereafter.

52

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

Development and Introduction of New Products and New Revenue Streams

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
has exited the market with each of these products. In 2002, the Company
introduced desktop and portable HDD drives, NAS and Iomega Mini USB drives.
Moreover, most of the Companys current non-Zip storage products, including
HDD drives, NAS and Optical, were unprofitable at the PPM level during 2002.
During the first six months of 2003, only Optical and Iomega Mini USB drives
were profitable at the PPM level. Notwithstanding these negative results, the
Company believes that it must develop or acquire new products that are
profitable in order to remain viable.

The Company has committed
to spend significant resources in 2003 on efforts to develop two new high
capacity removable storage devices (DCT and RRD), DCT is a small-form factor
removable flexible magnetic storage device that is expected to have a capacity
of about 1.5GB and RRD is a removable hard disk storage system that is expected
to have a capacity of approximately 35GB. In addition, the Company expects to
review new business opportunities in multiple areas including digital storage,
software, disks, tape drives, 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, introduction of new products entails risks
relating to factors such as the following:

- Unforeseen manufacturing and technical challenges;
- 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.

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.

53

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

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 and North Korea, political
tensions in other areas of the world, recent terrorist and counter terrorist
activities, the SARS outbreak in Asia 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. At the end of the second
quarter of 2003, the Company outsourced its collection function. The Company has
experienced disruption and transition issues with other outsourcing initiatives
and there is no assurance that there will not be transition issues associated
with this recent outsourcing that could temporarily impact the collection of the
Companys receivables.

Information Technology System Upgrade

During the third quarter of
2003, the Company will begin 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 there
will not be operational and informational interruptions as a result of the
system upgrade and business process changes.

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.

54

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

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 already incurred significant incremental costs as a
result of not meeting the targeted volumes on Zip drives and such increased
costs will continue unless the volume targets are achieved or the supply
agreement is renegotiated;
- 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;
- Transition of
computer systems or information systems that impede communication or supply
management;
- Distribution risks in the Asia Pacific region and
- Other risks associated with the fact that a third party owns the only
manufacturing facility producing Zip drives and thus plays a key role in the
Companys supply and sale of Zip drives, increasing the significance of any
difficulties encountered at that facility.

55

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# 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 reduce the procurement costs of its products. 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 is currently in negotiations with the supplier
regarding the Companys potential reimbursement of a portion of the
suppliers restructuring costs taken to reduce the cost of Zip products.
There is no assurance that the Company will be successful in these negotiations,
particularly in light of declining Zip product volumes.

The Company has also
experienced volume-based price increases on Zip disks during the first half of
2003. Therefore, the Company is also evaluating the consolidation of Zip disk
manufacturing with the goal to reduce costs. In the event the Company implements
any such consolidation, the Company would likely be required to record charges
for discontinuing certain manufacturing relationships.

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. Manual processes are more prone to error than automated
processes and the Company is working to reautomate these processes but this
effort has not been completed.

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

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.

56

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# 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. From time to time, suppliers of critical components
announce their intention to discontinue manufacturing. In such cases, the
Company attempts to make an end-of-life purchase on the required component(s)
based on its estimates of all future requirements. There is no assurance that an
end-of-life purchase option will be available from a supplier who has chosen to
discontinue a component or that the Companys estimates of future
requirements will be accurate or that the components purchased would not be
subsequently lost, become defective or be otherwise damaged. 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. Moreover, there can be no
assurance that the Company will not purchase in excess of its eventual
requirements and then later incur write-offs of excess inventory.

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.

57

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

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.

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 June 29, 2003, the Company employed 790 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.

58

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

Restructuring and Other Cost Reduction Activities

On July 17, 2003, the
Company announced plans to restructure its operations. The restructuring
charges, which are anticipated to be recorded during the second half of 2003 are
expected to range between $20 million to $25 million, with the majority being
recorded in the third quarter. These charges are expected to reflect expenses
associated with a reduction in the Companys worldwide workforce of
approximately 200 employees; reimbursement of restructuring expenses incurred by
strategic suppliers; lease expenses associated with unutilized facilities;
termination of contractual obligations; asset write-downs and other
miscellaneous charges. There is no assurance that the Company will be successful
in undertaking these cost reduction actions, or be able to do so without
incurring significant legal or other costs. Management expects that these
restructuring and other actions will reduce future operational expenses.
However, there is no assurance that the Company will be successful in its
efforts to reduce expenses in future periods. In carrying out these actions, the
Company is at risk that key personnel and experience may be lost. The Company
may experience 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.

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.

One-Time Cash Dividend

On July 17, 2003, the
Company announced that its 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, to be paid on October 1, 2003. Based on the number of common
shares outstanding as of August 1, 2003, the total amount of the dividend will
be approximately $257 million. After paying the dividend, the Companys
cash balances will be significantly reduced and the Company could be subject to
greater liquidity risks.

Other Risk Factors

During the third quarter of
1999, the Company announced plans to cease its Nomai manufacturing operations in
Avranches, France and ceased such operations shortly thereafter. In connection
therewith, the Company recorded restructuring charges in 1999. The Company may
be forced to incur additional legal or other costs relating to this matter. See
Note 5 of the notes to condensed consolidated financial statements 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 has conducted
business outside of the United States for a shorter period of time and therefore
the operations are less mature and developed than in the United States.
Consequently, future sales and operating income from these regions are less
predictable than in the United States. The Company invoices the majority of its
European customers in Euros 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).

59

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# 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.

The Company has substantial
balances of cash, cash equivalents and temporary investments. Significant
portions of these balances are invested in investment grade instruments and
securities, including commercial paper and corporate bonds. The Company monitors
these investments in accordance with the Companys investment policies.
Adverse events or developments in regard to a particular issuer could have a
material adverse affect on the Companys financial position or operating
results. The Company could incur costs liquidating investments needed to pay the
one-time cash dividend.

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 less
than $0.5 million and an additional $2.6 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.

60

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# 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 $0.9 million at
June 29, 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 June 29, 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.

61

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

The Company did not have
any significant debt outstanding at June 29, 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%,
interest income would have hypothetically increased or decreased by $2.3 million
during the first six 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 June 29, 2003 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 June 29, 2003, the average duration of the
Companys temporary investments was under six months. The Companys
temporary investments are purchased with maturities in excess of three months.
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,
U.S. treasuries and taxable municipal obligations.

## 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 June 29, 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 June
29, 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.

No change in the
Companys internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal
quarter ended June 29, 2003 that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial
reporting.

62

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# 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 second quarter of 2003 that were not registered
under the Securities Act of 1933.

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

The Companys 2003
Annual Meeting of Stockholders was held on Tuesday, May 20, 2003. At the Annual
Meeting, the Companys stockholders voted upon the following four
proposals:

|1. | Approval of amendments to the Company's  Certificate of Incorporation  and By-Laws  eliminating
the Company's classified Board of Directors;                                                                                         
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Election of three Class III  directors,  each for a term of three years,  or, in the event the
  amendments to Iomega's  Certificate  of  Incorporation  and Bylaws are  approved,  election of
 eight directors for a one-year term;
|3. | Approval of the restricted  stock provisions of the Company's  Management  Incentive Plan and
 the reservation of 1,000,000 shares of Common Stock for awards thereunder and                                                         
|4. | Ratification  of the  selection of Ernst &Young LLP as the  Company's  independent  auditors
 for the current year.                                                                                                                  

The affirmative vote of at
least 80% of the shares of Common Stock outstanding on the record date for the
Annual Meeting was required to approve the amendments to the Companys
Certificate of Incorporation and By-Laws eliminating the Companys
classified Board of Directors. As indicated in the table below, this proposal
was approved. Since this proposal was approved, the stockholders voted to elect
eight directors, each of whom would serve for a one-year term until the next
annual meeting of stockholders. The eight directors that were elected for a term
of one year were: David J. Dunn, Robert P. Berkowitz, Louis E. Caldera, Stephen
N. David, Werner T. Heid, Jonathan S. Huberman, Neal J. Martini and John E.
Nolan.

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The following table indicates the votes received for each proposal.

`Against/                Broker
                       Proposal                                 For        Withheld    Abstain    Non-Votes
        ---------------------------------------             ----------    ---------    -------    ---------

1.      Approval of amendments to Iomega's
           Certificate of Incorporation and By-
           Laws eliminating Iomega's classified
           Board of Directors                               47,879,772      529,679    135,436         2

2.      Election of eight directors, each
           for a term of one year:
              David J. Dunn                                 41,999,388    6,545,501          -         -
              Robert P. Berkowitz                           47,219,820    1,325,069          -         -
              Louis E. Caldera                              46,505,175    2,039,714          -         -
              Stephen N. David                              46,506,242    2,038,647          -         -
              Werner T. Heid                                47,347,622    1,197,267          -         -
              Jonathan S. Huberman                          42,032,937    6,511,952          -         -
              Neal J. Martini                               46,504,960    2,039,929          -         -
              John E. Nolan                                 46,704,533    1,840,356          -         -

3.      Approval of the restricted stock provisions
           of the Company's Management Incentive
           Plan and the reservation of 1,000,000
           shares of Common Stock for awards thereunder     44,942,006    3,357,701    245,180         2

4.      Ratification of Ernst &Young LLP as
           independent auditors                             47,574,552      881,514     88,821         2`

## 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 July 17, 2003, the Company  furnished a Form 8-K  announcing the Company's  financial
results for the quarter ending June 29, 2003 under "Item 9. Regulation FD Disclosure"  (Information  furnished
pursuant to Item 12,  "Disclosure of Results of Operations  and Financial  Condition").  Financial  statements
were included in this Form 8-K.

64

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# IOMEGA CORPORATION AND SUBSIDIARIES
SIGNATURES

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

|Dated: August 12, 2003
Dated: August 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
|--------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

65

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## IOMEGA CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX

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

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

|3(i).1     (1) | Restated Certificate of Incorporation of the
Registrant, as amended.
|-------------- | --------------------------------------------------------------------

|3(ii).1    (1) | By-Laws of the Registrant, as amended.
|-------------- | --------------------------------------

|31.1 | Section 302 certification letter from Werner T. Heid, President and Chief Executive Officer.
|---- | --------------------------------------------------------------------------------------------

|31.2 | Section 302 certification letter from Barry Zwarenstein, Vice President, Finance
and Chief Financial Officer.
|---- | -------------------------------------------------------------------------------------------------------------

|32.1 | Section 906 certification letter from Werner T. Heid, President and Chief Executive Officer.
|---- | --------------------------------------------------------------------------------------------

|32.2 | Section 906 certification letter from Barry Zwarenstein, Vice President, Finance
and Chief Financial Officer.
|---- | -------------------------------------------------------------------------------------------------------------

---

| | Incorporated herein by reference to the exhibits to the Company's Registration
Statement on Form S-8 filed on June 26, 2003 (File No. 333-106525).
| | --------------------------------------------------------------------------------------------------------------------------------------------------

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