---

# 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 27, 2004

## 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 July 30, 2004.

|Common Stock, par value $.03 1/3(Title of each class) | 51,543,095(Number of shares)
|----------------------------------------------------- | ----------------------------

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# IOMEGA CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS

`Page

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

                                            PART I - FINANCIAL STATEMENTS

Item 1.  Financial Statements (Unaudited)

         Condensed Consolidated Balance Sheets at June 27, 2004
             and December 31, 2003.................................................................       4

         Condensed Consolidated Statements of Operations for the Quarters
             Ended June 27, 2004 and June 29, 2003.................................................       6

         Condensed Consolidated Statements of Operations for the Six Months
             Ended June 27, 2004 and June 29, 2003.................................................       7

         Condensed Consolidated Statements of Cash Flows for the Six Months
             Ended June 27, 2004 and June 29, 2003.................................................       8

         Notes to Condensed Consolidated Financial Statements......................................       9

Item 2.  Management's Discussion and Analysis of Financial
             Condition and Results of Operations...................................................      29

Item 3.  Quantitative and Qualitative Disclosures About Market Risk................................      64

Item 4.  Controls and Procedures...................................................................      66

                                             PART II - OTHER INFORMATION

Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities..........      67

Item 4.  Submission of Matters to a Vote of Security Holders.......................................      67

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

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

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

---

Copyright © 2004
Iomega Corporation. All rights reserved. Iomega, the stylized i
logo, Zip, REV, HotBurn, Active Disk, Iomega Automatic Backup,
Iomega Sync, ioLink and IoClub are either
registered trademarks or trademarks of Iomega Corporation in the United States
and/or other countries. All other trademarks referenced herein
are the property of their respective owners.

1

---

## 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 wind down the Digital Capture
Technology (DCT) development program during the third quarter of
2004 and to continue to pursue licensing and other strategic opportunities for
the DCT technology;
- goals to recruit original equipment manufacturer
(OEM) customers for REV products;
- plans to develop and introduce
follow-on REV products;
- the Companys goal to increase REV revenues and
margins and to achieve a positive profit margin on REV
products by the end of 2004;
- attempts to manage the continued decline in the Company's core Zip Products business;
- the Companys intentions to review its cost structure to align it with
anticipated business direction and revenue streams and the likelihood of
recording restructuring charges in the second half of 2004;
- the expected sales
volumes and profitability, or the lack thereof, on certain product lines;
- the
Companys continued goal to grow its Network Storage Systems business and
for that business to achieve profitability throughout the second half of 2004;
- the timeframe to achieve overall Company profitability;
- the Companys belief that its balance of unrestricted cash, cash
equivalents and temporary investments is sufficient to operate the business and
fund the investments required for REV products and other new products for at
least one more year;
- anticipated benefits from the Company's information technology system upgrade;
- the expectation of continuing to lower product procurement costs;
- the goal to improve the procurement and commodity business  processes to realize  profitability on Sourced
Branded products;
- the impacts of expensing stock option grants;
- 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;
- expectations relating to revenue recognition, price protection and rebate
reserves, marketing program accruals, allowances for doubtful accounts,
inventory valuation reserves, and tax valuation allowances and
- the possible effects of an adverse outcome in any legal proceedings.

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, including but
not limited to expressions of the Companys goals, are intended to identify
forward-looking statements, although not all forward-looking statements contain
these words.

2

---

## NOTE
REGARDING FORWARD-LOOKING STATEMENTS (Continued)

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. 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 the Company specifically
disclaims any obligation to update forward looking statements, even if its
estimates change.

3

---

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

`June 27,          December 31,
                                                                               2004                2003
                                                                            ----------         ------------
                                                                            (Unaudited)
Current Assets:
   Cash and cash equivalents                                                 $  67,973          $ 122,591
   Restricted cash                                                                 250                200
   Temporary investments                                                        65,961             46,140
   Trade receivables, less allowance for doubtful accounts
      of $2,573 and $2,899, respectively                                        28,079             37,234
   Inventories                                                                  21,815             23,745
   Deferred income taxes (Note 1)                                               12,823             16,938
   Other current assets                                                          8,865              7,553
                                                                             ---------          ---------
      Total Current Assets                                                     205,766            254,401
                                                                             ---------          ---------

Property and Equipment, at Cost                                                136,675            136,205
Accumulated Depreciation and Amortization                                     (116,281)          (120,152)
                                                                             ---------          ---------
      Net Property and Equipment                                                20,394             16,053

Goodwill                                                                        11,691             11,691
Other Intangibles, Net                                                           3,486              4,525
Other Assets                                                                        70                 71
                                                                             ---------          ---------
   Total Assets                                                              $ 241,407          $ 286,741
                                                                             =========          =========`

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

4

---

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

`June 27,         December 31,
                                                                                2004               2003
                                                                             ---------         ------------
                                                                            (Unaudited)
Current Liabilities:
   Accounts payable                                                          $  35,100          $  38,000
   Other current liabilities (Note 1)                                           65,426             81,339
   Income taxes payable (Note 1)                                                   239              3,531
                                                                             ---------          ---------
      Total Current Liabilities                                                100,765            122,870
                                                                             ---------          ---------

Other Long-Term Liabilities                                                        592              1,471

Deferred Income Taxes (Note 1)                                                  26,184             24,512

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 54,959,288 and 54,931,209 shares,
      respectively                                                               1,835              1,834
   Additional paid-in capital                                                   77,755             77,120
   Less: 3,430,495 and 3,428,590 Common Stock treasury
      shares, respectively, at cost                                            (33,791)           (33,791)
   Retained earnings                                                            68,067             92,725
                                                                             ---------          ---------
      Total Stockholders' Equity                                               113,866            137,888
                                                                             ---------          ---------
        Total Liabilities and Stockholders' Equity                           $ 241,407          $ 286,741
                                                                             =========          =========`

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

5

---

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

`For the Quarter Ended
                                                                             ----------------------------
                                                                             June 27,           June 29,
                                                                               2004               2003
                                                                             ---------          ---------
                                                                                     (Unaudited)
Sales                                                                        $  77,642          $ 100,802
Cost of sales                                                                   62,861             66,440
                                                                             ---------          ---------
   Gross margin                                                                 14,781             34,362
                                                                             ---------          ---------

Operating Expenses:
   Selling, general and administrative                                          24,441             27,818
   Research and development                                                      6,704              7,635
   Restructuring charges                                                           152                  -
   Bad debt expense (credit)                                                      (384)               279
                                                                             ---------          ---------
      Total Operating Expenses                                                  30,913             35,732
                                                                             ---------          ---------

Operating loss                                                                 (16,132)            (1,370)
Interest income                                                                    361              1,646
Interest expense and other income and expense, net                                (568)              (485)
                                                                             ---------          ---------
Loss before income taxes                                                       (16,339)              (209)
(Provision) benefit for income taxes                                            (3,454)             4,616
                                                                             ---------          ---------
Net income (loss)                                                            $( 19,793)         $   4,407
                                                                             =========          =========


Net income (loss) per basic and diluted common share                         $   (0.38)         $    0.09
                                                                             =========          =========

Weighted average common shares outstanding                                      51,529             51,329
                                                                             =========          =========
Weighted average common shares outstanding -
   assuming dilution                                                            51,529             51,355
                                                                             =========          =========`

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

6

---

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

`For the Six Months Ended
                                                                             ----------------------------
                                                                             June 27,            June 29,
                                                                                2004               2003
                                                                             ---------          ---------
                                                                                      (Unaudited)
Sales                                                                        $ 161,768          $ 206,984
Cost of sales                                                                  122,637            135,512
                                                                             ---------          ---------
   Gross margin                                                                 39,131             71,472
                                                                             ---------          ---------

Operating Expenses:
   Selling, general and administrative                                          47,636             51,158
   Research and development                                                     13,169             16,223
   Restructuring charges (reversal)                                                698                (78)
   Bad debt credit                                                                (260)            (1,703)
                                                                             ---------          ---------
      Total Operating Expenses                                                  61,243             65,600
                                                                             ---------          ---------

Operating income (loss)                                                        (22,112)             5,872
Interest income                                                                    732              3,512
Interest expense and other income and expense, net                                (509)              (463)
                                                                             ---------          ---------
Income (loss) before income taxes                                              (21,889)             8,921
(Provision) benefit for income taxes                                            (2,769)               799
                                                                             ---------          ---------
Net income (loss)                                                            $ (24,658)         $   9,720
                                                                             =========          =========


Net income (loss) per basic and diluted common share                         $   (0.48)         $    0.19
                                                                             =========          =========

Weighted average common shares outstanding                                      51,528             51,297
                                                                             =========          =========
Weighted average common shares outstanding -
   assuming dilution                                                            51,528             51,316
                                                                             =========          =========`

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

7

---

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

`For the Six Months Ended
                                                                             ----------------------------
                                                                              June 27,           June 29,
                                                                                2004               2003
                                                                             ---------          ---------
   Cash Flows from Operating Activities:                                              (Unaudited)
      Net income (loss)                                                      $ (24,658)         $   9,720
      Non-Cash Adjustments:
         Depreciation and amortization                                           4,393              6,810
         Deferred income tax provision                                           5,787                602
         Stock compensation expense                                                552                160
         Amortization of premium on temporary investments                           35              1,796
         Bad debt credit                                                          (260)            (1,703)
         Other                                                                     149                101
                                                                             ---------          ---------
                                                                               (14,002)            17,486
      Changes in Assets and Liabilities:
         Restricted cash                                                           (50)             3,600
         Trade receivables                                                       9,415             19,809
         Inventories, net                                                        1,930              7,638
         Other current assets                                                   (1,312)             3,498
         Accounts payable                                                       (2,900)           (26,780)
         Other current liabilities                                             (13,546)           (15,635)
         Accrued restructuring                                                  (2,367)              (886)
         Income taxes                                                           (3,292)            (1,332)
                                                                             ---------          ---------
            Net cash (used in) provided by operating activities                (26,124)             7,398
                                                                             ---------          ---------

   Cash Flows from Investing Activities:
      Purchases of property and equipment                                       (7,770)            (3,413)
      Purchases of temporary investments                                      (181,182)          (463,908)
      Sales of temporary investments                                           161,326            407,387
      Net change in other assets and other liabilities                            (878)              (558)
                                                                             ---------          ---------
         Net cash used in investing activities                                 (28,504)           (60,492)
                                                                             ---------          ---------

   Cash Flows from Financing Activities:
      Proceeds from sales of Common Stock                                           10                334
                                                                             ---------          ---------
         Net cash provided by financing activities                                  10                334
                                                                             ---------          ---------
   Net Decrease in Total Cash and Cash Equivalents                             (54,618)           (52,760)
   Total Cash and Cash Equivalents at Beginning of Period                      122,591            241,519
                                                                             ---------          ---------
   Total Cash and Cash Equivalents at End of Period                          $  67,973          $ 188,759
                                                                             =========          =========`

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

8

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

## (1)
Significant Accounting Policies

In the opinion of the
Companys management, the accompanying condensed consolidated financial
statements reflect all adjustments of a normal recurring nature which are
necessary to present fairly the financial position of the Company as of June 27,
2004 and December 31, 2003, the results of operations for the quarters and six
months ended June 27, 2004 and June 29, 2003 and cash flows for the six months
ended June 27, 2004 and June 29, 2003.

The results of operations
for the quarter and six months ended June 27, 2004 are not necessarily
indicative of the results to be expected for the entire year or for any future
period.

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

Principles of Consolidation

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

Pervasiveness of Estimates

The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of sales and expenses during the reporting
periods. Areas where significant judgments are made include, but are not limited
to: revenue recognition, price protection and rebate reserves, marketing program
accruals, allowance for doubtful accounts, inventory valuation reserves and tax
valuation allowances. Actual results could differ materially from these
estimates.

Reclassifications

Certain reclassifications
were made to the prior periods condensed consolidated financial statements
and notes to condensed consolidated financial statements to conform to the
current period presentation. The Company has made reclassifications between its
various tax accounts in its prior year balance sheet and tax note related to its
foreign withholding taxes and offsetting adjustments related, in part, to the
tax consequences of a $75 million intercompany dividend. These tax account
reclassifications are discussed in Note 2. The Companys business segment
presentation has been changed to reflect how management currently evaluates its
business. All prior year business segment information has been restated to be
consistent with the current year presentation and these reclassifications are
discussed in Note 3.

9

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

## (1)
Significant Accounting Policies (Continued)

Revenue Recognition

The Companys
customers include OEMs, retailers, distributors, value added resellers
(VARs), catalog resellers, private label customers and end users.
Typically, retail and distribution customer agreements have provisions that
allow the customer to return product under certain conditions within specified
time periods. Sales, less reserves for estimated returns, are generally
recognized upon shipment and passage of title to the customer. The Company has
established reserves for estimated returns, which are reflected as a reduction
of sales and trade receivables in the condensed consolidated financial
statements. The reserves for estimated returns totaled $4.3 million at June 27,
2004 and $3.1 million at December 31, 2003.

In addition to reserves for
estimated returns, the Company defers recognition of sales on estimated excess
inventory in the distribution, retail and catalog channels. For this purpose,
excess inventory is the amount of inventory that exceeds the channels
four-week requirements as estimated by management. OEM and VAR customers are not
considered to have excess inventory as they usually do not carry more than four
weeks of inventory. The distribution, retail and catalog channels
four-week requirements are estimated based on inventory and sell-through amounts
reported to the Company by the Companys key customers, who make up the
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 Company sells various
extended warranty plans for its Network Attached Storage (NAS)
servers, some of which are bundled with certain NAS servers. The service periods
of the extended warranty plans are up to five years, with the vast majority of
the plans being for three years. The Company defers revenue from the sale of
extended warranty plans and recognizes the sales ratably over the respective
life of the warranty at the earlier of the extended warranty being registered
with the Company by the end-user or three months after sell-in.

The margin on deferred
sales related to the estimated excess channel inventory and NAS extended
warranties totaled $8.0 million at June 27, 2004 and $8.7 million at December
31, 2003 and is included in other current liabilities in the
condensed consolidated balance sheets.

Price Protection and Rebate Reserves

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 the time of
purchase from channel partners for which sales have been recognized.

10

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

## (1)
Significant Accounting Policies (Continued)

Reserves for volume and
other rebates and price protection totaled $17.1 million at June 27, 2004 and
$18.7 million at December 31, 2003 and are netted against trade receivables in
the condensed consolidated balance sheets.

Cash and Cash Equivalents

For the purposes of the
condensed consolidated statements of cash flows, cash and cash equivalents
include all marketable securities purchased with maturities of three or fewer
months. Cash equivalents at June 27, 2004 and December 31, 2003 consisted
primarily of investments in repurchase agreements, corporate obligations,
certificates of deposit and U.S. agencies.

Temporary Investments

Investments purchased with
maturities in excess of three months are classified as temporary investments.
Temporary investments at June 27, 2004 consisted primarily of U.S. treasuries,
corporate notes, bonds and paper and U.S. agencies. Temporary investments at
December 31, 2003 consisted primarily of corporate notes, bonds and paper, U.S.
treasuries, certificates of deposit, asset-backed securities and mortgage-backed
securities. None of the Companys temporary investments has an effective
maturity greater than 24 months and at both June 27, 2004 and December 31, 2003,
the average duration of the Companys temporary investments was
approximately 14 months. At June 27, 2004, the Company had debt security
investments of $36.0 million that will mature within one year and $30.0 million
that will mature in more than one year but less than two years. The Company
seeks to minimize its credit risk associated with temporary investments by
purchasing investment grade, liquid securities. The Company has classified all
of its temporary investments as available-for-sale securities.

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 27,         December 31,
                                                                                2004               2003
                                                                              --------         ------------
                                                                                    (In thousands)
         Raw materials                                                        $  1,427           $  3,875
         Finished goods                                                         20,388             19,870
                                                                              --------           --------
                                                                              $ 21,815           $ 23,745
                                                                              ========           ========`

The Company evaluates the
carrying value of inventory on a quarterly basis to determine if the carrying
value is recoverable at estimated selling prices (including known future price
decreases). The Company includes product costs and direct selling expenses in
its analysis of inventory realization. To the extent that estimated selling
prices do not exceed such costs and expenses, valuation reserves are established
against inventories. In addition, the Company generally considers inventory
which is not expected to be sold within the next nine months, as forecasted by
the Companys material requirements planning system, as excess and thus
appropriate reserves are established through a charge to cost of sales.

11

---

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

## (1)
Significant Accounting Policies (Continued)

Other Current Liabilities

Other current liabilities consist of the following:

`June 27,         December 31,
                                                                                2004               2003
                                                                              --------         ------------
                                                                                    (In thousands)
         Margin on deferred sales                                             $  8,707           $  9,953
         Accrued marketing (a)                                                   7,502              8,588
         Accrued payroll, vacation, bonus and profit sharing                     7,182             10,104
         Accrued restructuring charges                                           5,795              8,162
         Accrued warranty                                                        5,109              5,225
         Accrued excess purchase commitments                                     2,434              4,744
         Other accrued liabilities (b)                                          28,697             34,563
                                                                              --------           --------
                                                                              $ 65,426           $ 81,339
                                                                              ========           ========`

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

| | (b) | Includes accruals for royalties,  licensing agreements,  self-insurance liabilities,  professional fees, litigation,
employee relocation costs, forward foreign exchange contracts, VAT, sales and other taxes and other miscellaneous
liabilities.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Net Income (Loss) Per Common Share

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

12

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

## (1)
Significant Accounting Policies (Continued)

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

`Net
                                                               Income (loss)          Shares        Per Share
                                                                (Numerator)       (Denominator)       Amount
                                                               -------------      -------------      -------
                                                                   (In thousands, except per share data)
         For the Quarter Ended:
         June 27, 2004:
         Basic EPS                                               $ (19,793)           51,529         $ (0.38)
            Effect of options and restricted stock                       -                 -               -
                                                                 ---------            ------         -------
         Diluted EPS                                             $ (19,793)           51,529         $ (0.38)
                                                                 =========            ======         =======

         June 29, 2003:
         Basic EPS                                               $   4,407            51,329         $  0.09
            Effect of options                                            -                26               -
                                                                 ---------            ------         -------
         Diluted EPS                                             $   4,407            51,355         $  0.09
                                                                 =========            ======         =======

         For the Six Months Ended:
         June 27, 2004:
         Basic EPS                                               $ (24,658)           51,528         $ (0.48)
            Effect of options and restricted stock                       -                 -               -
                                                                 ---------            ------         -------
         Diluted EPS                                             $ (24,658)           51,528         $ (0.48)
                                                                 =========            ======         =======

         June 29, 2003:
         Basic EPS                                               $   9,720            51,297         $  0.19
            Effect of options                                            -                19               -
                                                                 ---------            ------         -------
         Diluted EPS                                             $   9,720            51,316         $  0.19
                                                                 =========            ======         =======`

Stock options and unvested
restricted shares for the quarter ended June 27, 2004 were not included in the
calculation of Diluted EPS as their inclusion would have been anti-dilutive. For
the quarter ended June 27, 2004, there were outstanding options to purchase
1,105,754 shares that had an exercise price greater than the average market
price of the common shares. For the quarter ended June 29, 2003, there were
outstanding options to purchase 1,355,555 shares that had an exercise price
greater than the average market price of the common shares. At June 27, 2004,
there were also 18,846 shares of restricted common shares granted under the
Management Incentive Plan that were not yet vested. For the six months ended
June 27, 2004, there were outstanding options to purchase 1,070,905 shares that
had an exercise price greater than the average market price of the common
shares. For the six months ended June 29, 2003, there were outstanding options
to purchase 1,384,888 shares that had an exercise price greater than the average
market price of the common shares. For the quarter and six months ended June 29,
2003, the outstanding options that had an exercise price greater than the
average market price of the common shares would have had an anti-dilutive effect
on EPS and were therefore excluded from the Diluted EPS calculation above.

13

---

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

## (1)
Significant Accounting Policies (Continued)

Stock Compensation Expense

The Company has various
stock-based compensation plans (stock option plans, a Management Incentive Plan
(MIP) under which employees may be eligible for grants of restricted
stock (restricted stock) and two employee stock purchase plans
(ESPPs)). Under the ESPPs, employees can purchase the Companys
Common Stock at a discount.

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 was one of the three transition methods allowed by
SFAS No. 148, Accounting for Stock-Based Compensation  Transition
and Disclosure, to transition to the fair value method of measuring
stock-based compensation expense. Under the prospective method, only those
employee stock options that are granted or modified after January 1, 2003 are
expensed as compensation.

On July 17, 2003, the
Companys Board of Directors declared a one-time cash dividend of $5.00 per
share to stockholders of record as of the close of business on September 15,
2003. As required by the Companys 1997 Stock Incentive Plan, a
modification to reflect the one-time cash dividend of $5.00 per share was made
on October 2, 2003 to the approximately 1.7 million stock options outstanding at
that time under this plan. The outstanding options were adjusted by reducing
their exercise prices by an amount equal to the dividend (but in no event below
$0.03 1/3 per share), effective as of October 2, 2003. An additional charge of
$1.2 million for the fair value of modifying the vested options was recorded in
the fourth quarter of 2003.

The Companys 1995
Director Stock Option Plan and 1987 Stock Option Plan prohibited any
modifications without stockholder approval. However, since no modifications
could initially be done for the outstanding stock options under these two plans,
the value of the options for these two plans were decreased as a result of the
declared dividend and this was determined to be a deemed
modification of the stock options on October 2, 2003. Since these options were
considered modified, they have been accounted for under the fair value method of
SFAS 123 since October 2, 2003.

As a result of these
actions, as of October 2, 2003, all of the Companys outstanding stock
options are being accounted for under the fair value method of SFAS 123.

On May 25, 2004, the
Companys stockholders approved amendments to the Companys 1995
Director Stock Option Plan and 1987 Stock Option Plan permitting a similar $5.00
adjustment to be made to options outstanding under those plans. Thus, a
modification to reflect the one-time cash dividend of $5.00 per share was made
on May 26, 2004 to the approximately 0.3 million stock options outstanding at
that time under these two plans. The outstanding options were adjusted by
reducing their exercise prices by an amount equal to the dividend (but in no
event below $0.03 1/3 per share), effective as of May 26, 2004 and an additional
charge of $0.1 million for the fair value of modifying the vested options was
recorded in the second quarter of 2004.

14

---

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

## (1)
Significant Accounting Policies (Continued)

Stock compensation expense
for the MIP restricted stock, 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. The fair value of the discount associated with the ESPPs is
being expensed in accordance with SFAS 123.

The following table
illustrates the effect on net income (loss) and per share data if the fair value
based method had been applied to all outstanding and unvested awards in 2003
(the fair value based method was applied to all outstanding and unvested awards
in 2004).

`For the Quarter Ended          For the Six Months Ended
                                                       ---------------------          ------------------------
                                                        June 27,    June 29,          June 27,        June 29,
                                                          2004        2003              2004            2003
                                                       ---------    --------          --------        --------
                                                                 (In thousands, except per share data)

Net income (loss) as reported                          $ (19,793)   $ 4,407           $ (24,658)       $ 9,720
                                                       =========    =======           =========        =======
   Add: Stock compensation expense
      included in reported net income (loss),
      net of related tax effects                             202         28                 293             44
   Less: Total stock compensation expense
      determined under fair value method for
      all awards, net of related tax effects                (202)      (489)               (293)          (824)
                                                       ---------    -------           ---------        -------
Pro forma net income (loss)                            $ (19,793)   $ 3,946           $ (24,658)       $ 8,940
                                                       =========    =======           =========        =======

Basic EPS:
   As reported                                         $   (0.38)   $  0.09           $   (0.48)       $  0.19
                                                       =========    =======           =========        =======
   Pro forma                                           $   (0.38)   $  0.08           $   (0.48)       $  0.17
                                                       =========    =======           =========        =======

Diluted EPS:
   As reported                                         $   (0.38)   $  0.09           $   (0.48)       $  0.19
                                                       =========    =======           =========        =======
   Pro forma                                           $   (0.38)   $  0.08           $   (0.48)       $  0.17
                                                       =========    =======           =========        =======`

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.

15

---

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

## (1)
Significant Accounting Policies (Continued)

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

`For the Quarter Ended     For the Six Months Ended
                                            ---------------------     ------------------------
                                            June 27,     June 29,     June 27,        June 29,
                                              2004         2003         2004            2003
                                            --------     --------     --------        --------
                                                            (In thousands)

Balance at beginning of period              $ 4,664      $ 7,202      $ 5,225          $ 8,035
   Accruals/additions                         1,703        1,709        2,835            4,119
   Claims                                    (1,258)      (2,437)      (2,951)          (5,680)
                                            -------      -------      -------          -------
Balance at end of period                    $ 5,109      $ 6,474      $ 5,109          $ 6,474
                                            =======      =======      =======          =======`

Guarantees

During the third quarter of
2003, the Company entered into a limited guarantee with a component supplier
whereby the Company agreed to provide a guarantee of payments for purchases by a
contract manufacturer of the component suppliers product. The contract
manufacturer incorporates the component suppliers product into Iomega
branded DVD products. The Company has guaranteed purchases of the component
suppliers product by the contract manufacturer for up to $3 million. All
purchase orders placed by the contract manufacturer must be countersigned or
approved by a Company representative in advance of the transaction. This
guarantee will remain in effect until the Company is no longer selling the
component suppliers product under the Iomega brand or until the component
supplier extends a credit facility to the contract manufacturer that does not
require a guarantee by the Company. The Company entered into this guarantee to
facilitate the purchase of product by the contract manufacturer directly from
the component supplier. The Company is only obligated to make payments under
this guarantee in the event that the contract manufacturer is in material
payment default. However, if the contract manufacturer defaults on payment to
the component supplier, the Company would be entitled to withhold any related
amounts due from the Company to the contract manufacturer. The component
supplier has presently granted a $2 million line of credit to the contract
manufacturer. Accordingly, the current potential exposure to the Company under
the guarantee is $2 million. The Company has recorded a $30 thousand liability
to reflect the fair value of this guarantee. The fair value was based on the
estimated market value of a similar stand-alone letter of credit.

16

---

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

## (2) Income Taxes

For the quarter ended June
27, 2004, the Company recorded a net tax provision of $3.5 million, on a pre-tax
loss of $16.3 million. The net provision was comprised of a $12.5 million tax
increase in the valuation allowance resulting primarily from new foreign tax
credits and loss carryforwards, partially offset by the statutory tax benefit of
$6.4 million on the quarters pre-tax loss, and a $2.6 million benefit
resulting primarily from the release of tax accruals associated with the
Companys foreign operations. Included in the $12.5 million increase in the
valuation allowance was an $8.5 million valuation allowance resulting from new
foreign tax credits created by deemed Swiss withholding taxes on foreign
earnings. The recording of the new foreign tax credits were the result of a
change in the Companys intention to repatriate foreign cash to the U.S. in
the form of dividends in the future. The resulting effective tax provision rate
of 21% on a pre-tax loss for the second quarter of 2004 resulted from the
valuation allowance and release of tax accruals described above. This compares
to an income tax benefit of $4.6 million on a pre-tax loss of $0.2 million for
the second quarter of 2003, which reflected $4.6 million of research tax credits
that were recorded following the completion of a research tax credit study and
an IRS audit.

On April 22, 2004, in
conjunction with releasing its first quarter 2004 pre-tax results, the Company
announced that it was conducting an analysis of its net tax assets and
associated valuation reserves. At the completion of the analysis, the Company
concluded that foreign withholding taxes which were previously presented as
income taxes receivable should be reclassified and reported as deferred tax
assets on the consolidated balance sheets. The amount reclassified on the
December 31, 2003 condensed consolidated balance sheet was $8.5 million. The
Company further concluded that no net adjustment was required to the fourth
quarter 2003 tax provision as a result of certain fourth quarter 2003 offsetting
adjustments related, in part, to the tax consequences of a $75 million
intercompany dividend required to fund the one-time $5 per share cash dividend
paid to shareholders on October 1, 2003 and that no adjustments to the tax
provisions were required in any other prior period.

17

---

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

## (2) Income Taxes (Continued)

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

`June 27,       December 31,
                                                                                   2004             2003
                                                                                ---------       ------------
                                                                                       (In thousands)
              Deferred Tax Assets (Liabilities):
              Current Deferred Tax Assets:
                 Trade receivable reserves                                      $   4,871         $   5,193
                 Inventory reserves                                                 4,025             3,753
                 Accrued expense reserves                                           8,435            10,911
                 Other                                                                 53                53
                                                                                ---------         ---------
              Total current deferred tax assets                                    17,384            19,910
                                                                                ---------         ---------

              Non-Current Deferred Tax Assets:
                 Fixed asset reserves                                                 230               370
                 Tax credit carryforwards                                          35,411            29,839
                 Accelerated depreciation and amortization                          4,478             4,522
                 U.S. and foreign loss carryforwards                               29,522            34,141
                 Other                                                              1,629             1,938
                                                                                ---------         ---------
              Total non-current deferred tax assets                                71,270            70,810
                                                                                ---------         ---------
              Total deferred tax assets                                            88,654            90,720
                                                                                ---------         ---------

              Non-Current Deferred Tax Liabilities:
                 Tax on unremitted foreign earnings                               (60,288)          (69,701)
                 Purchased goodwill                                                (4,741)           (4,824)
                                                                                ---------         ---------
              Total non-current deferred tax liabilities                          (65,029)          (74,525)
                                                                                ---------         ---------
              Current valuation allowance                                          (4,561)           (2,972)
              Non-current valuation allowance                                     (32,425)          (20,797)
                                                                                ---------         ---------
                 Net deferred tax liabilities                                   $ (13,361)        $  (7,574)
                                                                                =========         =========

              As Reported on the Balance Sheet:
                 Current deferred tax assets                                    $  12,823         $  16,938
                                                                                =========         =========
                 Non-current deferred tax liabilities                           $ (26,184)        $ (24,512)
                                                                                =========         =========`

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 it is more likely than not that the deferred tax
assets will not be realized.

18

---

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

## (2) Income Taxes (Continued)

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

`June 27,
                                                                     2004        Expiration Dates
                                                                   --------      ----------------
                                                                (In thousands)
U.S. and Foreign Loss Deferred Tax Assets:
   Federal NOLs (1)                                                $  7,942      2022 to 2023
   State NOLs                                                         8,713      2004 to 2022
   Foreign NOLs                                                      12,437      2004 to 2006
   Capital losses                                                       430      2006
                                                                   --------
                                                                   $ 29,522
                                                                   ========

Tax Credit Deferred Tax Assets:
   Foreign tax credits                                             $ 24,154      2005 to indefinite
   Research credits                                                  10,009      2007 to 2023
   Alternative minimum tax credits                                    1,248      Indefinite
                                                                   --------
                                                                   $ 35,411
                                                                   ========
(1) NOLs = Net Operating Loss Carryforwards`

At June 27, 2004, the
Company had $7.9 million of deferred tax assets related to U.S. federal net
operating loss carryforwards (NOLs), which reflect a tax benefit of
approximately $23 million in future U.S. federal tax deductions. At June 27,
2004, the Company had $8.7 million of deferred tax assets related to state NOLs,
which reflect a tax benefit of approximately $218 million in future state tax
deductions. The difference in the amount of future federal and state tax
deductions related to the NOLs is primarily attributable to two factors: 1) The
difference between federal and state NOL carryback rules which have allowed the
use of federal NOLs in instances where state NOLs could not be utilized and 2)
the difference in the taxable portion for federal and state purposes of
dividends received from the Companys foreign subsidiaries.

Net deferred tax
liabilities for the Company at June 27, 2004 were $13.4 million. As of June 27,
2004, deferred tax liabilities for estimated U.S. federal and state income taxes
and foreign withholding taxes of $60.3 million have been accrued on unremitted
foreign earnings of $170.8 million. Taxes have not been provided for unremitted
foreign earnings of $10.5 million as these earnings are considered to be
permanently invested in non-U.S. operations.

For the six months ended
June 27, 2004, the Company recorded a net tax provision of $2.8 million, on a
pre-tax loss of $21.9 million. The net tax provision was comprised of a $13.2
million increase in the valuation allowance resulting primarily from new foreign
tax credits and loss carryforwards, partially offset by the statutory tax
benefit of $8.5 million on the pre-tax loss for the six months ended June 27,
2004 and a $1.9 million benefit resulting primarily from the release of tax
accruals associated with the Companys foreign operations. Included in the
$13.2 million increase in the valuation allowance was an $8.5 million increased
valuation allowance resulting from new foreign tax credits created by deemed
Swiss withholding taxes on foreign earnings. The recording of the new foreign
tax credits were the result of a change in the Companys intention to
repatriate foreign cash to the U.S. in the form of dividends in the future. The
resulting effective tax provision rate of 13% on a pre-tax loss for the six
months ended June 27, 2004, resulted from the increase in the valuation
allowance and the release of tax accruals described above. This compares to an
income tax benefit of $0.8 million on pre-tax income of $8.9 million for the six
months ended June 29, 2003, which reflected $4.6 million of research tax credits
partially offset by an income tax provision of $3.8 million. The resulting
effective tax benefit rate of 9% on pre-tax income for the six months ended June
29, 2003 resulted from the $4.6 million of research tax credits.

19

---

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

## (3) Business
Segment Information

The Company has organized
its six reportable segments that are based primarily on the nature of the
Companys products, into three broad business categories to align with the
Companys target customers: a) Mobile and Desktop Storage Products, b)
Professional Storage Systems and c) New Technologies. Mobile and Desktop Storage
Products include: Zip products, Sourced Branded products (comprised of the
former Optical Products segment as well as portable and desktop hard disk drives
(HDD), Iomega Mini and Micro Mini USB and external floppy disk
drives which were all previously reported in the Other Mobile and Desktop
Storage products segment) and Other Mobile and Desktop Storage products (which
no longer includes HDD, Iomega Mini and Micro Mini USB and external floppy disk
drives). Professional Storage Systems include: REV products and Network Storage
Systems. New Technologies, (which no longer includes REV products) has no sales
and comprises the Companys research and development efforts on the DCT
Technology. The Company has announced that it intends to wind down its DCT
development efforts during the third quarter of 2004.

Mobile and Desktop Storage Products

The Zip products segment
involves the distribution and sale of Zip drives and disks to retailers,
distributors, resellers and OEMs throughout the world. The Zip Products segment
is approaching the end of its life cycle and is experiencing significant
declines in unit sales, revenues and product profit margins.

The Companys Sourced
Branded products segment involves the worldwide distribution and sale of
products that the Company sources (purchases) from other companies and resells
under the Iomega brand. These products include CD-RW drives, DVD rewritable
drives (which began shipping in limited quantities in the first quarter of
2003), HDD, Iomega Mini and Micro Mini USB drives and external floppy disk
drives (which began shipping in the first quarter of 2003).

The Other Mobile and
Desktop Storage products segment includes: Jaz and PocketZip disks; Peerless
drive systems; Iomega software products such as Iomega Automatic Backup software
and other miscellaneous products, most of which have been discontinued and none
of which are material to the Companys business. Jaz, PocketZip and
Peerless drives were discontinued in 2002, though the Company continues to sell
the respective disks to support the installed drive base of these products. Jaz
and PocketZip were previously reported as separate segments.

20

---

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

## (3) Business
Segment Information (Continued)

Professional Storage Systems

The Network Storage Systems
segment consists primarily of the development, distribution and sale of NAS
servers targeted toward small and medium-sized businesses and enterprise
workgroups. The Network Storage Systems segment also includes the distribution
and sale of third-party Tape drive products which the Company began selling in
immaterial amounts during the third quarter of 2003. The Company is exiting the
Tape drive products market as a result of the Companys reorientation in
the fourth quarter of 2003 of its Network Storage Systems segment product
offerings. The Company was unsuccessful in generating significant sales in the
high end of the targeted NAS server market. Consequently, in the fourth quarter
of 2003, the Company decided to exit the high end of the targeted NAS server
market and focus on the entry-level and certain models of the mid-range of the
targeted market where the Company expects to better leverage its small- to
medium-sized business customer base and channel customers, including existing
VARs already focused on these customers.

The REV products segment
involves the development, distribution and sale of REV products to retailers,
distributors, resellers throughout the world. The REV drive is a removable hard
disk storage system that has a native capacity of 35GB and up to 90GB
compressed. REV products began shipping in April 2004.

New Technologies

The New Technologies
segment includes the research and development of the DCT technology, a
small-form factor removable flexible magnetic storage device that was expected
to have a capacity of about 1.2 to 1.5GB. At June 27, 2004, there were no sales
associated with the DCT technology. The Company has announced that it intends to
wind down its DCT development efforts during the third quarter of 2004.

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. Intersegment sales, eliminated in consolidation, are not
material. The expenses attributable to general corporate activity are not
allocated to the product segments.

21

---

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

## (3) Business
Segment Information (Continued)

The information in the
following table was derived directly from the segments internal financial
information used for corporate management purposes. All 2003 amounts have been
reclassified to match the 2004 presentation.

## Reportable
Operating Segment Information:

`For the Quarter Ended        For the Six Months Ended
                                                 ---------------------        ------------------------
                                                 June 27,     June 29,         June 27,       June 29,
                                                   2004         2003             2004           2003
                                                 --------     --------        ---------      ---------
                                                                   (In thousands)
Sales:
Mobile and Desktop Storage Products:
   Zip products                                  $ 32,319    $  66,444        $  76,539      $ 139,753
   Sourced Branded products                        32,731       29,215           67,857         56,555
   Other                                            1,128        2,062            2,516          5,315
                                                 --------    ---------        ---------      ---------
      Total Mobile and Desktop Storage
         Products                                  66,178       97,721          146,912        201,623
Professional Storage Systems:
   REV products                                     7,491            -            7,491              -
   Network Storage Systems                          3,973        3,081            7,365          5,361
                                                 --------    ---------        ---------      ---------
      Total Professional Storage Systems           11,464        3,081           14,856          5,361
                                                 --------    ---------        ---------      ---------
      Total sales                                $ 77,642    $ 100,802        $ 161,768      $ 206,984
                                                 ========    =========        =========      =========

PPM (Product Loss):
Mobile and Desktop Storage Products:
   Zip products                                  $ 10,675    $  26,558        $  28,842      $  55,914
   Sourced Branded products                        (1,195)       1,385             (724)         1,354
   Other                                              904          803            1,872          2,410
                                                 --------    ---------        ---------      ---------
      Total Mobile and Desktop Storage
         Products                                  10,384       28,746           29,990         59,678
Professional Storage Systems:
   REV products                                    (6,671)      (3,426)         (12,286)        (6,447)
   Network Storage Systems                            317       (4,173)            (494)        (8,217)
                                                 --------    ---------        ---------      ---------
      Total Professional Storage Systems           (6,354)      (7,599)         (12,780)       (14,664)
New Technologies                                   (3,384)      (2,655)          (6,159)        (4,492)
                                                 --------    ---------        ---------      ---------
      Total PPM                                       646       18,492           11,051         40,522

Common Expenses:
   General corporate expenses                     (16,626)     (19,862)         (32,465)       (34,728)
   Restructuring reversal (charges)                  (152)           -             (698)            78
   Interest and other income, net                    (207)       1,161              223          3,049
                                                 --------    ---------        ---------      ---------
      Income (loss) before income taxes          $(16,339)   $    (209)       $ (21,889)     $   8,921
                                                 ========    =========        =========      =========`

22

---

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

## (4)
Restructuring Charges and Reversal

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

`June 27,       December 31,
                                                              2004             2003
                                                            --------       ------------
                                                                 (In thousands)
Other Current Liabilities:
   2003 Restructuring Actions                               $ 1,600          $ 3,564
   2001 Restructuring Actions                                 4,195            4,598
                                                            -------          -------
      Total                                                 $ 5,795          $ 8,162
                                                            =======          =======

Fixed Asset Reserves:
   2003 Restructuring Actions                               $   348          $   597
   2001 Restructuring Actions                                   234              299
                                                            -------          -------
      Total                                                 $   582          $   896
                                                            =======          =======`

During the first quarter of
2004, the Company recorded pre-tax restructuring charges of $0.5 million related
to lease expenses for facilities vacated in 2001 as part of the restructuring
actions initiated during 2001, which the Company has been unable to sublease.
During the second quarter of 2004, the Company recorded pre-tax restructuring
charges of $0.2 million related to the ratable recognition of severance for
those employees that were on transition during the second quarter of 2004.

During the first quarter of
2003, severance and benefit reserves of $0.1 million were reversed as part of
the restructuring actions initiated during 2001, due to the original estimates
being higher than what was utilized.

2003 Restructuring Actions

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

Of the $14.5 million
recorded in 2003 for the 2003 restructuring actions, $5.0 million was charged to
cost of sales with the remaining $9.5 million being shown as restructuring
expenses as a component of operating expenses. The $5.0 million charged to cost
of sales included $2.6 million to reimburse a strategic supplier for its
restructuring expenses and $2.4 million to exit a third-party Zip disk
manufacturing agreement. This $5.0 million was charged to the Zip Products
segment and the remaining $9.5 million was not allocated to any of the business
segments. Of the $14.5 million restructuring charges, all but the $0.6 million
related to excess furniture will be paid in cash. As of June 27, 2004, the
Company has made $12.4 million in cash payments related to the 2003
restructuring actions, of which $1.5 million and $0.6 million was disbursed
during the first and second quarters of 2004, respectively.

23

---

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

## (4)
Restructuring Charges and Reversal (Continued)

Of the 198 individuals
worldwide whose positions were identified for elimination in the third quarter
of 2003, 7 employees worked on a transition basis into the first quarter of
2004, 4 additional employees worked on a transition basis into the second
quarter of 2004 and 3 more employees are scheduled to work on a transition basis
into the third quarter of 2004. The $6.5 million of severance and benefits costs
recognized during 2003 included the costs associated with those employees whose
positions were eliminated during 2003 and the ratable recognition of the
severance and benefits costs to be paid to the employees who remained in
transition into 2004. The Company anticipates that the total separation payments
or liability for the 198 employees notified during 2003 will be $6.7 million.
During the first and second quarters of 2004, the Company recorded $0.3 million
and $0.2 million, respectively, of expense related to the ratable recognition of
the severance and benefits costs to be paid to the employees who remained in
transition into 2004. However, during the first quarter of 2004, the Company
also released $0.3 million of outplacement reserves as employee usage of
outplacement resources was less than originally estimated. Additional expense of
less than $0.1 million for severance and benefits costs is expected to be
recorded as restructuring expense in the third quarter of 2004 related to the 3
employees who are on transition into the third quarter of 2004. None of these
remaining charges will be allocated to any of the business segments. Other than
these additional immaterial severance charges, the Company does not anticipate
recording any other expenses related to the 2003 restructuring actions.

Remaining restructuring
reserves in the amount of $1.6 million and $0.3 million are included in the
Companys other current liabilities and fixed asset reserves, respectively,
as of June 27, 2004. Utilization of and other activity relating to the 2003
restructuring charges during the quarter ended June 27, 2004 are summarized
below:

`Balance           Utilized                                         Balance
                                                 --------------------
                                     03/28/04      Cash      Non-Cash     Additions    (Reversals)     06/27/04
                                     --------    ---------   --------     ---------    -----------     --------
                                                                  (In thousands)
2003 Restructuring Actions:
   Severance and benefits            $   569      $ (370)     $    -        $ 165         $ (13)        $   351
   Lease termination costs             1,491        (242)          -            -             -           1,249
   Furniture                             516           -        (168)           -             -             348
                                     -------      ------      ------        -----         -----         -------
                                     $ 2,576      $ (612)     $ (168)       $ 165         $ (13)        $ 1,948
                                     =======      ======      ======        =====         =====         =======

Balance Sheet Breakout:
   Other current liabilities         $ 2,060      $ (612)     $    -        $ 165         $ (13)        $ 1,600
   Fixed asset reserves                  516           -        (168)           -             -             348
                                     -------      ------      ------        -----         -----         -------
                                     $ 2,576      $ (612)     $ (168)       $ 165         $ (13)        $ 1,948
                                     =======      ======      ======        =====         =====         =======`

24

---

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

## (4)
Restructuring Charges and Reversal (Continued)

Utilization of and other
activity relating to the 2003 restructuring charges during the six months ended
June 27, 2004 are summarized below:

`Balance           Utilized                                         Balance
                                                 --------------------
                                     12/31/03      Cash      Non-Cash     Additions    (Reversals)     06/27/04
                                     --------    ---------   --------     ---------    -----------     --------
                                                                  (In thousands)
2003 Restructuring Actions:
   Severance and benefits            $ 1,323     $ (1,126)    $    -        $ 441        $ (287)        $   351
   Contract cancellations                500         (500)         -            -             -               -
   Lease termination costs             1,741         (492)         -            -             -           1,249
   Furniture                             597            -       (249)           -             -             348
                                     -------     --------     ------        -----        ------         -------
                                     $ 4,161     $ (2,118)    $ (249)       $ 441        $ (287)        $ 1,948
                                     =======     ========     ======        =====        ======         =======

Balance Sheet Breakout:
   Other current liabilities         $ 3,564     $ (2,118)    $    -        $ 441        $ (287)        $ 1,600
   Fixed asset reserves                  597            -       (249)           -             -             348
                                     -------     --------     ------        -----        ------         -------
                                     $ 4,161     $ (2,118)    $ (249)       $ 441        $ (287)        $ 1,948
                                     =======     ========     ======        =====        ======         =======`

As of June 27, 2004, the
remaining severance and benefits are associated with the 3 employees who are on
transition until the third quarter of 2004 and for those employees who are
receiving their severance payments on a continuous payment basis. Lease payments
are being made on a continuous monthly basis, and of these facilities, the last
lease expires at the end of 2006 and the Company is trying to sublease these
facilities. The Company anticipates completing the disposal of the furniture
during 2004.

2001 Restructuring Actions

During the third quarter of
2001, the Company recorded pre-tax restructuring charges of $33.3 million. The
$33.3 million of restructuring charges recorded in the third quarter of 2001
included $17.4 million associated with exiting lease facilities - of which $9.8
million related to leasehold improvements, furniture and information technology
asset write-downs, and $7.6 million was associated with lease termination costs
- and $15.9 million related to the reduction of 1,234 regular and temporary
personnel worldwide, or approximately 37% of the Companys worldwide
workforce.

During the first quarter of
2003 severance and benefit reserves of $0.1 million were reversed due to the
original estimates being higher than what was utilized. During the first quarter
of 2004, the Company recorded an additional $0.5 million in restructuring
charges for the Ireland facility due to continuing depressed real estate market
conditions in Ireland.

25

---

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

## (4)
Restructuring Charges and Reversal (Continued)

Remaining restructuring
reserves in the amount of $4.2 million and $0.2 million are included in the
Companys other current liabilities and fixed asset reserves, respectively,
as of June 27, 2004. Utilization of the 2001 restructuring reserves during the
quarter ended June 27, 2004 is summarized below:

`Balance           Utilized            Balance
                                                 --------------------
                                     03/28/04      Cash      Non-Cash      06/27/04
                                     --------    --------    --------      --------
                                                     (In thousands)
2001 Restructuring Actions:
North America Reorganization:
   Lease cancellations               $ 2,964      $ (235)     $   -        $ 2,729
   Leasehold improvements and
      furniture                          266           -        (32)           234
                                     -------      ------      -----        -------
                                       3,230        (235)       (32)         2,963
                                     -------      ------      -----        -------

Europe Reorganization:
   Lease cancellations                 1,680        (214)         -          1,466
                                     -------      ------      -----        -------
                                     $ 4,910      $ (449)     $ (32)       $ 4,429
                                     =======      ======      =====        =======

Balance Sheet Breakout:
   Other current liabilities         $ 4,644      $ (449)     $   -        $ 4,195
   Fixed asset reserves                  266           -        (32)           234
                                     -------      ------      -----        -------
                                     $ 4,910      $ (449)     $ (32)       $ 4,429
                                     =======      ======      =====        =======`

Utilization of and other
activity relating to the 2001 restructuring reserves during the six months ended
June 27, 2004 are summarized below:

`Balance           Utilized                         Balance
                                                 --------------------
                                     12/31/03      Cash      Non-Cash     Additions     06/27/04
                                     --------    --------    --------     ---------     --------
                                                          (In thousands)
2001 Restructuring Actions:
North America Reorganization:
   Lease cancellations               $ 3,274      $ (545)     $   -         $   -       $ 2,729
   Leasehold improvements and
      furniture                          299           -        (65)            -           234
                                     -------      ------      -----         -----       -------
                                       3,573        (545)       (65)            -         2,963
                                     -------      ------      -----         -----       -------

Europe Reorganization:
   Lease cancellations                 1,324        (402)         -           544         1,466
                                     -------      ------      -----         -----       -------
                                     $ 4,897      $ (947)     $ (65)        $ 544       $ 4,429
                                     =======      ======      =====         =====       =======

Balance Sheet Breakout:
   Other current liabilities         $ 4,598      $ (947)     $   -         $ 544       $ 4,195
   Fixed asset reserves                  299           -        (65)            -           234
                                     -------      ------      -----         -----       -------
                                     $ 4,897      $ (947)     $ (65)        $ 544       $ 4,429
                                     =======      ======      =====         =====       =======`

26

---

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

## (4)
Restructuring Charges and Reversal (Continued)

As of June 27, 2004, the
remaining leasehold improvements are associated with subleased facilities and
cannot be disposed of until the related subleases expire. The last sublease will
expire in March 2006. Lease payments are being made on a continuous monthly
basis and the Company is still trying to sublease two of the facilities, where
the leases expire in 2009 and 2023.

## (5)
Commitments and Contingencies

Litigation

There are no material 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 lawsuits and
claims generally incidental to its business.

## (6) Other
Matters

Other Intangible Assets

At June 27, 2004, the Company
had $3.5 million in net other intangible assets, all of which are subject to
amortization. During the quarter and six months ended June 27, 2004,
amortization expense was $0.5 million and $1.0 million, respectively.
Amortization expense for each of the next five fiscal years is anticipated to be
approximately $1.0 million for the remainder of 2004, $2 million in 2005, $0.5
million in 2006 and zero thereafter. As of June 27, 2004, the weighted-average
useful life of the Companys intangible assets is approximately 1 3/4
years.

`June 27,      December 31,
                                                  2004            2003
                                                --------      ------------
                                                    (In thousands)
Other Intangible Assets:
   Gross value                                  $ 11,791        $ 11,791
   Accumulated amortization                       (8,305)         (7,266)
                                                --------        --------
      Net intangible assets                     $  3,486        $  4,525
                                                ========        ========`

Significant Customers

During the quarter ended
June 27, 2004, sales to Ingram Micro, Inc. and Tech Data Corporation accounted
for 22% and 14% of consolidated sales, respectively. Ingram Micro, Inc. and Tech
Data Corporation accounted for 16% and 11% of consolidated sales, respectively,
for the quarter ended June 29, 2003. No other single customer accounted for more
than 10% of consolidated sales for these periods.

During the six months ended
June 27, 2004, sales to Ingram Micro, Inc. and Tech Data Corporation accounted
for 20% and 13% of consolidated sales, respectively. Ingram Micro, Inc. and Tech
Data Corporation accounted for 16% and 11% of consolidated sales, respectively,
for the six months ended June 29, 2003. No other single customer accounted for
more than 10% of consolidated sales for these periods.

27

---

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

## (6) Other
Matters (Continued)

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 27, 2004, outstanding forward
exchange buy/(sell) contracts, which all mature in August 2004, were as follows
(rates are quoted as other currency unit per one United States dollar):

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

      European Currency Unit        (12,200,000)        0.8238         0.8238
      Swiss Franc                    (4,500,000)        1.2492         1.2492
      Singapore Dollar                  400,000         1.7074         1.7074
      British Pound                    (100,000)        0.5505         0.5505`

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.

28

---

## IOMEGA
CORPORATION AND SUBSIDIARIES

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

## Overview

Iomega designs and markets
products that help customers protect, secure, capture and share their valuable
digital information. The Company has organized its six reportable segments that
are based primarily on the nature of the Companys products into three
broad business categories to align with the Companys target customers: a)
Mobile and Desktop Storage Products, b) Professional Storage Systems and c) New
Technologies. Mobile and Desktop Storage Products include: Zip products; Sourced
Branded products, which include CD-RW drives, DVD drives, portable and desktop
hard disk drives (HDD), Iomega Mini and Micro Mini USB drives and
external floppy disk drives and Other Mobile and Desktop Storage products
comprised of Jaz and PocketZip disks, Peerless drives systems, Iomega software
products and other miscellaneous products, most of which have been discontinued.
Professional Storage Systems include REV products (which began shipping in April
2004) and Network Storage Systems. New Technologies (which no longer includes
REV products) has no sales and comprises the Companys research and
development efforts on the DCT technology. The Company has announced that it
intends to wind down its DCT development efforts during the third quarter of
2004.

During the second quarter
of 2004, the Company reported a net loss of $19.8 million, or $0.38 per share,
on sales of $77.6 million which compares to net income in the second quarter of
2003 of $4.4 million, or $0.09 per diluted share, on sales of $100.8 million.
Sales in the second quarter of 2004 decreased compared to the second quarter of
2003, primarily due to the continuing decline of Zip product sales and lower
Optical drive sales, partially offset by higher sales of the Companys
other Sourced Branded products and sales from the new REV products. The net loss
for the second quarter of 2004 included a net tax provision of $3.5 million,
which was comprised of a $12.5 million tax provision from an increased valuation
allowance primarily for additional foreign tax credits, partially offset by the
statutory tax benefit of $6.4 million on the quarters pre-tax loss and a
$2.6 million benefit primarily resulting from the release of tax accruals
associated with the Companys foreign operations. 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.

During the first six months
of 2004, the Company reported a net loss of $24.7 million, or $0.48 per share,
on sales of $161.8 million which compares to net income for the first six months
of 2003 of $9.7 million, or $0.19 per diluted share, on sales of $207.0 million.
Sales in the first six months of 2004 decreased compared to the first six months
of 2003, primarily due to the continuing decline of Zip product sales and lower
Optical drive sales, partially offset by higher sales of the Companys
other Sourced Branded products and sales of the new REV products. The net loss
for the first six months of 2004 included restructuring charges of $0.7 million,
related primarily to lease cancellation charges in Europe associated with the
2001 restructuring actions and for additional severance and benefit charges
related to the 2003 restructuring actions and the recording of a net tax
provision of $2.8 million. The $2.8 million net tax provision for the first six
months of 2004 was comprised of a $13.2 million tax provision from an increased
valuation allowance primarily for additional foreign tax credits and loss
carryforwards, partially offset by the statutory tax benefit of $8.5 million on
the pre-tax loss for the first six months of 2004 and a $1.9 million benefit
resulting primarily from the release of tax accruals associated with the
Companys foreign operations. Net income for the first six months of 2003
was favorably impacted by $6.0 million of net pre-tax legal settlements and the
recording of $4.6 million of research tax credits following the completion of a
research tax credit study and an IRS audit.

29

---

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

## Overview (Continued)

For the second quarter of
2004, the Company had an operating loss of $16.1 million, compared to an
operating loss of $1.4 million for the second quarter of 2003. The operating
loss for the second quarter of 2004 also included manufacturing start-up and
marketing launch costs associated with the new REV products and expenses to
upgrade the Companys information technology systems. These costs are
discussed in more detail below.

For the first six months of
2004, the Company had an operating loss of $22.1 million, compared to operating
income of $5.9 million for the first six months of 2003. The operating loss for
the first six months of 2004 included restructuring charges of $0.7 million,
related primarily to lease cancellation charges in Europe associated with the
2001 restructuring actions and for additional severance and benefit charges
related to the 2003 restructuring actions. The operating loss for the first six
months of 2004 also included manufacturing start-up and marketing launch costs
associated with the new REV products and expenses to upgrade the Companys
information technology systems. Operating income for the first six months of
2003 included $6.0 million of favorable net pre-tax legal settlements.

During both the second
quarter and the first six months of 2004, Zip product sales continued to decline
both in terms of unit volumes and revenues as the product segment reaches the
end of its lifecycle. For the first time since 1995, Zip product sales did not
constitute a majority of the Companys quarterly sales; and Sourced Branded
product sales exceeded Zip product sales in the second quarter of 2004. The
Company expects this trend of Zip products no longer being the majority of the
Companys sales to continue. In addition, the Company believes Zip product
gross margins will become increasingly difficult to predict, due to the
uncertainty of future unit volumes and the related impact of minimum volume
commitment requirements, drive and disk mix and potential end of life component
supplier expenses.

Sourced Branded product
sales continued to grow in both the second quarter and the first six months of
2004 when compared to the respective prior year periods. However, the sales
growth occurred with continued pressure on gross margins, as the gross margin
percentage decreased in both the second quarter of 2004 and the first six months
of 2004 when compared to the respective prior year periods. The Company is
implementing supply chain improvements during the third quarter with the goal to
positively impact Sourced Branded product gross and profit margins. However, the
Company also anticipates continued pricing pressure on all of its Sourced
Branded products, which could offset any potential cost savings.

The Company launched its
new REV products in April 2004 and has been encouraged by the initial reception
of REV products in the marketplace. The Companys goal is to develop REV
products into a significant part of its overall product portfolio; the Company
plans to launch additional interface models for REV drives throughout the second
half of 2004. During the second quarter of 2004, REV products had a product
loss, primarily due to development expenses in completing the REV products,
manufacturing start-up costs and marketing launch expenses. The Company
anticipates that REV product gross margins will improve throughout the second
half of 2004 as manufacturing start-up costs wind down and volumes increase.
However, the Company will continue to spend considerable resources generating
awareness of this new product and thus does not expect REV products to be
profitable before the fourth quarter of 2004. Although the Company has not yet
signed any agreements with original equipment manufacturers (OEMs)
with respect to REV products, qualification discussions and testing have begun
with several OEMs.

30

---

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

## Overview (Continued)

Network Storage Systems sales increased during the second
quarter and the first six months of 2004 when compared to the respective prior
year periods. During the second quarter of 2004, Network Storage Systems had its
first quarterly positive product profit margin (PPM), reflecting the
benefits of the Companys reorientation of this product line during the
fourth quarter of 2003 towards the entry-level to low-end segments of the
market. However, Network Storage Systems had a product loss for the first six
months of 2004. The Company maintains a goal to grow the Network Storage Systems
business and to achieve profitability throughout the second half of 2004. There
can, however, be no assurances as to whether this will be achieved.

As the Company has
previously disclosed, its DCT business plan was dependent upon significant
consumer electronics OEM adoption. Unfortunately, the Company was not successful
in securing such OEM commitments. During the second quarter of 2004, the Company
investigated the possibility of bringing the DCT technology to market as a
stand-alone computer peripheral storage device. However, based on the
Companys recently completed analysis and objective evaluation of the
market environment in which the DCT technology would compete, the Company has
concluded that it does not have sufficient resources to simultaneously pursue
the opportunities of the DCT technology and REV products. Consequently, the
Company has decided not to launch an Iomega branded PC peripheral DCT device and
intends to wind down DCT development activities during the third quarter of
2004. The Company continues to believe that DCT could be a compelling consumer
technology in the hands of a company that has the resources to fully capitalize
on this technology. Accordingly, the Company intends to continue to pursue
licensing and other strategic alternatives for the DCT technology.

Depending upon the outcome
of the strategic alternatives for the DCT technology, the Company could incur
significant fixed asset impairment charges and other charges. At June 27, 2004,
the Company had $3.8 million of fixed assets on its books related to the DCT
technology, plus approximately $1 million in additional fixed assets that the
Company has committed to but not yet procured.

As previously disclosed,
the Company does not expect to have an operating profit in 2004 primarily due to
declining Zip product sales and the costs associated with the development and
marketing of REV products. With the decision not to launch an Iomega branded PC
peripheral DCT device, the Companys primary goals for the second half of
2004 are to ramp REV product sales and to define a corporate strategy with the
goal of returning the Company to profitability. The Company will be reviewing
its cost structure and will attempt to better align its cost structure with its
future business direction and anticipated revenue streams. Consequently, the
Company expects to record restructuring and other charges in the second half of
2004. It is unlikely that any adjustments to the Companys cost structure
will benefit results for the third quarter of 2004.

At June 27, 2004, the
Companys total cash, cash equivalents and temporary investment balance was
$134.2 million (see the Liquidity and Capital Resources discussion for more
detail on the tax impacts of repatriating the foreign cash). The Company
believes this total cash is sufficient to operate the business and fund the
investments required for REV products and other new products for at least one
more year.

31

---

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

## Application of
Critical Accounting Policies

The Companys
discussion and analysis of its financial condition and results of operations are
based upon the Companys condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these condensed consolidated
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent 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 that are highly uncertain at the time the
estimate is made and that are susceptible to material changes from period to
period include revenue recognition, price protection and rebate reserves,
marketing program accruals, allowance for doubtful accounts, inventory valuation
reserves and tax valuation allowances. Actual results could differ materially
from these estimates. For a more detailed explanation of the judgments included
in these areas, refer to the Companys Annual Report on Form 10-K for the
year ended December 31, 2003.

## Business
Segment Information

The Company has organized
its six reportable segments that are based primarily on the nature of the
Companys products, into three broad business categories to align with the
Companys target customers: a) Mobile and Desktop Storage Products, b)
Professional Storage Systems and c) New Technologies. Mobile and Desktop Storage
Products include: Zip products, Sourced Branded products (comprised of the
former Optical Products segment as well as portable and desktop hard disk drives
(HDD), Iomega Mini and Micro Mini USB and external floppy disk
drives which were all previously reported in the Other Mobile and Desktop
Storage products segment) and Other Mobile and Desktop Storage products (which
no longer includes HDD, Iomega Mini and Micro Mini USB and external floppy disk
drives). Professional Storage Systems include: REV products and Network Storage
Systems. New Technologies, (which no longer includes REV products) has no sales
and comprises the Companys research and development efforts on the DCT
Technology. The Company has announced that it intends to wind down its DCT
development efforts during the third quarter of 2004.

Mobile and Desktop Storage Products

The Zip products segment
involves the distribution and sale of Zip drives and disks to retailers,
distributors, resellers and OEMs throughout the world. The Zip Products segment
is approaching the end of its life cycle and is experiencing significant
declines in unit sales, revenues and product profit margins.

The Companys Sourced
Branded products segment involves the worldwide distribution and sale of
products that the Company sources (purchases) from other companies and resells
under the Iomega brand. These products include CD-RW drives, DVD rewritable
drives (which began shipping in limited quantities in the first quarter of
2003), HDD, Iomega Mini and Micro Mini USB drives and external floppy disk
drives (which began shipping in the first quarter of 2003).

32

---

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

## Business
Segment Information (Continued)

The Other Mobile and Desktop
Storage products segment includes: Jaz and PocketZip disks; Peerless drive
systems; Iomega software products such as Iomega Automatic Backup software and
other miscellaneous products, most of which have been discontinued and none of
which are material to the Companys business. Jaz, PocketZip and Peerless
drives were discontinued in 2002, though the Company continues to sell the
respective disks to support the installed drive base of these products. Jaz and
PocketZip were previously reported as separate segments.

Professional Storage Systems

The Network Storage Systems
segment consists primarily of the development, distribution and sale of NAS
servers targeted toward small and medium-sized businesses and enterprise
workgroups. The Network Storage Systems segment also includes the distribution
and sale of third-party Tape drive products which the Company began selling in
immaterial amounts during the third quarter of 2003. The Company is exiting the
Tape drive products market as a result of the Companys reorientation in
the fourth quarter of 2003 of its Network Storage Systems segment product
offerings. The Company was unsuccessful in generating significant sales in the
high end of the targeted NAS server market. Consequently, in the fourth quarter
of 2003, the Company decided to exit the high end of the targeted NAS server
market and focus on the entry-level and certain models of the mid-range of the
targeted market where the Company expects to better leverage its small- to
medium-sized business customer base and channel customers, including existing
VARs already focused on these customers.

The REV products segment
involves the development, distribution and sale of REV products to retailers,
distributors, resellers throughout the world.The REV drive is a
removable hard disk storage system that has a native capacity of 35GB and up to
90GB compressed. REV products began shipping in April 2004.

New Technologies

The New Technologies
segment includes the research and development of the DCT technology, a
small-form factor removable flexible magnetic storage device that was expected
to have a capacity of about 1.2 to 1.5GB. At June 27, 2004, there were no sales
associated with the DCT technology. The Company has announced that it intends to
wind down its DCT development efforts during the third quarter of 2004.

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
the 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.

33

---

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

## Business
Segment Information (Continued)

The information in the
following table was derived directly from the segments internal financial
information used for corporate management purposes. All 2003 amounts have been
reclassified to match the 2004 presentation.

## Reportable
Operating Segment Information:

`For the Quarter Ended        For the Six Months Ended
                                                 ---------------------        ------------------------
                                                 June 27,     June 29,         June 27,       June 29,
                                                   2004         2003             2004           2003
                                                 --------     --------        ---------      ---------
                                                                   (In thousands)
Sales:
Mobile and Desktop Storage Products:
   Zip products                                  $ 32,319    $  66,444        $  76,539      $ 139,753
   Sourced Branded products                        32,731       29,215           67,857         56,555
   Other                                            1,128        2,062            2,516          5,315
                                                 --------    ---------        ---------      ---------
      Total Mobile and Desktop Storage
         Products                                  66,178       97,721          146,912        201,623
Professional Storage Systems:
   REV products                                     7,491            -            7,491              -
   Network Storage Systems                          3,973        3,081            7,365          5,361
                                                 --------    ---------        ---------      ---------
      Total Professional Storage Systems           11,464        3,081           14,856          5,361
                                                 --------    ---------        ---------      ---------
      Total sales                                $ 77,642    $ 100,802        $ 161,768      $ 206,984
                                                 ========    =========        =========      =========

PPM (Product Loss):
Mobile and Desktop Storage Products:
   Zip products                                  $ 10,675    $  26,558        $  28,842      $  55,914
   Sourced Branded products                        (1,195)       1,385             (724)         1,354
   Other                                              904          803            1,872          2,410
                                                 --------    ---------        ---------      ---------
      Total Mobile and Desktop Storage
         Products                                  10,384       28,746           29,990         59,678
Professional Storage Systems:
   REV products                                    (6,671)      (3,426)         (12,286)        (6,447)
   Network Storage Systems                            317       (4,173)            (494)        (8,217)
                                                 --------    ---------        ---------      ---------
      Total Professional Storage Systems           (6,354)      (7,599)         (12,780)       (14,664)
New Technologies                                   (3,384)      (2,655)          (6,159)        (4,492)
                                                 --------    ---------        ---------      ---------
      Total PPM                                       646       18,492           11,051         40,522

Common Expenses:
   General corporate expenses                     (16,626)     (19,862)         (32,465)       (34,728)
   Restructuring reversal (charges)                  (152)           -             (698)            78
   Interest and other income, net                    (207)       1,161              223          3,049
                                                 --------    ---------        ---------      ---------
      Income (loss) before income taxes          $(16,339)   $    (209)       $ (21,889)     $   8,921
                                                 ========    =========        =========      =========`

34

---

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

## Seasonality

The Companys Sourced
Branded business is typically strongest during the fourth quarter. The
Companys European sales are typically weakest during the third quarter due
to summer holidays. Zip product sales to OEM customers are typically stronger
during the second and third quarters than in the first and fourth quarters.
However, there can be no assurance that these historic patterns will continue.
Given the continued expected decline of the Zip business, the Company is unable
to estimate or forecast any Zip product seasonality in future quarters. As a
result of the foregoing, sales for any prior quarter are not necessarily
indicative of the sales to be expected in any future quarter.

## Sales

Sales for the quarter ended
June 27, 2004 of $77.6 million decreased $23.2 million, or 23%, when compared to
sales of $100.8 million for the quarter ended June 29, 2003. This decrease was
primarily due to declining Zip product and Optical drive sales, partially offset
by higher sales of the Companys other Sourced Branded products, and sales
of the new REV products.

Zip product sales for the
second quarter of 2004 totaled $32.3 million, representing a decrease of $34.1
million, or 51%, compared to sales of $66.4 million for the second quarter of
2003. Sales of Zip products represented 42% of total sales for the second
quarter of 2004, compared to 66% of total sales for the second quarter of 2003.
Zip drive sales of $18.7 million for the second quarter of 2004 decreased by
$25.5 million, or 58%, while Zip drive units decreased 50%. Zip OEM drive units
accounted for approximately 55% of total Zip drive units in the second quarter
of 2004 compared to approximately 56% in the second quarter of 2003. Zip disk
sales of $13.6 million for the second quarter of 2004 decreased by $8.6 million,
or 39%, while Zip disk units decreased by 33% from the second quarter of 2003.
The decline in Zip drive and disk sales was greater than the respective Zip
drive and disk unit declines primarily due to the increased usage of rebates and
promotions during the second quarter of 2004.

Sourced Branded product
sales for the second quarter of 2004 totaled $32.7 million, representing an
increase of $3.5 million, or 12%, compared to sales of $29.2 million for the
second quarter of 2003. Sales of Sourced Branded products represented 42% of
total sales for the second quarter of 2004, compared to 29% for the second
quarter of 2003. The $3.5 million increase in Sourced Branded product sales
resulted from increases of $4.6 million in HDD drives, $2.3 million in Iomega
Mini and Micro Mini USB drives, $2.0 million in floppy external drives and $0.6
million in DVD rewritable drives, partially offset by a $6.0 million decrease in
CD-RW drive sales. The higher overall Sourced Branded products unit volumes were
partially offset by lower prices on all Sourced Branded products. Continued
price competition is expected throughout the Sourced Branded product line during
the second half of 2004.

REV product sales for the
second quarter of 2004 totaled $7.5 million. REV drives and disks began shipping
in April 2004. REV product sales represented 10% of total sales for the second
quarter of 2004. The Companys goal is to continue to increase REV product
sales throughout the second half of 2004 as the Company begins shipping REV
drives with SCSI, Firewire and SATA interfaces. Although the Company has not yet
signed any agreements with OEMs with respect to REV products, qualification
discussions and testing have begun with several OEMs.

35

---

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

## Sales
(Continued)

Network Storage Systems
sales for the second quarter of 2004 totaled $4.0 million, representing a $0.9
million increase, compared to sales of $3.1 million for the second quarter of
2003. The higher sales were primarily due to the Companys strategy to
concentrate on the entry-level and low-end markets as well as new product
introductions that occurred during the first half of 2004.

Geographically, sales in
the Americas totaled $41.9 million, or 54% of total sales, in the second quarter
of 2004, compared to $62.1 million, or 61% of total sales, in the second quarter
of 2003. The decrease in sales dollars in the Americas was primarily due to
lower Zip product sales, partially offset by REV product sales and higher
Sourced Branded product sales. Sales in Europe totaled $29.6 million, or 38% of
total sales, in the second quarter of 2004, compared to $30.1 million, or 30% of
total sales, in the second quarter of 2003. The decrease in sales dollars in
Europe was primarily due to lower Zip product sales, partially offset by new REV
product sales and higher Sourced Branded product sales. Sales in Asia totaled
$6.1 million, or 8% of total sales, in the second quarter of 2004, compared to
$8.6 million, or 9% of total sales, in the second quarter of 2003. The decrease
in sales dollars in Asia was primarily due to lower Zip product, Sourced Branded
products and Network Storage Systems product sales, partially offset by REV
product sales.

Sales for the six months
ended June 27, 2004 of $161.8 million decreased $45.2 million, or 22%, when
compared to sales of $207.0 million for the six months ended June 29, 2003. This
decrease was primarily due to declining Zip product and Optical drive sales,
partially offset by higher sales of the Companys other Sourced Branded
products and sales of the new REV products.

Zip product sales for the
first six months of 2004 totaled $76.5 million, representing a decrease of $63.3
million, or 45%, compared to sales of $139.8 million for the first six months of
2003. Sales of Zip products represented 47% of total sales for the first six
months of 2004, compared to 68% for the first six months of 2003. Zip drive
sales of $42.6 million for the first six months of 2004 decreased by $41.7
million, or 50%, while Zip drive units decreased 45%. Zip OEM drive units
accounted for approximately 51% of total Zip drive units in the first six months
of 2004 compared to approximately 52% in the first six months of 2003. Zip disk
sales of $33.8 million for the first six months of 2004 decreased by $21.6
million, or 39%, while Zip disk units decreased by 34% from the first six months
of 2003. The decline in Zip drive and disk sales was greater than the respective
Zip drive and disk unit declines primarily due to the increased usage of rebates
and promotions during the first six months of 2004.

Sourced Branded product
sales for the first six months of 2004 totaled $67.9 million, representing an
increase of $11.3 million, or 20%, compared to sales of $56.6 million for the
first six months of 2003. Sales of Sourced Branded products represented 42% of
total sales for the first six months of 2004, compared to 27% for the first six
months of 2003. The $11.3 million increase in Sourced Branded product sales
resulted from increases of $6.7 million in Iomega Mini and Micro Mini USB
drives, $6.5 million in DVD rewritable drives, $5.5 million in HDD drives and
$3.9 million in floppy external drives, partially offset by an $11.3 million
decrease in CD-RW drive sales. The Company began selling DVD rewritable and
external floppy drives late in the first quarter of 2003. The higher overall
Sourced Branded product unit volumes were partially offset by lower prices on
all Sourced Branded products.

REV product sales for the
first six months of 2004 totaled $7.5 million. REV drives and disks began
shipping in April 2004. REV product sales represented 5% of total sales for the
first six months of 2004.

36

---

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

## Sales
(Continued)

Network Storage Systems
sales for the first six months of 2004 totaled $7.4 million, representing a $2.0
million increase, compared to sales of $5.4 million for the six months of 2003.
The higher sales were primarily due to Companys strategy to concentrate on
the entry-level and low-end markets as well as new product introductions that
occurred during the first half of 2004.

Geographically, sales in
the Americas totaled $86.3 million, or 53% of total sales, in the first six
months of 2004, compared to $127.4 million, or 61% of total sales, in the first
six months of 2003. The decrease in sales dollars in the Americas was primarily
due to lower Zip product sales, partially offset by new REV product sales and
Network Storage Systems sales. Sales in Europe totaled $62.9 million, or 39% of
total sales, in the first six months of 2004, compared to $61.8 million, or 30%
of total sales, in the first six months of 2003. The increase in sales dollars
in Europe was primarily due to higher Sourced Branded product sales and new REV
product sales, partially offset by lower Zip product sales. Sales in Asia
totaled $12.6 million, or 8% of total sales, in the first six months of 2004,
compared to $17.8 million, or 9% of total sales, in the first six months of
2003. The decrease in sales dollars in Asia was primarily due to lower Zip
product sales, partially offset by REV product sales.

## Gross Margin

The Companys overall
gross margin of $14.8 million, or 19%, in the second quarter of 2004 compares to
$34.4 million, or 34%, in the second quarter of 2003. Total gross margin dollars
in the second quarter of 2004 decreased $19.6 million, or 57% from the second
quarter of 2003, primarily from a lower proportion of sales from the higher
margin Zip products, lower Zip product margins and lower Sourced Branded product
margins. The decrease in the gross margin percentage was primarily due to a
lower proportion of sales from the higher margin Zip products and from lower Zip
and Sourced Branded product gross margin percentages.

The Zip product gross
margin percentage for the second quarter of 2004 of 38% decreased from 46% in
the second quarter of 2003. The decline in Zip product gross margin percentage
resulted primarily from higher product and manufacturing costs associated with
lower volumes and certain end of life material charges.

The decline in Sourced
Branded product gross margins for the second quarter of 2004, when compared to
the second quarter of 2003, resulted primarily from lower CD-RW sales, price
competition on Mini USB drive products without corresponding supplier cost
reductions and the Companys plan as previously disclosed, to lower margins
in an attempt to gain greater retail penetration in the U.S. and the CD-RW
market. It is the Companys goal to partially offset the anticipated
continued pricing pressures with increased sourcing and supply chain
efficiencies as the Company moves to a single logistics provider for both the
Americas and Europe during the third quarter of 2004.

37

---

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

## Gross Margin
(Continued)

The Companys overall
gross margin of $39.1 million, or 24%, for the first six months of 2004 compares
to $71.5 million, or 35%, for the first six months of 2003. Total gross margin
dollars in the first six months of 2004 decreased $32.4 million, or 45% from the
first six months of 2003, primarily from a lower proportion of sales from the
higher margin Zip products, lower Zip product margins and lower Sourced Branded
product margins. The decrease in the gross margin percentage was primarily due
to a lower proportion of sales from the higher margin Zip products and from
lower Zip and Sourced Branded product gross margin percentages.

The Zip product gross
margin percentage for the first six months of 2004 of 43% decreased from 46% in
the first six months of 2003. The decline in gross margin percentage resulted
primarily from higher product and manufacturing costs associated with lower
volumes and certain end of life material charges.

The decline in Sourced
Branded product gross margins for the first six months of 2004, when compared to
the first six months of 2003, resulted primarily from lower CD-RW sales, price
competition on Mini USB drive products without corresponding supplier cost
reductions and the Companys plan to lower margins in an attempt to gain
greater retail penetration in the U.S. and the CD-RW market.

Future gross margin
percentages will depend on a number of factors including: the future sales
volume of Zip products; pricing actions or promotions; the mix between Zip
products compared to Sourced Branded, REV and Network Storage Systems products;
sales mix between aftermarket and OEM or private label channels, as OEM and
private label sales generally provide lower gross margins than sales through
other channels; sales mix of Zip 100, 250 and 750 megabyte drives and disks
(where megabyte equals 1 million bytes), 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
impact of rising Zip manufacturing costs and end of life material charges; the
sales ramp of the new REV products; the impact of supply chain improvements on
Sourced Branded product margins; 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, particularly REV
products; start-up costs associated with the introduction of new products; price
competition from other substitute third-party storage products; possible payment
of license royalties to resolve alleged patent infringement disputes and general
economic conditions.

## Product
Segment PPM

Zip PPM for the second
quarter of 2004 was $10.7 million and decreased by $15.9 million, or 60%,
compared to Zip PPM of $26.6 million for the second quarter of 2003. The
decrease in Zip PPM resulted primarily from lower sales and lower gross margins
as described above. Zip PPM as a percentage of Zip product sales decreased to
33% for the second quarter of 2004 from 40% for the second quarter of 2003,
primarily from the lower gross margin percentages as described above, partially
offset by lower operating expenses reflecting the cost savings from the 2003
restructuring actions.

38

---

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

## Product
Segment PPM (Continued)

The Sourced Branded product
loss for the second quarter of 2004 was $1.2 million and declined by $2.6
million, compared to a positive PPM of $1.4 million for the second quarter of
2003. Sourced Branded PPM as a percentage of Sourced Branded product sales
declined to a negative 4% in the second quarter of 2004 from a positive 5% in
the second quarter of 2003. The Sourced Branded PPM decline in the second
quarter of 2004 resulted primarily from lower gross margins resulting from
pricing pressures on Optical drives and Iomega Mini and Micro Mini USB drives
and lower Optical drive volumes.

REV products had a product
loss of $6.7 million for the second quarter of 2004. REV products began shipping
in April 2004. The REV product loss was attributable to development expenses in
completing the REV products, manufacturing start-up costs and marketing launch
expenses. It is the Companys goal to achieve a positive PPM on REV
products by the end of 2004 as volumes increase and manufacturing start-up costs
wind down. However, the Company will continue to spend considerable resources
generating awareness of this new product and can therefore provide no assurance
that REV products will have a positive PPM by the end of 2004.

Network Storage Systems had
a PPM of $0.3 million in the second quarter of 2004 which represented a $4.5
million, or 108%, improvement compared to a product loss of $4.2 million in the
second quarter of 2003. The improved PPM resulted primarily from lower costs
reflecting the Companys reorientation of the Network Storage Systems
product line during the fourth quarter of 2003 and high sales and marketing and
research and development spending in the second quarter of 2003 when the Company
was attempting to broaden the Network Storage Systems product offering by
entering into the high end of the target market.

The New Technologies
product loss of $3.4 million increased by $0.7 million, or 28%, in the second
quarter of 2004 compared to a product loss of $2.7 million in the second quarter
of 2003. The higher loss resulted from increased spending on the DCT technology.

As the Company has
previously disclosed, its DCT business plan was dependent upon significant
consumer electronics OEM adoption. Unfortunately, the Company was not successful
in securing such OEM commitments. During the second quarter of 2004, the Company
investigated the possibility of bringing the DCT technology to market as a
stand-alone computer peripheral storage device. However, based on the
Companys recently completed analysis and objective evaluation of the
market environment in which the DCT technology would compete, the Company has
concluded that it does not have sufficient resources to simultaneously pursue
the opportunities of the DCT technology and REV products. Consequently, the
Company has decided not to launch an Iomega branded PC peripheral DCT device and
intends to wind down DCT development activities during the third quarter of
2004. The Company continues to believe that DCT could be a compelling consumer
technology in the hands of a company that has the resources to fully capitalize
on this technology. Accordingly, the Company intends to continue to pursue
licensing and other strategic alternatives for the DCT technology.

Depending upon the outcome
of the strategic alternatives for the DCT technology, the Company could incur
significant fixed asset impairment charges and other charges. At June 27, 2004,
the Company had $3.8 million of fixed assets on its books related to the DCT
technology, plus approximately $1 million in additional fixed assets that the
Company has committed to but not yet procured.

39

---

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

## Product
Segment PPM (Continued)

General corporate expenses
that were not allocated to PPM of $16.6 million in the second quarter of 2004,
decreased $3.3 million, or 16%, compared to $19.9 million for the first quarter
of 2003. The $3.3 million decrease reflected the cost savings from the
restructuring plans implemented in the third quarter of 2003, partially offset
by $1.3 million of costs in the second quarter of 2004 related to the
Companys information technology system upgrade which was implemented at
the beginning of the third quarter of 2004 and $0.6 million of ongoing costs for
certain strategic planning consulting services to evaluate potential future
business strategies of the Company.

Zip PPM for the first six
months of 2004 was $28.8 million and decreased by $27.1 million, or 48%,
compared to Zip PPM of $55.9 million for the second quarter of 2003. The
decrease in Zip PPM resulted primarily from lower sales and lower gross margins
as described above. Zip PPM as a percentage of Zip product sales decreased to
38% for the first six months of 2004 from 40% for the first six months of 2003,
primarily from the lower gross margin percentages as described above, partially
offset by lower operating expenses reflecting the cost savings from the 2003
restructuring actions.

The Sourced Branded product
loss for the first six months of 2004 was $0.7 million and declined by $2.1
million, compared to a PPM of $1.4 million for the first six months of 2003.
Sourced Branded PPM as a percentage of Sourced Branded product sales declined to
a negative 1% in the first six months of 2004 from a positive 2% in the first
six months of 2003. The Sourced Branded PPM decline in the first six months of
2004 resulted primarily from lower gross margins resulting from pricing
pressures on Optical drives and Iomega Mini and Micro Mini USB drives and lower
Optical drive volumes.

Network Storage Systems had
a product loss of $0.5 million in the first six months of 2004 which represented
a $7.7 million, or 94%, improvement compared to a product loss of $8.2 million
in the first six months of 2003. The improved PPM resulted primarily from lower
costs reflecting the Companys reorientation of the Network Storage Systems
product line during the fourth quarter of 2003 and higher sales and marketing
and research and development spending in the first six months of 2003 when the
Company was attempting to broaden the Network Storage Systems product offering
by entering into the high end of the target market.

The New Technologies
product loss of $6.2 million increased by $1.7 million, or 37%, in the first six
months of 2004 compared to a product loss of $4.5 million in the first six
months of 2003. The higher loss resulted from increased spending on the DCT
technology. The Company has announced that it intends to wind down its DCT
development efforts during the third quarter of 2004.

General corporate expenses
that were not allocated to PPM of $32.5 million for the first six months of
2004, decreased $2.2 million, or 7%, compared to $34.7 million for the first six
months of 2003. The $34.7 million of general corporate expenses for the first
six months 2003 included favorable net legal settlements of $6.0 million. The
$2.2 million decrease, which includes the $6.0 million of favorable net legal
settlements for the first quarter of 2003, reflected the cost savings from the
restructuring plans implemented in the third quarter of 2003, partially offset
by $2.4 million of expenses related to the Companys information technology
system upgrade which was implemented at the beginning of July 2004 and $0.6
million of ongoing costs for certain strategic planning consulting services to
evaluate potential future business strategies of the Company.

40

---

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

## Selling,
General and Administrative Expenses

Selling, general and administrative
expenses of $24.4 million for the second quarter of 2004 decreased by $3.4
million, or 12%, compared to $27.8 million for the second quarter of 2003. The
$3.4 million decrease of selling, general and administrative expenses reflected
the cost savings from the restructuring plans implemented in the third quarter
of 2003, partially offset by marketing costs associated with the launch of the
new REV products. Also included in the $24.4 million of selling, general and
administrative expenses for second quarter of 2004 was $1.3 million of costs
related to the Companys information technology system upgrade which was
implemented at the beginning of the third quarter of 2004 and $0.6 million of
ongoing costs for certain strategic planning consulting services to evaluate
potential future business strategies of the Company.

Selling, general and
administrative expenses increased as a percentage of sales to 32% for the second
quarter of 2004, from 28% in the second quarter of 2003, as sales declined at a
faster rate than overall selling, general and administrative costs and the
Company incurred marketing costs associated with the launch of the new REV
products.

Selling, general and
administrative expenses of $47.6 million for the first six months of 2004
decreased by $3.6 million, or 7%, compared to $51.2 million for the first six
months of 2003. The $51.2 million of selling, general and administrative
expenses for the first six months of 2003 included favorable net legal
settlements of $6.0 million. The $3.6 million decrease, which includes the $6.0
million of favorable net legal settlements for the first quarter of 2003,
reflected the cost savings from the restructuring plans implemented in the third
quarter of 2003, partially offset by marketing costs associated with the launch
of the new REV products. Also included in the $47.6 million of selling, general
and administrative expenses for the first six months of 2004 was $2.4 million of
costs related to the Companys information technology system upgrade which
was implemented at the beginning of the third quarter of 2004 and $0.6 million
of ongoing costs for certain strategic planning consulting services to evaluate
potential future business strategies of the Company.

Selling, general and
administrative expenses increased as a percentage of sales to 29% for the first
six months of 2004, from 25% in the first six months of 2003, as sales declined
at a faster rate than overall selling, general and administrative costs and the
Company incurred marketing costs associated with the launch of the new REV
products. For the first six months of 2003, the $6.0 million of net favorable
legal settlements equated to almost 3% as a percentage of sales.

The Company expects to
incur higher than normal marketing costs in the remainder of 2004, similar to
the levels incurred in the second quarter of 2004, to continue the launch and
promote growth of its REV products.

## Bad Debt

For the second quarter of
2004, a bad debt credit of $0.4 million was recorded, compared to a bad debt
expense of $0.3 million for the second quarter of 2003. The $0.4 million bad
debt credit for the second quarter of 2003 resulted primarily from the decrease
in trade receivable balances during the second quarter of 2004. The $0.3 million
bad debt expense for the second quarter of 2003 resulted from the establishment
of $0.3 million in specific reserves for collection issues with Latin America
customers.

41

---

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

## Bad Debt
(Continued)

For the first six months of
2004, a bad debt credit of $0.3 million was recorded, compared to a bad debt
credit of $1.7 million for the first six months of 2003. The $1.7 million bad
debt credit for the first six months of 2003 resulted primarily from a
significantly large decrease in trade receivable balances during the first
quarter of 2003, partially offset by the establishment during the second quarter
2003 of $0.3 million in specific reserves for collection issues with Latin
America customers. At both June 27, 2004 and December 31, 2003, the Company had
$0.9 million of trade receivables in excess of 180 days past due.

## Research and
Development Expenses

Research and development expenses
of $6.7 million for the second quarter of 2004 were $0.9 million, or 12%, lower
than research and development expenses of $7.6 million during the second quarter
of 2003. The $0.9 million decrease in research and development expenses was
primarily due to cost reductions reflecting the benefits of the 2003
restructuring actions, lower Network Storage Systems and Zip product research
and development expenditures, partially offset by higher development
expenditures for REV products and the DCT technology. Research and development
expenses as a percentage of sales increased to 9% in the second quarter of 2004
as compared to the second quarter of 2003, primarily from sales decreasing
faster than research and development costs.

Research and development
expenses of $13.2 million for the first six months of 2004 were $3.0 million, or
19%, lower than research and development expenses of $16.2 million during the
first six months of 2003. The $3.0 million decrease in research and development
expenses was primarily due to the same factors discusses above in the preceding
paragraph with respect to the second quarter of 2004. Research and development
expenses as a percentage of sales remained flat at 8% in the first six months of
both 2004 and 2003.

Even though REV products
began shipping in April of 2004, the Company plans to incur continued
significant development costs for REV products. Such costs will be associated
with the planned development of SCSI and SATA interfaces (which the Company
plans to introduce in the second half of 2004), continued software development
costs and development costs on the second generation REV drive.

As discussed above in the
section entitled, Overview, the Company has decided not to launch an
Iomega branded PC peripheral DCT device and intends to wind down DCT technology
development activities during the third quarter of 2004.

42

---

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

## Restructuring
Charges and Reversal

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

`June 27,       December 31,
                                                              2004             2003
                                                            --------       ------------
                                                                 (In thousands)
Other Current Liabilities:
   2003 Restructuring Actions                               $ 1,600          $ 3,564
   2001 Restructuring Actions                                 4,195            4,598
                                                            -------          -------
      Total                                                 $ 5,795          $ 8,162
                                                            =======          =======

Fixed Asset Reserves:
   2003 Restructuring Actions                               $   348          $   597
   2001 Restructuring Actions                                   234              299
                                                            -------          -------
      Total                                                 $   582          $   896
                                                            =======          =======`

During the first quarter of
2004, the Company recorded pre-tax restructuring charges of $0.5 million related
to lease expenses for facilities vacated in 2001 as part of the restructuring
actions initiated during 2001, which the Company has been unable to sublease.
During the second quarter of 2004, the Company recorded pre-tax restructuring
charges of $0.2 million related to the ratable recognition of severance for
those employees that were on transition during the second quarter of 2004.

During the first quarter of
2003, severance and benefit reserves of $0.1 million were reversed as part of
the restructuring actions initiated during 2001, due to the original estimates
being higher than what was utilized.

2003 Restructuring Actions

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

Of the $14.5 million
recorded in 2003 for the 2003 restructuring actions, $5.0 million was charged to
cost of sales with the remaining $9.5 million being shown as restructuring
expenses as a component of operating expenses. The $5.0 million charged to cost
of sales included $2.6 million to reimburse a strategic supplier for its
restructuring expenses and $2.4 million to exit a third-party Zip disk
manufacturing agreement. This $5.0 million was charged to the Zip Products
segment and the remaining $9.5 million was not allocated to any of the business
segments. Of the $14.5 million restructuring charges, all but the $0.6 million
related to excess furniture will be paid in cash. As of June 27, 2004, the
Company has made $12.4 million in cash payments related to the 2003
restructuring actions, of which $1.5 million and $0.6 million was disbursed
during the first and second quarters of 2004, respectively.

43

---

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

## Restructuring
Charges and Reversal (Continued)

Of the 198 individuals
worldwide whose positions were identified for elimination in the third quarter
of 2003, 7 employees worked on a transition basis into the first quarter of
2004, 4 additional employees worked on a transition basis into the second
quarter of 2004 and 3 more employees are scheduled to work on a transition basis
into the third quarter of 2004. The $6.5 million of severance and benefits costs
recognized during 2003 included the costs associated with those employees whose
positions were eliminated during 2003 and the ratable recognition of the
severance and benefits costs to be paid to the employees who remained in
transition into 2004. The Company anticipates that the total separation payments
or liability for the 198 employees notified during 2003 will be $6.7 million.
During the first and second quarters of 2004, the Company recorded $0.3 million
and $0.2 million, respectively, of expense related to the ratable recognition of
the severance and benefits costs to be paid to the employees who remained in
transition into 2004. However, during the first quarter of 2004, the Company
also released $0.3 million of outplacement reserves as employee usage of
outplacement resources was less than originally estimated. Additional expense of
less than $0.1 million for severance and benefits costs is expected to be
recorded as restructuring expense in the third quarter of 2004 related to the 3
employees who are on transition into the third quarter of 2004. None of these
remaining charges will be allocated to any of the business segments. Other than
these additional immaterial severance charges, the Company does not anticipate
recording any other expenses related to the 2003 restructuring actions.

Remaining restructuring
reserves in the amount of $1.6 million and $0.3 million are included in the
Companys other current liabilities and fixed asset reserves, respectively,
as of June 27, 2004. Utilization of and other activity relating to the 2003
restructuring charges during the quarter ended June 27, 2004 are summarized
below:

`Balance           Utilized                                         Balance
                                                 --------------------
                                     03/28/04      Cash      Non-Cash     Additions    (Reversals)     06/27/04
                                     --------    ---------   --------     ---------    -----------     --------
                                                                  (In thousands)
2003 Restructuring Actions:
   Severance and benefits            $   569      $ (370)     $    -        $ 165         $ (13)        $   351
   Lease termination costs             1,491        (242)          -            -             -           1,249
   Furniture                             516           -        (168)           -             -             348
                                     -------      ------      ------        -----         -----         -------
                                     $ 2,576      $ (612)     $ (168)       $ 165         $ (13)        $ 1,948
                                     =======      ======      ======        =====         =====         =======

Balance Sheet Breakout:
   Other current liabilities         $ 2,060      $ (612)     $    -        $ 165         $ (13)        $ 1,600
   Fixed asset reserves                  516           -        (168)           -             -             348
                                     -------      ------      ------        -----         -----         -------
                                     $ 2,576      $ (612)     $ (168)       $ 165         $ (13)        $ 1,948
                                     =======      ======      ======        =====         =====         =======`

44

---

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

## Restructuring
Charges and Reversal (Continued)

Utilization of and other
activity relating to the 2003 restructuring charges during the six months ended
June 27, 2004 are summarized below:

`Balance           Utilized                                         Balance
                                                 --------------------
                                     12/31/03      Cash      Non-Cash     Additions    (Reversals)     06/27/04
                                     --------    ---------   --------     ---------    -----------     --------
                                                                  (In thousands)
2003 Restructuring Actions:
   Severance and benefits            $ 1,323     $ (1,126)    $    -        $ 441        $ (287)        $   351
   Contract cancellations                500         (500)         -            -             -               -
   Lease termination costs             1,741         (492)         -            -             -           1,249
   Furniture                             597            -       (249)           -             -             348
                                     -------     --------     ------        -----        ------         -------
                                     $ 4,161     $ (2,118)    $ (249)       $ 441        $ (287)        $ 1,948
                                     =======     ========     ======        =====        ======         =======

Balance Sheet Breakout:
   Other current liabilities         $ 3,564     $ (2,118)    $    -        $ 441        $ (287)        $ 1,600
   Fixed asset reserves                  597            -       (249)           -             -             348
                                     -------     --------     ------        -----        ------         -------
                                     $ 4,161     $ (2,118)    $ (249)       $ 441        $ (287)        $ 1,948
                                     =======     ========     ======        =====        ======         =======`

As of June 27, 2004, the
remaining severance and benefits are associated with the 3 employees who are on
transition until the third quarter of 2004 and for those employees who are
receiving their severance payments on a continuous payment basis. Lease payments
are being made on a continuous monthly basis, and of these facilities, the last
lease expires at the end of 2006 and the Company is trying to sublease these
facilities. The Company anticipates completing the disposal of the furniture
during 2004.

2001 Restructuring Actions

During the third quarter of
2001, the Company recorded pre-tax restructuring charges of $33.3 million. The
$33.3 million of restructuring charges recorded in the third quarter of 2001
included $17.4 million associated with exiting lease facilities - of which $9.8
million related to leasehold improvements, furniture and information technology
asset write-downs, and $7.6 million was associated with lease termination costs
- and $15.9 million related to the reduction of 1,234 regular and temporary
personnel worldwide, or approximately 37% of the Companys worldwide
workforce.

During the first quarter of
2003 severance and benefit reserves of $0.1 million were reversed due to the
original estimates being higher than what was utilized. During the first quarter
of 2004, the Company recorded an additional $0.5 million in restructuring
charges for the Ireland facility due to continuing depressed real estate market
conditions in Ireland.

45

---

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

## Restructuring
Charges and Reversal (Continued)

Remaining restructuring
reserves in the amount of $4.2 million and $0.2 million are included in the
Companys other current liabilities and fixed asset reserves, respectively,
as of June 27, 2004. Utilization of the 2001 restructuring reserves during the
quarter ended June 27, 2004 is summarized below:

`Balance           Utilized            Balance
                                                 --------------------
                                     03/28/04      Cash      Non-Cash      06/27/04
                                     --------    --------    --------      --------
                                                     (In thousands)
2001 Restructuring Actions:
North America Reorganization:
   Lease cancellations               $ 2,964      $ (235)     $   -        $ 2,729
   Leasehold improvements and
      furniture                          266           -        (32)           234
                                     -------      ------      -----        -------
                                       3,230        (235)       (32)         2,963
                                     -------      ------      -----        -------

Europe Reorganization:
   Lease cancellations                 1,680        (214)         -          1,466
                                     -------      ------      -----        -------
                                     $ 4,910      $ (449)     $ (32)       $ 4,429
                                     =======      ======      =====        =======

Balance Sheet Breakout:
   Other current liabilities         $ 4,644      $ (449)     $   -        $ 4,195
   Fixed asset reserves                  266           -        (32)           234
                                     -------      ------      -----        -------
                                     $ 4,910      $ (449)     $ (32)       $ 4,429
                                     =======      ======      =====        =======`

Utilization of and other
activity relating to the 2001 restructuring reserves during the six months ended
June 27, 2004 are summarized below:

`Balance           Utilized                         Balance
                                                 --------------------
                                     12/31/03      Cash      Non-Cash     Additions     06/27/04
                                     --------    --------    --------     ---------     --------
                                                          (In thousands)
2001 Restructuring Actions:
North America Reorganization:
   Lease cancellations               $ 3,274      $ (545)     $   -         $   -       $ 2,729
   Leasehold improvements and
      furniture                          299           -        (65)            -           234
                                     -------      ------      -----         -----       -------
                                       3,573        (545)       (65)            -         2,963
                                     -------      ------      -----         -----       -------

Europe Reorganization:
   Lease cancellations                 1,324        (402)         -           544         1,466
                                     -------      ------      -----         -----       -------
                                     $ 4,897      $ (947)     $ (65)        $ 544       $ 4,429
                                     =======      ======      =====         =====       =======

Balance Sheet Breakout:
   Other current liabilities         $ 4,598      $ (947)     $   -         $ 544       $ 4,195
   Fixed asset reserves                  299           -        (65)            -           234
                                     -------      ------      -----         -----       -------
                                     $ 4,897      $ (947)     $ (65)        $ 544       $ 4,429
                                     =======      ======      =====         =====       =======`

46

---

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

## Restructuring
Charges and Reversal (Continued)

As of June 27, 2004, the
remaining leasehold improvements are associated with subleased facilities and
cannot be disposed of until the related subleases expire. The last sublease will
expire in March 2006. Lease payments are being made on a continuous monthly
basis and the Company is still trying to sublease two of the facilities, where
the leases expire in 2009 and 2023.

## Interest Income

Interest income of $0.4
million in the second quarter of 2004 decreased $1.2 million, or 78%, from $1.6
million in the second quarter of 2003. Interest income of $0.7 million for the
first six months of 2004 decreased $2.8 million, or 79%, from $3.5 million in
the first six months of 2003. The decreases in interest income for the second
quarter and six month periods resulted primarily from lower cash, cash
equivalents and temporary investment balances resulting from the $257.2 million
one-time cash dividend payment made on October 1, 2003 and from operating
losses. Interest income was also impacted by lower interest rates for both the
second quarter and six month periods.

## Income Taxes

For the quarter ended June
27, 2004, the Company recorded a net tax provision of $3.5 million, on a pre-tax
loss of $16.3 million. The net provision was comprised of a $12.5 million tax
increase in the valuation allowance resulting primarily from new foreign tax
credits and loss carryforwards, partially offset by the statutory tax benefit of
$6.4 million on the quarters pre-tax loss, and a $2.6 million benefit
resulting primarily from the release of tax accruals associated with the
Companys foreign operations. Included in the $12.5 million increase in the
valuation allowance was an $8.5 million valuation allowance resulting from new
foreign tax credits created by deemed Swiss withholding taxes on foreign
earnings. The recording of the new foreign tax credits were the result of a
change in the Companys intention to repatriate foreign cash to the U.S. in
the form of dividends in the future. The resulting effective tax provision rate
of 21% on a pre-tax loss for the second quarter of 2004 resulted from the
valuation allowance and release of tax accruals described above. This compares
to an income tax benefit of $4.6 million on a pre-tax loss of $0.2 million for
the second quarter of 2003, which reflected $4.6 million of research tax credits
that were recorded following the completion of a research tax credit study and
an IRS audit.

On April 22, 2004, in
conjunction with releasing its first quarter 2004 pre-tax results, the Company
announced that it was conducting an analysis of its net tax assets and
associated valuation reserves. At the completion of the analysis, the Company
concluded that foreign withholding taxes which were previously presented as
income taxes receivable should be reclassified and reported as deferred tax
assets on the consolidated balance sheets. The amount reclassified on the
December 31, 2003 condensed consolidated balance sheet was $8.5 million. The
Company further concluded that no net adjustment was required to the fourth
quarter 2003 tax provision as a result of certain fourth quarter 2003 offsetting
adjustments related, in part, to the tax consequences of a $75 million
intercompany dividend required to fund the one-time $5 per share cash dividend
paid to shareholders on October 1, 2003 and that no adjustments to the tax
provisions were required in any other prior period.

The realizability of the
deferred tax assets is evaluated quarterly in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes,
which requires that a valuation allowance be established when it is more likely
than not that the deferred tax assets will not be realized.

47

---

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

## Income Taxes
(Continued)

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

`June 27,
                                                                     2004        Expiration Dates
                                                                   --------      ----------------
                                                                (In thousands)
U.S. and Foreign Loss Deferred Tax Assets:
   Federal NOLs (1)                                                $  7,942      2022 to 2023
   State NOLs                                                         8,713      2004 to 2022
   Foreign NOLs                                                      12,437      2004 to 2006
   Capital losses                                                       430      2006
                                                                   --------
                                                                   $ 29,522
                                                                   ========

Tax Credit Deferred Tax Assets:
   Foreign tax credits                                             $ 24,154      2005 to indefinite
   Research credits                                                  10,009      2007 to 2023
   Alternative minimum tax credits                                    1,248      Indefinite
                                                                   --------
                                                                   $ 35,411
                                                                   ========
(1) NOLs = Net Operating Loss Carryforwards`

At June 27, 2004, the
Company had $7.9 million of deferred tax assets related to U.S. federal net
operating loss carryforwards (NOLs), which reflect a tax benefit of
approximately $23 million in future U.S. federal tax deductions. At June 27,
2004, the Company had $8.7 million of deferred tax assets related to state NOLs,
which reflect a tax benefit of approximately $218 million in future state tax
deductions. The difference in the amount of future federal and state tax
deductions related to the NOLs is primarily attributable to two factors: 1) The
difference between federal and state NOL carryback rules which have allowed the
use of federal NOLs in instances where state NOLs could not be utilized and 2)
the difference in the taxable portion for federal and state purposes of
dividends received from the Companys foreign subsidiaries.

Net deferred tax
liabilities for the Company at June 27, 2004 were $13.4 million. As of June 27,
2004, deferred tax liabilities for estimated U.S. federal and state income taxes
and foreign withholding taxes of $60.3 million have been accrued on unremitted
foreign earnings of $170.8 million. Taxes have not been provided for unremitted
foreign earnings of $10.5million as these earnings are considered to be
permanently invested in non-U.S. operations.

For the six months ended
June 27, 2004, the Company recorded a net tax provision of $2.8 million, on a
pre-tax loss of $21.9 million. The net tax provision was comprised of a $13.2
million increase in the valuation allowance resulting primarily from new foreign
tax credits and loss carryforwards, partially offset by the statutory tax
benefit of $8.5 million on the pre-tax loss for the six months ended June 27,
2004 and a $1.9 million benefit resulting primarily from the release of tax
accruals associated with the Companys foreign operations. Included in the
$13.2 million increase in the valuation allowance was an $8.5 million increased
valuation allowance resulting from new foreign tax credits created by deemed
Swiss withholding taxes on foreign earnings. The recording of the new foreign
tax credits were the result of a change in the Companys intention to
repatriate foreign cash to the U.S. in the form of dividends in the future. The
resulting effective tax provision rate of 13% on a pre-tax loss for the six
months ended June 27, 2004, resulted from the increase in the valuation
allowance and the release of tax accruals described above. This compares to an
income tax benefit of $0.8 million on pre-tax income of $8.9 million for the six
months ended June 29, 2003, which reflected $4.6 million of research tax credits
partially offset by an income tax provision of $3.8 million. The resulting
effective tax benefit rate of 9% on pre-tax income for the six months ended June
29, 2003 resulted from the $4.6 million of research tax credits.

48

---

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

## Liquidity and
Capital Resources

At June 27, 2004, the
Company had total cash, cash equivalents and temporary investments of $134.2
million compared to $168.9 million at December 31, 2003, a decrease of $34.7
million or 21%.

At both June 27, 2004 and
December 31, 2003, $0.7 million of total cash, cash equivalents and temporary
investments were on deposit in the U.S., for the U.S. entity.

At June 27, 2004, the
remaining $133.5 million of non-U.S. entities total cash, cash equivalents
and temporary investments were on deposit in the U.S. and foreign countries
(primarily Western Europe), compared to $168.2 million at December 31, 2003. The
repatriation of any of the $133.5 million of foreign cash to the U.S. will be
taxable income in the U.S. for federal and state tax purposes at a rate of
approximately 37%. However, the amount of cash required for U.S. federal and
state taxes will be less than the Companys 37% rate due to the
availability of the Companys existing federal and state NOLs and tax
credit carryforwards. Any taxes paid on the repatriation of cash to the U.S.
would not impact the condensed consolidated statement of operations as taxes
have already been provided on these foreign earnings.

Working capital of $105.0
million at June 27, 2004 decreased by $26.5 million, or 20%, compared to $131.5
million at December 31, 2003. The decrease in working capital resulted primarily
from lower cash, cash equivalents and temporary investments, lower trade
receivables, lower inventories and lower current deferred income taxes,
partially offset by lower other current liabilities and accrued restructuring
charges, lower income taxes payable and lower accounts payable.

For the six months ended
June 27, 2004, cash used by operating activities amounted to $26.1 million, a
decrease of $33.5 million, compared to cash provided by operating activities of
$7.4 million for the six months ended June 29, 2003. The primary drivers for the
usage of cash in the first six months of 2004 were $16.5 million for the product
loss and capital expenditures for REV products, $8.3 million for the development
costs, other related costs and capital expenditures for the DCT technology, $3.1
million for restructuring disbursements, $2.7 million for the payment of annual
management bonus plans and changes in current assets and current liabilities as
described below. As discussed in the section entitled, Overview, the
Companys goal is to reverse the negative cash flows from operations
through the cancellation of the DCT technology program and through future
restructuring and other cost reductions. However, the Company can give no
assurance that it will be successful in this regard.

49

---

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

## Liquidity and
Capital Resources (Continued)

Trade receivables decreased
for the six months ended June 27, 2004 primarily from lower sales. Days sales
outstanding (DSO) in receivables improved slightly from 36 days at
December 31, 2003 to 33 days at June 27, 2004. DSO is calculated by multiplying
the period end trade receivables balance by 90 and dividing that amount by the
sales for the quarter ended of the applicable year. Current deferred income
taxes decreased primarily due to the lower accrued expense reserves, such as
restructuring reserves. Other current liabilities decreased primarily from lower
accrued payroll, vacation and bonus accruals due to the payment of annual
management bonus plans in January 2004 that were accrued at December 31, 2003,
lower restructuring accruals primarily due to utilization of the accruals (see
the section above entitled, Restructuring Charges and Reversals) and
lower accrued excess purchase commitments due to accrual
utilization (through payments), transfer to inventory reserve (associated
with inventory receipts) and reduction in certain supplier exposures.
Income taxes payable decreased due to the decrease in tax accruals for the
Japanese and French foreign operations.Accounts payable decreased due to
lower purchases reflecting the lower sales volumes.

During the first six months
of 2004, the Company did not repurchase any shares of the Companys Common
Stock. However the Companys treasury share balance increased by 1,321
shares for restricted Common Stock that was forfeited back to the Company for no
consideration in conjunction with the Companys Management Incentive Plan.
As of June 27, 2004, approximately $122.3 million remained available for future
repurchases under the $150 million stock repurchase plan authorized by the
Companys Board of Directors on September 8, 2000. The repurchase plan does
not have a fixed termination date.

The Company believes that
its balance of unrestricted cash, cash equivalents and temporary investments,
together with cash flows from future operations, will be sufficient to fund
anticipated working capital requirements, funding of past and future
restructuring actions, capital expenditures and cash required for other
activities for at least one more year. However, cash flow from future
operations, investing activities and the precise amount and timing of the
Companys future financing needs, cannot be determined at this time and
will depend on a number of factors, including the market demand for the
Companys products, the future sales volume of Zip and REV products, future
restructuring or other charges (including those that may be incurred during the
second half of 2004) which may consume cash, 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 financial stability of the
Companys customers, 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 and/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
sole source of liquidity. Given the Companys recent history of sales
declines, there is no assurance that, if needed, the Company would be able to
obtain financing from external sources or obtain a competitive interest rate.

50

---

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

## Factors
Affecting Future Operating Results

Demand for the Company's Products and Operating Efficiencies

The Companys future
operating results will depend, in large part, upon the Companys ability to
achieve and maintain sufficient market demand and presence for its products to
allow it to operate profitably and efficiently. The Companys ability to
accomplish these objectives will depend on a number of factors, including the
following:

- Market demand for digital storage products in general;
- Successful marketing and acceptance of the Company's recently-released REV products;
- Success  of the  Company  in  establishing  OEM  arrangements  and  meeting  OEM  quality,  supply,  and  other
         requirements on REV products;
- 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 maintaining Zip product OEM  arrangements  and meeting OEM quality,  supply and other
         requirements;
- Success of the Company's efforts to provide and maintain customer service and satisfaction;
- Public  perception  of the  Company  and its  products,  including  statements  made by  industry  analysts  or
         consumers and adverse publicity resulting from such statements or from litigation filed against the Company;
- Worldwide economic  conditions,  including overall market demand for personal computers and other products with
         which the Company's products can be used;
- Ability of the Company to profitably and efficiently  manage its supply of products and key components,  and to
         avoid disruptions in the supply thereof;
- Ability of the Company to maintain  profitable  relationships with distributors,  retailers and other resellers
         of the Company's products;
- The Company's ability to attract and retain competent, motivated employees;
- 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  achieve and maintain an  appropriate  cost  structure  and to minimize
         unforeseen and extraordinary expenses.

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

51

---

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

## Factors
Affecting Future Operating Results (Continued)

Zip Drives and Disks

From 1996 through the first
quarter of 2004, sales of Zip products accounted for a significant majority of
the Companys revenues. More importantly, in recent years, the
Companys Zip products have been the Companys only significant source
of positive PPM. However, for the past several years Zip product sales have
declined consistently and significantly on a year-over-year basis, both in terms
of unit volumes and sales dollars. For example, in the second quarter of 2004,
Zip product sales were $32.3 million, a decrease of $34.1 million, or 51%, from
the second quarter of 2003. In the second quarter of 2004, Zip drive and disk
units decreased 50% and 33%, respectively, compared to the second quarter of
2003. Overall Zip product sales in calendar year 2003 were $246.1 million, which
represented a decline of $232.4 million, or 49%, from calendar year 2002 Zip
product sales of $478.5 million.

The Company expects
continuing declines in Zip product units and sales of at least comparable, if
not greater, quarter-over-quarter and year-over-year rates, due to factors such
as the following:

- Abandonment of Zip drive and disk usage by existing Zip drive  customers as the Zip technology  reaches the end
          of its lifecycle;
- The continued loss of shelf space for Zip products at key retailers;
- The  continued  widespread  proliferation  of other low cost storage  devices and media such as optical  drives
          (CD-RW and DVD), external hard drives and USB flash drives;
- The continued proliferation of alternative means for sharing, transporting and backing up large data files;
- Increasing difficulty in generating demand for Zip products through promotions and
- Potential  disruptions  in the  supply of Zip  drives and disks from the  Company's  suppliers  as Zip  product
          volumes continue to decline.

Indeed, in the second
quarter of 2004, for the first time, the sales of low-margin Sourced Branded
products exceeded the sales of high-margin Zip products. The Company has
launched the new REV product line, has launched a line of Network Storage
Systems products and has broadened its line of Sourced Branded products in an
attempt to create additional revenue streams. However, the Companys
profitability will remain dependent on maximizing, to the extent possible, sales
of Zip drives and disks until and unless the Company demonstrates an ability to
launch and sell other products profitably (particularly REV products). The
Company can provide no assurance that it will ever be successful in this regard.

As the Companys Zip
drive and disk sales have declined, it has consistently been losing shelf space
for Zip products with its key resellers and retailers because of reduced
volumes. In addition, the Company no longer has the ability to leverage demand
for its Zip products into demand for other products. The Company anticipates
increasing challenges in these areas for the remainder of the Zip product life
cycle. Although the Company attempts to offer competitive sales and marketing
programs to induce channel customers to continue to purchase Zip products and
other offerings, there is no assurance that the Company will be successful in
this regard.

52

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

## Factors
Affecting Future Operating Results (Continued)

The Company sells a
significant percentage of its total volume of Zip drives to a relatively small
number of computer OEMs. The Companys OEM customers are not obligated to
purchase any minimum volume of Zip drives. Moreover, the fact that the number of
OEM customers is relatively small presents a risk that the loss of one or more
key OEM accounts would have an immediate, material adverse effect on the
Companys financial condition or operating results. Computer OEM customers
have adopted CD-RW and DVD rewritable drives as standard product features. The
Company believes that this adoption, which has had a material adverse impact on
the Companys Zip business, is not reversible. OEMs will gradually cease
offering the Zip drive as a built-in option or will stop purchasing the
Companys Zip products altogether. When that occurs, the adverse impact on
the Company may be significant. The Company cannot predict when that will occur.

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

- Risks that an End of Life purchase  option will not be available  from a supplier who has chosen to discontinue
         a component;
- Risks that the Company will order insufficient or excess quantities of key components;
- Risks that  compliance  with  volume,  amortization,  or other  obligations  owed by the  Company to  component
         suppliers will result in unanticipated costs or charges;
- Risks of irreparable  quality problems  manifesting in certain components,  spoilage,  loss or destruction only
         after the Company has completed last time buys of such components and
- Risks that certain  suppliers  may produce  excess  inventory of key  components  in the absence of firm orders
         from the Company, leading to potential disputes regarding payment obligations.

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

As Zip product segment
sales and profits continue to decline, the risk increases that the $11.7 million
of goodwill associated with the Zip product segment will become impaired and
that impairment charges will become necessary. During the second quarter of
2004, the Company reviewed goodwill and has determined that the Zip goodwill is
not currently impaired.

In addition, as the
Companys Zip product volumes continue to decline, it becomes increasingly
difficult for the Company to forecast Zip product revenue streams, to manage the
Companys supply of Zip products and to manage inventory of Zip products at
distributors and retailers. The Company can give no assurance that it will be
able to successfully manage these factors. Moreover, the Company has been unable
to accurately forecast and predict the actual rate of Zip product decline over
time. Any significant negative change in the rate of the decline, from the
Companys internal forecasts, from quarter to quarter or year to year, will
have a negative impact on financial results because the Company is generally
unable to quickly make a corresponding reduction in operating expenses or other
costs. Consequently, the Company is unable to provide any assurance that it will
be able to maintain the positive PPM from its Zip business, which has been
critical to the Companys performance in recent years.

53

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

## Factors
Affecting Future Operating Results (Continued)

Sourced BrandedProducts

The Company ships a variety
of sourced branded products (finished products which contain little or no Iomega
intellectual property and are procured from third-party suppliers). These
include CD-RW drives, DVD rewritable drives, HDD, Iomega Mini and Micro Mini USB
drives and external floppy disk drives. Unlike its Zip business, the
Companys Sourced Branded Products business has never provided a
significant source of PPM. There are a number of material differences between
the Sourced Branded and Zip businesses, including the following: a) the Company
does not own any significant intellectual property relating to its Sourced
Branded products; b) there is intense competition between different
manufacturers and providers of Sourced Branded products; c) there is a need to
continually requalify new drives and products as existing drives and products
come into short supply or become obsolete and d) in the case of CD-RW, DVD
rewritable and external floppy disk drives, these drives use very low-cost,
non-proprietary discs available from many sources, unlike Zip drives. The
overall Sourced Branded products business is characterized by low or even
negative gross margins, continuing end user price reductions, the frequent
introduction of performance upgrades and intense competition from both brand
name and generic, low-cost competitors. One or more of these factors could
compel the Company to initiate an inventory write-down with respect to its
Sourced Branded products. 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 the Company entered the optical market in 1999 and
began sourcing products from other third-party suppliers, the Company has
reported product losses on its Optical and the Sourced Branded business as a
whole every year through 2003.

In spite of these
challenges, the Company believes it must maintain a presence in the various
sourced branded products markets in order to achieve its overall objective to be
viewed as a full-line supplier of digital Mobile and Desktop Storage Products
for the Companys retail, catalog and online customers. The Companys
Sourced Branded products business activities are focused on reducing product
costs and operating expenses, improving inventory management processes,
completing final assembly processes at the regional level in order to increase
efficiencies and reduce costs, receiving more favorable contract terms,
enforcing contract rights, improving product life cycle management and revising
channel marketing programs with the ultimate goal to achieve profitability or 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 significantly lower prices than the Company. In addition, the overall
market for aftermarket external CD-RW drives is shrinking, due to factors such
as the following: a) PC OEMs continue to offer internal CD-RW drives as a
standard product feature, thereby minimizing market demand for aftermarket
external CD-RW drives; b) customers continue to transition from CD-RW drives to
DVD rewritable drives and c) aftermarket internal CD-RW drives are now
significantly less expensive than external drives. The Company is trying to
mitigate the impact of the shrinking aftermarket external CD-RW drive market by
offering external DVD drive products; however, there is no guarantee that this
strategy will be successful.

54

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

## Factors
Affecting Future Operating Results (Continued)

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 liabilities which could exceed the
profits or even the revenues that the Company would recognize from selling such
products. In order to successfully compete in this market, the Company must
accurately forecast demand, secure quality products, meet aggressive product
price and performance targets, create market demand for its particular brand of
products and avoid holding excessive inventory. In addition, the Company must
ensure access to an adequate supply of products in the face of potential
shortages of particular products or of key components thereof. The Company is
initiating a regional box build process by which certain Sourced
Branded products will undergo final assembly in various worldwide locations.
This process is intended to increase efficiency by allowing the Company greater
flexibility to respond to demand for products while allowing the Company to
carry less inventory. There can be no assurance that the regional box
build strategy will achieve its stated objectives and supply and quality
risks exist while the process is being implemented. In addition, there is no
assurance that the Company can or will be able to successfully manage any of the
other risks set forth above or achieve sustainable profitability on these
products.

Network Storage Systems

In 2002, the Company
introduced a line of Network Attached Storage (NAS) servers. The NAS
market is dominated by large computer providers (including Dell and HP), is
highly price competitive, primarily relies upon VARs to resell the products and
requires core competencies in server, software, systems integration and
networking technologies. Although the Company did achieve a positive product
profit margin on its Network Storage Systems in the second quarter of 2004, the
Company has not yet demonstrated an ability to consistently 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. During 2003, the Company recorded product losses in excess of
$17.9 million in its Network Storage Systems operations due to under-absorbed
operational overhead due to lower than planned volumes and from higher sales and
marketing and research and development spending designed to broaden the
Companys Network Storage Systems product offerings. With the exception of
the second quarter of 2004, the Company has recorded Network Storage Systems
product losses in every quarter since it established this segment.

During the fourth quarter
of 2003, the Company decided to focus on the entry level segment of the market
and is in the process of exiting the high end (products costing $5,000 to
$25,000 per unit) of the market. Despite efforts and spending on marketing and
product introductions during 2002 and 2003, the Company was not successful in
penetrating the high end of the market and first tier corporate reseller
channels and thus made the decision to exit this market. In conjunction with
this re-alignment, at the end of December 2003, the Company incurred $2.3
million of inventory and other charges to exit the high end NAS market. During
2004, the Company plans to focus on the sales of NAS servers with capacities
ranging from 160GB to 1 terabyte, where one terabyte equals 1 trillion bytes. By
focusing on the entry-level and low-end markets, the Company expects to better
leverage its small- to medium-sized business customer base and channel
customers, including existing VARs already focused on these customers. The
Company can provide no assurance that these actions will help it to build a
profitable sustained Network Storage Systems business.

The Company has not yet
successfully developed, nor can there be any assurance that the Company will
successfully develop, the necessary core competencies to compete in this market
segment. Consequently, the Company can provide no assurance that its NAS
products will be successful, that the Company will be successful in implementing
its Network Storage Systems strategy, that the Company will be able to resolve
any of the other challenges set forth above or that the Company will ever
achieve significant or consistent profitability on this product line.

55

---

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

## Factors
Affecting Future Operating Results (Continued)

Development and Introduction of New Products and New Revenue Streams

In light of continuing
declines in the Zip business, the Company believes that it must either develop
or acquire the right to sell new products that are profitable in order to remain
viable. However, the Companys efforts in this regard have been
unsuccessful in recent years. During 1999, 2000 and 2001, the Company invested
significant resources in developing and launching new products, including
Peerless, PocketZip, HipZip, FotoShow and Microdrive products. The Company was
unable to sell any of these products profitably and no longer markets any of
these products. In 2002, the Company introduced additional sourced branded
products including desktop and portable HDD drives and Iomega Mini USB drives as
well as NAS servers. In 2003, the Company introduced external floppy disk
drives. With the exception of the external floppy disk drive, the Company has
not been able to maintain profitable operations on any of the other Sourced
Branded products, for any sustained period of time.

The Company has spent
significant resources developing two new high capacity removable storage
devices, referred to as REV products and the DCT technology. These are discussed
in more detail below. In addition, the Company expects to review new business
opportunities in multiple areas including digital storage, software, disks,
networking, data security, services and other related areas. The Company may
spend significant resources attempting to develop new technology products,
attempting to market new products incorporating such products or applications,
or otherwise attempting to acquire the rights to new technologies. There is no
assurance that the Company will be successful in any of these endeavors.

Recent Introduction of REV Products

In April 2004, the Company
began shipping the first products in its REV products family. The Companys
current REV products consist of a drive (in both external USB 2.0 and internal
ATAPI versions) and removable cartridges with a native capacity of 35GB and up
to 90GB compressed. The Company plans to introduce additional REV products with
the same capacities in the second half of 2004. The Companys recent
introduction of REV products entails numerous risks, including risks relating to
factors such as the following:

- Lack of market acceptance;
- Failure to achieve any significant OEM adoption of the products;
- Unforeseen manufacturing and technical challenges or delays;
- Inability to maintain 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 and strongly entrenched technologies;
- 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;
- Risk that third parties may assert intellectual property claims against new products and
- Risk that  unforeseen REV product quality or supply  problems will generate  negative  publicity and perception
         of the Company.

56

---

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

## Factors
Affecting Future Operating Results (Continued)

In light of the consistent and  significant  declines in Zip product sales, it is unlikely that the Company will be able
to operate  profitably unless the REV product line generates  significant  positive PPM.  However,  a number of risks --
in  addition  to those set forth above -- exist with  respect to the  Company's  recent  introduction  of REV  products.
Unforeseen  technical,  supplier and  manufacturing  challenges -- either hardware or software related -- could manifest
themselves at any time.  The Company  believes that the ultimate  commercial  success of REV products is dependent  upon
significant  OEM  acceptance.  Although  qualification  discussions  and testing have begun with several OEMs, as of the
date of this filing,  no  agreements  with any "tier one" OEMs have been  executed.  There can be no assurance  that the
Company will be able to successfully resolve any of these challenges, problems or risks.

Development of DCT Technology

Over the past several years,  the Company has spent  significant  resources  developing the DCT technology.  The Company
previously  stated  that it intended  to launch the DCT  technology  in the summer of 2004.  However,  after  conducting
market  research and  attempting  to  objectively  evaluate the market  environment  in which the DCT  technology  would
compete,  the  Company  has  concluded  that it will not  launch  an  Iomega-branded  PC  peripheral  DCT  device in the
foreseeable  future.  Rather,  the Company  intends to wind down its DCT technology  development  activities  during the
third quarter of 2004. The Company plans to pursue  licensing and other  strategic  alternatives  for the DCT technology
with  partners  whom the Company  believes  have the  resources to fully  capitalize  on DCT  technology.  However,  the
Company can offer no  assurance  that it will be able to enter into any such license or other  arrangement.  The Company
may incur material  write-offs and other charges  relating to its decision to wind down the DCT technology  development,
depending upon factors such as:

- The Company's  success or lack of success in entering into a license or other  strategic  arrangement  relating
         to DCT technology and
- The  Company's  ability or inability to determine  any  alternative  use for the DCT  technology or its related
         fixed assets.

The decision to refrain
from launching an Iomega-branded PC peripheral DCT device was based in part upon
the Companys belief that the DCT and REV products would appeal to
fundamentally different consumers and customers in fundamentally different
markets. The Company did not feel that it had sufficient resources to
simultaneously pursue these fundamentally different customers and markets. The
Company believes that its decision to wind down the DCT technology development
will allow it to focus marketing, engineering, and other resources on REV
products in an effort to establish a sustainable profitable REV business.
However, the Company can offer no assurance that its efforts in this regard will
be successful.

57

---

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

## Factors
Affecting Future Operating Results (Continued)

General Economic Conditions

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

Collection Risks

Although the Company uses
commercially reasonable steps to manage the credit granted to its customers,
certain trade receivable balances from one or more of its customers may become
uncollectible. This 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. The Company has outsourced
certain collection functions and is therefore reliant upon third-party service
providers for such collection activities. Any failure of the third-party service
provider to perform adequately or any dispute between the Company and the
service provider could have an adverse effect upon the Company.

Information Technology System Upgrade

During the third quarter of
2003, the Company began a project to upgrade the Companys information
technology system, re-engineer its business processes and upgrade its Enterprise
Resource Planning (ERP) systems. In July of 2004, the Company began
implementing these upgraded systems and work on these upgrades will continue
into the third quarter of 2004. The ultimate goal of these combined projects is
to reduce costs by simplifying business processes and reducing the number of
systems needed to be maintained. There is no assurance that the Company will
reduce costs or simplify processes a result of the system upgrade and business
process changes. During the system upgrade implementation process and
thereafter, there is a risk that product shipments may be delayed or other
significant operational and informational interruptions could occur and, in
fact, the Company has experienced start-up issues and product shipment
disruptions during July 2004.

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.

58

---

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

## Factors
Affecting Future Operating Results (Continued)

Inventory Management

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

- 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 the third party
for the manufacture and supply of Zip drives and certain other products. As a
result of this transaction, the Company faces the following risks: the Company
no longer has direct control over the manufacturing processes of Zip drives, Zip
disks, and other products (including REV drives and disks); the Companys
ability to quickly increase or decrease production rates may be impaired; the
Companys lack of control over its manufacturing processes may increase the
risk that quality or reliability problems may arise with respect to its products
and the Company has incurred increased product and operational costs, and may
incur additional product and operational costs in the future. For example, Zip
product prices agreed to with the third-party contract manufacturer are
contingent upon the Company purchasing certain volumes. The Company has incurred
significant incremental costs as a result of not meeting the targeted volumes on
Zip drives and the Company may incur additional such costs in the future.

Product Procurement Costs

The Company believes that
it must continually reduce the procurement costs of its products in order to
remain competitive. 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 products, 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 products unit production, causing further
price adjustments.

59

---

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

## Factors
Affecting Future Operating Results (Continued)

The Company has also
consolidated all Zip disk manufacturing with one supplier with the goal to
reduce costs. This consolidation entails a number of risks, including risks of
disruption in the supply of Zip disks in the event of labor, quality or other
problems at the Zip disk manufacturer and risks that the consolidation will not
lead to reduced costs or efficiencies. There can be no assurance that the
Company will be able to successfully manage these risks.

Distribution and Logistics

The Company in recent years
has outsourced its distribution and logistics centers. During first quarter
2004, the Company entered into separate agreements with a global provider of
logistics services and a global provider of reverse logistics services with the
goal to consolidate its worldwide distribution, logistics, and reverse logistics
requirements with as few prime contractors as possible. Consequently, the
Company has become more reliant upon the computer systems and business processes
of its outsourcing partners and logistics services providers. The Company faces
risks that these systems may have communication, control or reliability problems
including new processes on both the Companys and the new logistics
providers systems and new interface systems on both parties systems. In
addition, the Company faces risks of operational interruptions, missed or
delayed shipments and inventory management risks in conjunction with its
transition to a new logistics provider. The Company hopes to realize cost
savings and operational efficiencies with its transition to a new logistics
provider. However, the Company can give no assurance that any cost savings or
operational efficiencies will result from this consolidation.

Moreover, 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 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.

60

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

## Factors
Affecting Future Operating Results (Continued)

Obsolescence Risks

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

Component Supplies

Although the Company has
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 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 and the Company has incurred
End of Life material charges, which increases the overall cost of the Zip
products and this trend is expected to continue. There can be no assurance that
the Company will be able to obtain a sufficient supply of components on a timely
and cost effective basis.

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

- The Company might be unable to produce sufficient quantities of its products to satisfy market demand;
- In the case of a component  purchased  exclusively  from one  supplier,  the Company  could be  prevented  from
         producing any quantity of the affected  product(s) until such component  becomes  available from an alternative
         source;
- The Company might be forced to delay product shipments;
- The Company's material costs might increase, thereby reducing product gross margins and
- The Company could experience an imbalance in the inventory levels of certain  components,  which could increase
         costs,  slow or stop  production  or cause the  Company  to modify  the  design of its  products  to use a more
         readily available component, with uncertain consequences.

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

61

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

## Factors
Affecting Future Operating Results (Continued)

The 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
orders are based on estimated future sales requirements. In the case of new
products or products with declining sales, it can be difficult to estimate
future product demand, which could result in excess purchase commitments, where
the Company has made commitments for purchases that the Company does not
anticipate utilizing and therefore are considered excess. The Company has
recorded significant charges in the past relating to excess purchase commitments
and inventory reserves. The Company may be required to take similar charges
attributable to forecasting inaccuracies in the future.

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 27, 2004, the Company employed 578 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, regardless of outcome, may have an adverse effect upon the
Companys profitability or public perception.

62

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

## Factors
Affecting Future Operating Results (Continued)

Restructuring and Other Cost Reduction Activities

The Company plans to
evaluate its operational expenses during the third quarter of 2004 with the goal
to align its cost structure with the Companys future business direction
and expected revenue streams. As a result, the Company expects to incur
restructuring and other charges in an effort to reduce ongoing operational
costs. There is no assurance that these actions will lead to sustainable cost
reductions or will otherwise benefit the Company. In addition, in carrying out
these actions, the Company is at risk that key personnel, experience or
knowledge may be lost. The Company may incur legal liabilities and claims
associated with any restructuring actions or layoff.

Retention of Key Personnel

The Companys
continued success will depend, in part, upon its ability to attract and retain
highly skilled and experienced personnel and to maintain continuity and
stability within the Companys senior management team. There is no
assurance that the Company will be able to do so. Some skilled and experienced
employees voluntarily resigned from the Company during the first six months of
2004 and there is a risk of additional resignations by such employees,
particularly in light of recent restructuring activities, the Companys
recent financial performance and recent improvements in the U.S. economy. The
Company regularly reviews and modifies its compensation programs as a tool to
facilitate retention of key employees in an increasingly competitive job market.
As part of its overall employee retention program, the Company has decided to
more broadly grant stock options to key employees as compared to its practice in
the past few years. The Company is expensing such stock option grants and
incurring stock compensation expenses.

Other Risk Factors

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

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

Effective January 1, 2003,
the Company began expensing the cost of stock options that the Company grants to
employees. As a result of the payment of the one-time $5.00 cash dividend on
October 1, 2003, after the payment, all of the Companys outstanding stock
options are being accounted for under the fair value method of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation. 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
compensation expense to be recorded.

63

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

## Factors
Affecting Future Operating Results (Continued)

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.

# 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 only forward contract instruments to hedge its net balance sheet
exposures. The contracts are primarily in European currencies and the Singapore
dollar. The Company enters into contracts throughout the month as necessary.
These contracts normally have maturities that do not exceed 40 days.

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

64

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## IOMEGA
CORPORATION AND SUBSIDIARIES

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

The fair value of the
Companys forward contracts is subject to change as a result of potential
changes in market rates and prices. If the U.S. dollar were to strengthen or
weaken against these foreign currencies by 10%, the hypothetical value of the
contracts would have increased or decreased by approximately $1.8 million at
June 27, 2004 and $2.4 million at December 31, 2003. However, these forward
exchange contracts are hedges and consequently any market value gains or losses
arising from these foreign exchange contracts should be offset by foreign
exchange losses or gains on the underlying assets and liabilities. Calculations
of the above effects assume that each rate changed in the same direction at the
same time relative to the U.S. dollar. The calculations reflect only those
differences resulting from mechanically replacing one exchange rate with
another. They do not factor in any potential effects that changes in currency
exchange rates may have on statement of operations translation, sales volume and
prices and on local currency costs of production. As of June 27, 2004 and
December 31, 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, results of operations or cash
flows. Factors that could impact the effectiveness of the Companys hedging
programs include volatility of the currency and interest rate markets,
availability of hedging instruments and the Companys ability to accurately
project net asset or liability positions. Actual gains and losses in the future
may differ materially from the Companys analysis depending on changes in
the timing and amount of interest rate and foreign exchange rate movements and
the Companys actual exposures and hedges.

The Company did not have
any significant debt outstanding at June 27, 2004 and December 31, 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% (100 basis points), interest income would have
hypothetically increased or decreased by $0.4 million and $0.8 million during
the second quarter and six months ended June 27, 2004, respectively. If the
interest rate on the Companys interest bearing investments were to change
1% (100 basis points), interest income would have hypothetically increased or
decreased by $1.1 million and $2.3 million during the second quarter and six
months ended June 29, 2003, respectively. 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s
temporary investments are purchased with maturities in excess of three months.
Temporary investments at June 27, 2004 consisted primarily of U.S. treasuries,
corporate notes, bonds and paper and U.S. agencies. Temporary investments at
December 31, 2003 consisted primarily of corporate notes, bonds and paper, U.S.
treasuries, certificates of deposit, asset-backed securities and mortgage-backed
securities. None of the Companys temporary investments has an effective
maturity greater than 24 months and at both June 27, 2004 and December 31, 2003,
the average duration of the Companys temporary investments was
approximately 14 months. At June 27, 2004, the Company had debt security
investments of $36.0 million that will mature within one year and $30.0 million
that will mature in more than one year but less than two years. The Company
seeks to minimize its credit risk associated with temporary investments by
purchasing investment grade, liquid securities. The Company has classified all
of its temporary investments as available-for-sale securities.

65

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## IOMEGA
CORPORATION AND SUBSIDIARIES

## ITEM 4.
CONTROLS AND PROCEDURES

The Companys
management, with the participation of the Companys chief executive officer
and interim 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 27, 2004.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 interim chief financial officer
concluded that as of June 27, 2004, 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 interim 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.

As previously discussed in
the Companys Quarterly Report on Form 10-Q for the quarter ended March 28,
2004, during the first quarter of 2004, the Companys independent auditors
for the year ended December 31, 2003, notified the Companys Audit
Committee that they had identified a reportable condition regarding the
Companys internal controls. The condition, which was not a material
weakness, related to the controls around the preparation of the fourth quarter
2003 tax provision, which the Company believed was particularly complex due, in
part, to the tax consequences of a $75 million intercompany dividend required to
fund the one-time $5 per share cash dividend paid to shareholders on October 1,
2003. In the first quarter of 2004, the Company extended by one week the time
between fiscal quarter end and the time that it publicly announces financial
results for the completed quarter to allow for further review and analysis of
financial results and tax provisions before their disclosure. Also, during the
second quarter of 2004, the Company further added an additional layer of review
by hiring an independent third party to review the quarterly tax provision. The
Company believes that these actions adequately address the condition.

No other changes in the
Companys internal controls over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the second
quarter ended June 27, 2004, that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial
reporting.

66

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# IOMEGA
CORPORATION AND SUBSIDIARIES
PART II OTHER INFORMATION

# ITEM 2.  CHANGE IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES:

The Company did not sell
any equity securities during the second quarter of 2004 that were not registered
under the Securities Act of 1933.

During the second quarter
of 2004, the Company did not repurchase any shares of the Companys Common
Stock. As of June 27, 2004, approximately $122.3 million remained available for
future repurchases under the $150 million stock repurchase plan authorized by
the Companys Board of Directors on September 28, 2000. The repurchase plan
does not have a fixed termination date.

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

The Companys 2004
Annual Meeting of Stockholders was held on Tuesday, May 25, 2004. At the Annual
Meeting, the Companys stockholders voted upon the following three
proposals:

1. Election of six directors, each for a one-year term.
2. Approval of an amendment to the 1987 Stock  Option Plan to reduce the exercise  price of each  outstanding
option under this plan by $5.00 per share (but in no event below the par value of the common  stock,  or $.03
1/3 per share) which is equal to the special  one-time  $5.00 per share  dividend that was paid on October 1,
2003.
3. Approval of an amendment  to the Second  Amended and Restated  1995  Director  Stock Option Plan to reduce
the exercise price of each  outstanding  option under this plan by $5.00 per share (but in no event below the
par value of the  common  stock,  or $.03 1/3 per share)  which is equal to the  special  one-time  $5.00 per
share dividend that was paid on October 1, 2003.

The following table
indicates the votes received for each proposal, each of which was approved by
the Companys stockholders.

`Against/                     Broker
                       Proposal                              For               Withheld       Abstain     Non-Votes
      ------------------------------------------          ----------          ---------       -------     ----------
1.    Election of six directors, each
         for a term of one year:
            Robert P. Berkowitz                           44,640,968          1,549,435           -           -
            Bruce B. Darling                              45,571,681            618,722           -           -
            Stephen N. David                              44,606,135          1,584,268           -           -
            Margaret L. Hardin                            45,614,378            576,025           -           -
            Werner T. Heid                                45,576,855            613,548           -           -
            John E. Nolan                                 44,639,743          1,550,660           -           -

2.    Approval of the amendment to the 1987
      Stock Option Plan                                   22,875,766          2,404,297      1,466,702    19,443,638

3.    Approval of the amendment to the Second
      Amended and Restated 1995 Director  Stock
      Option Plan                                         21,864,070          3,409,424      1,473,273    19,443,636`

67

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# IOMEGA
CORPORATION AND SUBSIDIARIES
PART II OTHER INFORMATION (Continued)

# 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 22, 2004, the Company furnished a Form 8-K announcing the Companys
pre-tax financial results for the second quarter ending June 27, 2004 under Item 12,
Results of Operations and Financial Condition.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

68

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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 5, 2004
Dated: August 5, 2004 | IOMEGA CORPORATION
        (Registrant)/s/ Werner T. Heid
    Werner T. Heid
      
President and Chief Executive Officer    /s/ Thomas D. Kampfer
Thomas D. Kampfer
      
Vice President, General Counsel and
      
      
Secretary and Interim Chief Financial
      
      
Officer
|------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

69

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## IOMEGA CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX

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

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

|10.20 | Second Half 2004 Bonus Plan.
|----- | ----------------------------

|31.7 | Section 302 certification letter from Werner T. Heid, President and Chief Executive Officer.
|---- | --------------------------------------------------------------------------------------------

|31.8 | Section 302 certification letter from Thomas D. Kampfer, Vice President,
General Counsel and Secretary and Interim Chief Financial Officer.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------

|32.5 | Section 906 certification letter from Werner T. Heid, President and Chief Executive Officer.
|---- | --------------------------------------------------------------------------------------------

|32.6 | Section 906 certification letter from Thomas D. Kampfer, Vice President,
General Counsel and Secretary and Interim Chief Financial Officer.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------

70

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