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# UNITED STATESSECURITIES
AND EXCHANGE COMMISSION

                                                        WASHINGTON, D.C. 20549

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# FORM 10-Q

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

## FOR THE QUARTERLY PERIOD ENDED JULY 1, 2001

## 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)

Incorporated pursuant to the Laws of the State of Delaware

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Internal Revenue Service  Employer Identification No. 86-0385884

1821 West Iomega Way, Roy, UT 84067

(801) 332-1000

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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 [  ]

The total number of shares of the registrants Common Stock, $0.03 1/3 par value,
outstanding on August 6, 2001 was 270,401,838.

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`TABLE OF CONTENTS

                                                                                                        Page
                                           PART I - FINANCIAL STATEMENTS

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

Item 1.  Financial Statements

         Condensed consolidated balance sheets at July 1, 2001
             and December 31, 2000.................................................................       3

         Condensed consolidated statements of operations for the quarters
             ended July 1, 2001 and June 25, 2000..................................................       5

         Condensed consolidated statements of operations for the six months
             ended July 1, 2001 and June 25, 2000..................................................       6

         Condensed consolidated statements of cash flows for the six months
             ended July 1, 2001 and June 25, 2000..................................................       7

         Notes to condensed consolidated financial statements......................................       8

Item 2.  Management's Discussion and Analysis of Financial
             Condition and Results of Operations...................................................      33

Item 3.  Quantitative and Qualitative Disclosures About Market Risk................................      60

                                            PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.........................................................................      61

Item 2.  Changes in Securities and Use of Proceeds.................................................      61

Item 6.  Exhibits and Reports on Form 8-K..........................................................      61

Signatures.........................................................................................      62

Exhibit Index......................................................................................      63`

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Copyright(C)2001 Iomega  Corporation.  All rights  reserved.  Iomega,  the stylized "i" logo, Zip, Jaz,  PocketZip,
HipZip, FotoShow, Predator,  QuikSync,  LifeWorks,  Peerless and iomegadirect,  are either registered trademarks or
trademarks of Iomega Corporation in the United States, other countries or both.

IBM and Microdrive are trademarks or registered  trademarks of International  Business Machines  Corporation in the
United  States,  other  countries  or  both.  Microdrive  is used  under  license  by  Iomega  Corporation.  Iomega
Corporation is an authorized  licensee of the  CompactFlash  trademark.  SmartMedia is a trademark of Toshiba Corp.
Certain other product names,  brand names and company names may be trademarks or designations  of their  respective
owners.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This  Quarterly  Report  on  Form  10-Q  contains  a  number  of  forward-looking  statements,  including,  without
limitation,  statements  referring  to: the expected  costs  savings  resulting  from the second  quarter and third
quarter 2001 restructuring and other actions;  the subject matter,  timing and amount of certain third quarter 2001
restructuring and other actions;  expected  headcount  reductions;  categorization  and amount of restructuring and
other  charges by such  categories;  the need for  additional  restructuring  or other  charges in the future;  the
expected  profitability  or lack of  profitability  on certain product lines;  the expected sales volume or lack of
sales  volume on  certain  product  lines;  the  expected  sufficiency  of cash,  cash  equivalents  and  temporary
investment balances and available sources of financing;  the factors affecting future gross margins;  the impact of
the Euro  conversion  on the  Company's  business or  financial  condition;  expected  sales levels due to seasonal
demand;  anticipated  hedging  strategies;  and the  possible  effects of an  adverse  outcome in the review of the
Company's SEC filings described under the caption "Other Matters" or the legal  proceedings  described in Note 7 of
Notes to Condensed  Consolidated  Financial  Statements in Part I were to occur.  Any statements  contained  herein
that are not statements of historical fact may be deemed to be  forward-looking  statements.  Without  limiting the
foregoing,  the words  "believes,"  "anticipates,"  "plans,"  "expects,"  "intends"  and  similar  expressions  are
intended  to identify  forward-looking  statements,  although  not all  forward-looking  statements  contain  these
words.

There are a number of important  factors that could cause actual events or the Company's  actual  results to differ
materially from those indicated by such  forward-looking  statements.  These factors include,  without  limitation,
those set forth  under the  captions  "Liquidity  and  Capital  Resources,"  "Factors  Affecting  Future  Operating
Results" and  "Disclosures  About Market Risk"  included under  "Management's  Discussion and Analysis of Financial
Condition  and  Results  of  Operations"  in Item 2 of Part I of this  Quarterly  Report on Form 10-Q and those set
forth in Note 7 of Notes to Condensed  Consolidated  Financial  Statements  in Part I of this  Quarterly  Report on
Form 10-Q. The factors  discussed  herein do not reflect the potential  future impact of any mergers,  acquisitions
or dispositions.  In addition,  any  forward-looking  statements  represent the Company's  estimates only as of the
day this  quarterly  report was first filed with the  Securities  and Exchange  Commission and should not be relied
upon as  representing  the Company's  estimates as of any  subsequent  date.  While the Company may elect to update
forward-looking  statements at some point in the future,  the Company  specifically  disclaims any obligation to do
so, even if its estimates change.

## IOMEGA CORPORATION
                                       CONDENSED CONSOLIDATED BALANCE SHEETS
                                        ASSETS

## (In thousands)

`July 1,            December 31,
                                                                              2001                  2000    
                                                                                    (Unaudited)
Current assets:
   Cash and cash equivalents                                              $  271,421             $  255,572
   Temporary investments                                                      88,482                122,347
   Trade receivables, less allowance for doubtful accounts of
     $7,818 and $8,858, respectively                                         108,978                139,461
   Inventories                                                                86,882                102,497
   Deferred income taxes                                                      53,621                 43,471
   Income taxes receivable                                                     4,457                  3,758
   Other current assets                                                       11,811                 15,301
                                                                           ---------              ---------
      Total current assets                                                   625,652                682,407
                                                                           ---------              ---------

Property, plant and equipment, at cost                                       318,908                317,284
   Less: Accumulated depreciation and amortization                          (234,503)              (215,695)
                                                                           ---------              ---------
      Net property, plant and equipment                                       84,405                101,589
                                                                           ---------              ---------

Intangibles, net                                                              25,970                 29,293
                                                                           ---------              ---------
Other assets                                                                   1,704                  2,150
                                                                           ---------              ---------
                                                                           $ 737,731              $ 815,439
                                                                           =========              =========`

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

## IOMEGA CORPORATION
                                 CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
                                       LIABILITIES AND STOCKHOLDERS' EQUITY

## (In thousands, except share data)

`July 1,           December 31,
                                                                              2001                 2000    
                                                                                     (Unaudited)
Current liabilities:
   Accounts payable                                                          $ 78,204            $ 108,168
   Other current liabilities (Note 1)                                         167,106              181,735
   Capitalized lease obligations                                                1,918                2,311
                                                                            ---------            ---------
      Total current liabilities                                               247,228              292,214
                                                                            ---------            ---------
Long-term liabilities                                                           2,904                4,001
                                                                            ---------            ---------
Deferred income taxes                                                          24,664               30,684
                                                                            ---------            ---------
Commitments and contingencies (Notes 5 and 7)

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 272,602,804 and 272,350,584 shares,
      respectively                                                              9,086                9,078
   Additional paid-in capital                                                 299,582              298,877
   Less: 2,407,642 and 2,307,642 Common Stock treasury shares,
      respectively, at cost                                                   (13,562)             (13,267)
   Retained earnings                                                          167,829              193,852
                                                                            ---------            ---------
      Total stockholders' equity                                              462,935              488,540
                                                                            ---------            ---------
                                                                            $ 737,731            $ 815,439
                                                                            =========            =========`

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

## IOMEGA CORPORATION
                                  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

## (In thousands, except per share data)

`For the Quarter Ended     
                                                                              July 1,             June 25,
                                                                               2001                 2000  
                                                                                      (Unaudited)
Sales                                                                        $ 184,051           $ 303,639
Cost of sales (Note 5)                                                         176,733             183,628
                                                                             ---------           ---------
Gross margin                                                                     7,318             120,011
                                                                             ---------           ---------
Operating expenses:
    Selling, general and administrative                                         54,364              71,003
    Research and development                                                    13,241              15,318
    Restructuring charges (reversals)(Note 6)                                    1,086              (2,497)
    Bad debt expense (credit)                                                      869              (1,749)
                                                                             ---------           ---------
       Total operating expenses                                                 69,560              82,075
                                                                             ---------           ---------

Operating income (loss)                                                        (62,242)             37,936
Interest income                                                                  4,323               5,406
Interest expense                                                                   (77)             (1,387)
Other expense                                                                     (178)               (789)
                                                                             ---------           ---------

Income (loss) before income taxes                                              (58,174)             41,166
Benefit (provision) for income taxes                                            22,319                (796)
                                                                             ---------           ---------
Net income (loss)                                                            $ (35,855)          $  40,370
                                                                             =========           =========

Net income (loss) per common share (Note 1):
    Basic                                                                    $   (0.13)          $    0.15
                                                                             =========           =========
    Diluted                                                                  $   (0.13)          $    0.15
                                                                             =========           =========
Weighted average common shares outstanding                                     270,212             270,638
                                                                             =========           =========
Weighted average common shares outstanding -
    assuming dilution                                                          270,212             281,351
                                                                             =========           =========`

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

## IOMEGA CORPORATION
                                  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

## (In thousands, except per share data)

`For the Six Months Ended  
                                                                               July 1,             June 25,
                                                                             2001                2000  
                                                                                       (Unaudited)
Sales                                                                        $ 462,226           $ 648,536
Cost of sales (Note 5)                                                         369,223             400,618
                                                                             ---------           ---------
Gross margin                                                                    93,003             247,918
                                                                             ---------           ---------
Operating expenses:
    Selling, general and administrative                                        115,321             137,727
    Research and development                                                    27,317              26,448
    Restructuring charges (reversals)(Note 6)                                    1,086              (2,497)
    Bad debt expense (credit)                                                      593              (3,227)
                                                                             ---------           ---------
       Total operating expenses                                                144,317             158,451
                                                                             ---------           ---------
Operating income (loss)                                                        (51,314)             89,467
Interest income                                                                  9,648               8,910
Interest expense                                                                  (161)             (2,834)
Other expense                                                                     (158)             (1,613)
                                                                             ---------           ---------
Income (loss) before income taxes                                              (41,985)             93,930
Benefit (provision) for income taxes                                            15,962              (1,734)
                                                                             ---------           ---------
Net income (loss)                                                            $ (26,023)          $  92,196
                                                                             =========           =========

Net income (loss) per common share (Note 1):
    Basic                                                                    $   (0.10)          $    0.34
                                                                             =========           =========
    Diluted                                                                  $   (0.10)          $    0.33
                                                                             =========           =========
Weighted average common shares outstanding                                     270,185             270,543
                                                                             =========           =========
Weighted average common shares outstanding -
    assuming dilution                                                          270,185             281,293
                                                                             =========           =========`

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

## IOMEGA CORPORATION
                                  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

## (In thousands)

`For the Six Months Ended   
                                                                                 July 1,            June 25,
                                                                               2001                 2000  
                                                                                        (Unaudited)
   Cash flows from operating activities:
       Net income (loss)                                                     $  (26,023)          $   92,196
       Non-cash revenue and expense adjustments:
          Depreciation and amortization                                          27,421               39,381
          Deferred income taxes                                                 (16,170)                   -
          Non-cash inventory write-offs                                          14,268                    -
          Loss on fixed assets                                                    7,046                4,419
          Bad debt expense (credit)                                                 593               (3,227)
          Tax benefit from dispositions of employee stock                            79                  843
                                                                              ---------            ---------
                                                                                  7,214              133,612
   Changes in assets and liabilities:
       Trade receivables, net                                                    29,890               18,581
       Inventories                                                                1,347               21,680
       Other current assets                                                       3,490                4,751
       Accounts payable                                                         (29,964)             (31,405)
       Other current liabilities                                                (14,629)              (5,391)
       Income taxes                                                                (699)              12,451
                                                                              ---------            ---------
   Net cash provided by (used in) operating activities                           (3,351)             154,279
                                                                              ---------            ---------
   Cash flows from investing activities:
       Purchase of property, plant and equipment                                (13,007)             (11,238)
       Purchase of temporary investments                                        (91,310)            (103,701)
       Sale of temporary investments                                            125,175               66,578
       Net change in other assets/liabilities                                    (1,394)                 401
                                                                              ---------            ---------
   Net cash provided by (used in) investing activities                           19,464              (47,960)
                                                                              ---------            ---------

   Cash flows from financing activities:
       Proceeds from sales of Common Stock                                          634                1,241
       Purchases of Common Stock                                                   (295)                   -
       Payments on capitalized lease obligations                                   (603)              (1,683)
                                                                              ---------            ---------
   Net cash used in financing activities                                           (264)                (442)
                                                                              ---------            ---------
   Net increase in cash and cash equivalents                                     15,849              105,877
   Cash and cash equivalents at beginning of period                             255,572              172,706
                                                                              ---------            ---------
   Cash and cash equivalents at end of period                                 $ 271,421            $ 278,583
                                                                              =========            =========`

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

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

## (1)         
SIGNIFICANT ACCOUNTING POLICIES

| | In
the opinion of the Companys management, the accompanying unaudited,
condensed, consolidated financial statements reflect all adjustments (consisting
only of normal recurring adjustments) which are necessary to present fairly the
financial position of the Company as of July 1, 2001 and December 31, 2000, the
results of operations for the quarters and six months ended July 1, 2001 and
June 25, 2000 and cash flows for the six months ended July 1, 2001 and June 25,
2000.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The results of operations for the quarter and six months ended July 1, 2001 are not
necessarily indicative of the results to be expected for the entire year or for
any future period.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Pervasiveness
of Estimates -The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Principles
of Consolidation -These unaudited, condensed, consolidated financial
statements include the accounts of Iomega Corporation and its wholly-owned
subsidiaries after elimination of all material intercompany accounts and
transactions.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenue
Recognition- The Companys customers include original equipment
manufacturers (OEMs), end users, retailers, distributors and
value-added manufacturers. Some retail and distribution customer agreements have
provisions that allow the customer to return product under certain conditions
within specified time periods. Revenue, less reserves for returns, is generally
recognized upon shipment to the customer. The Company has established reserves
for estimated returns, which are reflected as a reduction in trade receivables
in the accompanying condensed consolidated balance sheets. The reserve for
estimated returns totaled $8.1 million and $9.8 million at July 1, 2001 and
December 31, 2000, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition to reserves for returns, the Company defers recognition of revenue on
estimated excess inventory in the distribution and retail channels. For this
purpose, excess inventory is the amount of inventory that exceeds the
channels 30-day requirements as estimated by management. The gross margin
associated with deferral of revenue for estimated excess channel inventory
totaled $18.2 million and $16.8 million at July 1, 2001 and December 31, 2000,
respectively, and is included in Other current liabilities in the
accompanying condensed consolidated balance sheets.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company sells software that is embedded or bundled with some of its drive
products, as well as off-the-shelf software. Revenue from the software embedded
or bundled with drive products, as well as off-the-shelf software, less reserves
for returns, is generally recognized upon shipment to the customer. Software
revenue recognition is also subject to price reduction and rebate reserves, and
the deferred recognition of revenue on estimated excess inventory in the
distribution and retail channels. The Company does not sell any multiple element
software packages.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Reserves
for rebates and price protection credits totaled $47.2 million and $39.0 million
at July 1, 2001 and December 31, 2000, respectively and are netted against trade
receivables in the accompanying condensed consolidated balance sheets.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Foreign  Currency  Translation - For  purposes  of  consolidating  non-U.S.  operations,  the Company has
         determined  the  functional  currency  for its  non-U.S.  operations  to be the  U.S.  dollar.  Therefore,
         translation gains and losses are included in the determination of income.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cash
and Cash Equivalents For the purposes of the consolidated statements
of cash flows, cash and cash equivalents include all marketable securities
purchased with maturities of three or fewer months. Cash equivalents consist
primarily of investments in money market mutual funds, commercial paper, auction
rate, money market preferred stock investments, taxable and non-taxable
municipal bonds and notes and are recorded at cost, which approximates fair
value.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Temporary
Investments - Investments with maturities in excess of three months
are classified as temporary investments. Temporary investments at July 1, 2001
and December 31, 2000 primarily consisted of municipal notes, bonds and paper;
government securities; commercial paper; and corporate notes, bonds and paper.
The Company seeks to minimize its credit risk associated with temporary
investments by using investment grade, highly liquid securities. All of the
Companys temporary investments are classified as available-for-sale
securities.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Inventories
-Inventories include direct materials, direct labor and manufacturing
overhead costs and are recorded at the lower of cost (first-in, first-out) or
market and consist of the following:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`July 1,      December 31,
                                                                              2001           2000    
                                                                                  (In thousands)

              Raw materials                                                 $ 22,093         $ 25,462
              Work-in-process                                                  6,174            4,740
              Finished goods                                                  52,994           64,648
              Inventory associated with estimated returns                      5,621            7,647
                                                                            --------         --------
                                                                            $ 86,882         $102,497
                                                                            ========         ========`

| | Other
Current Liabilities - Other current liabilities consist of the following:
| | -------------------------------------------------------------------------------

`July 1,      December 31,
                                                                              2001            2000                                                                                                                                                          (In thousands)
                                                                                   (In thousands)
              Accrued payroll, vacation and bonus                           $ 14,933         $ 21,020
              Margin on deferred revenue                                      18,532           16,776
              Accrued warranty                                                11,567           13,315
              Accrued advertising                                             37,711           53,557
              Inventory purchase commitments                                  26,063            3,378
              Other accrued liabilities                                       58,300           73,689
                                                                            --------         --------
                                                                            $167,106         $181,735
                                                                            ========         ========`

| | 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.
Diluted EPS for the quarter and six months ended June 25, 2000 was determined
under the assumption that the convertible subordinated notes were converted on
March 27, 2000 and January 1, 2000, respectively. The computation of Diluted EPS
does not assume exercise or conversion of securities that would have an
antidilutive effect on net income (loss) per common share.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

`Net
                                                                 Income (Loss)         Shares         Per Share
                                                                   (Numerator)     (Denominator)       Amount
                                                                  ------------      -------------       -------
                                                                     (In thousands, except per share data)

       For the Quarter Ended:
         July 1, 2001:
         Basic EPS                                                 $ (35,855)            270,212        $ (0.13)
            Effect of options                                              -                  -
                                                                   ---------             -------
         Diluted EPS                                               $ (35,855)            270,212        $ (0.13)
                                                                   =========             =======

         June 25, 2000:
         Basic EPS                                                 $  40,370             270,638        $  0.15
            Effect of options                                              -               1,497
            Effect of convertible subordinated notes                     753               9,216
                                                                   ---------             -------
         Diluted EPS                                               $  41,123             281,351        $  0.15
                                                                   =========             =======`

| | For
the quarter ended July 1, 2001, stock options were not included in the
calculation of Diluted EPS as their inclusion would have been antidilutive. For
the quarters ended July 1, 2001 and June 25, 2000, there were outstanding
options to purchase 10,797,417 and 9,205,564 shares, respectively, that had an
exercise price greater than the average market price of the common shares for
the respective quarters.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Net
                                                                 Income (Loss)          Shares         Per Share
                                                                  (Numerator)       (Denominator)        Amount
                                                                  ------------      -------------       -------
                                                                     (In thousands, except per share data)
      For the Six Months Ended:
         July 1, 2001:
         Basic EPS                                                 $ (26,023)            270,185        $ (0.10)
            Effect of options                                              -                   -
                                                                   ---------             -------
         Diluted EPS                                               $ (26,023)            270,185        $ (0.10)
                                                                   =========             =======

      June 25, 2000:
         Basic EPS                                                 $  92,196             270,543        $  0.34
            Effect of options                                              -               1,534
            Effect of convertible subordinated notes                   1,505               9,216
                                                                   ---------             -------
         Diluted EPS                                               $  93,701             281,293        $  0.33
                                                                   =========             =======`

| | For
the six months ended July 1, 2001, stock options were not included in the
calculation of Diluted EPS as their inclusion would have been antidilutive. For
the six months ended July 1, 2001 and June 25, 2000, there were outstanding
options to purchase 10,181,679 and 9,166,064 shares, respectively, that had an
exercise price greater than the average market price of the common shares for
the respective six months.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Recent
Accounting Pronouncements In July 2001, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 141, Accounting for Business Combinations (SFAS
141). SFAS 141 establishes accounting and reporting standards for business
combinations initiated after June 30, 2001. It requires that all business
combinations use the Purchase Method of Accounting. Goodwill will continue to be
initially recognized as an asset in the financial statements and goodwill will
be measured as the excess of the cost of an acquired entity over the net of the
amounts assigned to assets acquired and liabilities assumed. An intangible asset
acquired in a business combination is recognized as an asset apart from goodwill
if that asset arises from contractual or other legal rights. SFAS 141 will not
have a material effect on the Companys results of operations, financial
position or liquidity.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 142, Accounting for
Goodwill and Intangible Assets (SFAS 142). Under this
statement, goodwill is not amortized but rather is tested for impairment
annually at the reporting unit level. A recognized intangible asset is amortized
over its useful life and reviewed for impairment in accordance with Statement
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. A recognized intangible asset with an indefinite
useful life is not amortized until its life is determined to be finite. The
provisions of this Statement are required to be applied starting with fiscal
years beginning after December 15, 2001. The Company will adopt SFAS No. 142
beginning on January 1, 2002. Upon adoption, the Company will no longer book
amortization of approximately $3 million per year. The Company has not yet made
a determination of how much, if any, of the Companys existing goodwill is
impaired under SFAS No. 142 or what charges would have to be recorded upon the
Companys adoption of SFAS No. 142.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
April 2001, the Emerging Issues Task Force (EITF) reached a
consensus on Issue No. 00-25, Vendor Income Statement Characterization of
Consideration Paid to a Reseller of the Vendors Products. This issue
concluded that certain consumer and trade sales promotion expenses are presumed
to be a reduction of the selling prices of the vendors products and
therefore, should be characterized as a reduction of revenue when recognized in
the vendors income statement. The provisions of this pronouncement are
required to be applied starting with fiscal years beginning after December 15,
2001. The Company will adopt this pronouncement on January 1, 2002.
Reclassification of prior period financial statements is required if practical.
This issue could result in adjustments to net sales and selling, general and
administrative expenses though the extent of these reclassifications have not
yet been determined by the Company. The adoption of EITF 00-25 will have no
impact on operating income, net income, or earnings per share.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

## (2)          INCOME TAXES

| | For the quarter ended July 1, 2001, the Company recorded an income tax benefit of
$22.3 million on a pre-tax loss of $58.2 million. The tax benefit for the second
quarter of 2001 was calculated using an estimated annual effective tax rate of
approximately 39%. This compares to an income tax provision of $0.8 million on
pre-tax income of $41.2 million representing a tax rate of 2% for the second
quarter of 2000, reflecting a $15.3 million decrease in the valuation allowance
for net deferred tax assets. Excluding the $15.3 million decrease in the
valuation allowance, the tax rate for the second quarter of 2000 was 39%.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company's deferred tax assets and liabilities are as follows:
| | -----------------------------------------------------------------

`July 1,      December 31,
                                                                              2001           2000
                                                                           ----------     -----------
                                                                                 (In thousands)

              Current deferred tax assets                                  $  53,621        $  43,471
              Non-current deferred tax assets                                 55,886           46,939
                                                                           ---------        ---------
                Total deferred tax assets                                    109,507           90,410
                                                                           ---------        ---------

              Non-current deferred tax liabilities:
                Tax on unremitted foreign earnings                           (58,721)         (55,393)
                Nomai goodwill                                                (5,952)          (6,775)
                                                                           ---------        ---------
                                                                             (64,673)         (62,168)
                                                                           ---------        ---------

              Non-current valuation allowance                                (15,877)         (15,455)
                                                                           ---------        ---------
                Net deferred tax assets                                    $  28,957        $  12,787
                                                                           =========        =========

              As reported on the balance sheet:
                Current deferred tax assets                                $  53,621        $  43,471
                                                                           =========        =========
                Non-current deferred tax liabilities                       $ (24,664)       $ (30,684)
                                                                           =========        =========`

| | The
Companys current deferred tax assets reflect temporary differences between
the book and tax treatment of current assets and liabilities, mainly reserves
for accounts receivable, inventories and accrued expenses. The non-current
deferred tax assets reflect temporary differences between the book and tax
treatment of non-current assets and liabilities, plus the tax benefit of tax
credit carryforwards and net operating loss carryforwards. At July 1, 2001, the
Company had $14.8 million of deferred tax assets related to domestic net
operating loss carryforwards, which reflect the tax benefit of approximately
$37.9 million in future domestic tax deductions. These carryforwards expire at
various dates beginning in 2020.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company continues to maintain a full valuation allowance of $15.9 million for
net deferred tax assets related to foreign net operating loss carryforwards,
which reflect the tax benefit of approximately $36.3 million in future tax
deductions. These carryforwards expire at various dates beginning in 2004. These
deferred tax assets remain fully valued because their realization is dependent
on earning future foreign taxable income in the tax jurisdictions to which the
net operating loss carryforwards relate. The largest of these foreign net
operating loss carryforwards relates to the Companys French subsidiary,
Nomai S.A. This subsidiarys operations have been shut down. Therefore, the
foreign net operating loss carryforward related to Nomai S.A. is not likely to
be realized in the future.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Deferred tax  liabilities  for estimated  U.S.  federal and state taxes of $58.7 million and $55.4 million
as of July 1, 2001 and December 31, 2000,  respectively,  have been accrued on unremitted foreign earnings
of $150.6  million and $142.0 million as of July 1, 2001 and December 31, 2000,  respectively.  U.S. taxes
have not been provided for  unremitted  foreign  earnings of $112 million.  These  earnings are considered
to be permanently  invested in non-U.S.  operations.  The additional  U.S. tax liability,  if such amounts
were remitted,  would be approximately $44 million.  Cash dividends of unremitted  foreign earnings to the
U.S.  would  be  considered  taxable  in the  U.S.  for  federal  and  state  tax  purposes  at a rate  of
approximately 39%.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Net deferred tax assets for the Company at July 1, 2001 are $29.0 million. The
minimum amount of future taxable income that would have to be generated to
realize the net deferred tax assets is approximately $75 million.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
the six-month period ended July 1, 2001, the Company recorded an income tax
benefit of $16.0 million on a pre-tax loss of $42.0 million. The tax benefit for
the first six months of 2001 was calculated using an estimated annual effective
tax rate of approximately 39%. This compares to an income tax provision of $1.7
million on pre-tax income of $93.9 million representing a tax rate of 2% for the
first six months of 2000, reflecting a $37.8 million decrease in the valuation
allowance for net deferred tax assets. Excluding the $37.8 million decrease in
the valuation allowance, the tax rate for first six months of 2000 was 42%. Cash
paid for income taxes was $1.2 million and $1.4 million for the first six months
of 2001 and 2000, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## (3)          DEBT

| | The
Company has entered into various agreements to obtain capital lease financing
for the purchase of certain manufacturing and other equipment. The leases have
terms ranging from 36 to 60 months and mature at various dates through April
2002. Principal and interest payments under the various agreements are payable
monthly or quarterly. Interest rates are fixed and range from 7.1% to 10.2%. The
leases are secured by the underlying leased equipment.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cash
paid for interest was $0.2 million and $2.7 million, respectively, for the first
six months of 2001 and 2000.
| | ------------------------------------------------------------------------------------------------------------------

## (4)         BUSINESS
SEGMENT INFORMATION

| | The accounting policies of the segments are the same as those described in Note 1 Significant
Accounting Policies. Intersegment sales, eliminated in consolidation, are
not material. The Company evaluates performance based on product profit margin
for each segment. Product profit margin is defined as sales and other income
directly related to a segments operations, less both fixed and variable
manufacturing costs, research and development expenses and selling, general and
administrative expenses directly related to a segments operations. When
such costs and expenses exceed sales and other income, product profit margin is
referred to as product loss. The expenses attributable to corporate activity are
not allocated to the operating segments.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company has four reportable segments based primarily on the nature of the Companys
customers and products: Zip®, Jaz®, Iomega® CD-RW and
PocketZipTM. The Zip segment involves the development, manufacture,
distribution and sales of personal storage products and applications, including
Zip disk and drive systems to retailers, distributors and OEMs throughout the
world. The Zip segment also includes the development, manufacture, distribution
and sales of FotoShowTM digital image centers, which were introduced
during the third quarter of 2000. The Jaz segment involves the development,
manufacture, distribution and sales of professional storage products and
applications, including Jaz disk and drive systems to resellers, distributors
and retailers throughout the world. The Companys CD-RW segment involves
the distribution and sales of CD-RW drives to retailers, distributors and
resellers throughout the world. The PocketZip segment involves the development,
manufacture, distribution and sales of PocketZip drives and disks for use with
portable digital products such as digital cameras, audio players, handheld
personal computers and notebook computers to retailers, distributors, OEMs and
resellers throughout the world. The PocketZip segment also includes the
development, manufacture, distribution and sales of HipZipTM digital
audio players, which were introduced during the third quarter of 2000.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Othercategory includes: PeerlessTM drive systems, which began shipping
during the second quarter of 2001; branded products such as Iomega
MicrodriveTM miniature hard drives, Iomega CompactFlashTMand Iomega SmartMediaTM memory cards, DataSafeTM
network attached storage servers; LifeworksTM software and Iomega
QuikSyncTM software; Ditto® tape products and other
miscellaneous items.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the second quarter of 2001, the Company recorded non-restructuring charges of $46.0 million, of
which $44.9 million was charged to the respective product lines as cost of
sales. These charges primarily reflected write-downs of HipZip, FotoShow and
CD-RW inventory and equipment and loss accruals for related supplier purchase
commitments (see Note 5).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The information in the following table is derived directly from the segments internal financial
information used for corporate management purposes.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | Reportable
Operating Segment Information:
| | -----------------------------------------

`For the Quarter Ended        For the Six Months Ended
                                                         -------------------------      ---------------------------
                                                          July 1,         June 25,        July 1,        June 25,
                                                            2001             2000          2001             2000
                                                         ---------     -----------      ----------       ----------
                                                               (In thousands)                   (In thousands)
       Sales:
          Zip                                             $145,207        $ 237,290      $ 349,692        $ 515,807
          Jaz                                               13,275           37,883         39,836           89,730
          CD-RW                                             18,258           24,585         62,742           35,363
          PocketZip                                          2,319            3,209          3,605            5,263
          Other                                              4,992              672          6,351            2,373
                                                          --------        ---------      ---------        ---------
             Total sales                                  $184,051        $ 303,639      $ 462,226        $ 648,536
                                                          ========        =========      =========        =========

       Product profit margin (loss) before
          charges/reversals:
          Zip                                             $ 34,469        $  69,615      $  89,328        $ 157,556
          Jaz                                                2,502           11,803         12,165           24,266
          CD-RW                                            (11,006)             656        (16,910)             552
          PocketZip                                         (5,098)          (3,257)       (13,151)         (12,126)
          Other                                             (7,324)          (2,406)       (13,669)          (4,769)
                                                         ---------        ---------      ---------         --------
             Total product profit margin                    13,543           76,411         57,763          165,479

       Common operating expenses without
          (charges) reversals allocated to
          product profit margin (loss):
          General corporate expenses                       (28,713)        ( 40,972)       (62,005)         (71,109)
          Restructuring (charges) reversals                 (1,086)           2,497         (1,086)           2,497
          Non-restructuring charges                        (45,986)               -        (45,986)          (7,400)
          Interest and other income, net                     4,068            3,230          9,329            4,463
                                                          --------        ---------      ---------        ---------
             Income (loss) before income taxes            $(58,174)       $  41,166      $ (41,985)       $  93,930
                                                          ========        =========      =========        =========`

`For the Quarter Ended          For the Six Months Ended
                                                        ---------------------------     ---------------------------
                                                          July 1,         June 25,        July 1,         June 25,
                                                           2001             2000           2001             2000
                                                        ----------      -----------     ----------       ----------
                                                               (In thousands)                   (In thousands)
       (Charges)/reversals:
          Restructuring:
             Jaz                                        $       -       $     1,597     $       -        $    1,597
             PocketZip                                          -               900             -               900
             Common                                        (1,086)                -        (1,086)                -
                                                        ----------      -----------     ----------       ----------
                                                        $  (1,086)      $     2,497     $  (1,086)       $    2,497
                                                        =========       ===========     ==========       ==========

          Non-restructuring:
             Zip                                        $ (13,366)      $         -     $ (13,366)       $        -
             CD-RW                                         (9,977)                -        (9,977)                -
             PocketZip                                    (17,926)                -       (17,926)           (7,400)
             Other                                         (3,667)                -        (3,667)                -
             Common                                        (1,050)                -        (1,050)                -
                                                        ---------       ------------    ---------        ----------
                                                        $ (45,986)      $         -     $ (45,986)       $   (7,400)
                                                        =========       ============    =========        ==========

       Product profit margin (loss) after
          charges/reversals:
          Zip                                           $  21,103       $    69,615     $  75,962        $  157,556
          Jaz                                               2,502            13,400        12,165            25,863
          CD-RW                                           (20,983)              656       (26,887)              552
          PocketZip                                       (23,024)           (2,357)      (31,077)          (18,626)
          Other                                           (10,991)           (2,406)      (17,336)           (4,769)
                                                        ---------       -----------     ---------        ----------
             Total product profit (loss) margin           (31,393)           78,908        12,827           160,576

       Common operating expenses with(charges)
       reversals allocated to product profit margin
       (loss):
          General corporate expenses                      (28,713)          (40,972)      (62,005)          (71,109)
          Restructuring charges                            (1,086)                -        (1,086)                -
          Non-restructuring charges                        (1,050)                -        (1,050)                -
          Interest and other income, net                    4,068             3,230         9,329             4,463
                                                        ---------       -----------     ---------        ----------
             Income (loss) before income taxes          $ (58,174)      $    41,166     $ (41,985)       $   93,930
                                                        =========       ===========     =========        ==========`

## (5)         
NON-RESTRUCTURING CHARGES

| | During the second quarter of 2001, the Company recorded non-restructuring charges of $46.0 million,
primarily reflecting write-downs of HipZip, FotoShow and CD-RW inventory and
equipment and loss accruals for related supplier purchase commitments. A
breakdown of the charges is included in the table below:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Financial
                                                                                         Statement
           Description of Non-Restructuring Charges                    Amount            Category
         ---------------------------------------------              -------------      ------------
                                                                    (In millions)
         Q2 2001
         -------
         Products:
            Zip                                                      $       4.5        Cost of sales
            FotoShow (part of Zip segment)                                   8.9        Cost of sales
            CD-RW                                                           10.0        Cost of sales
            HipZip (part of PocketZip segment)                              17.9        Cost of sales
            Other (primarily sourced products)                               3.6        Cost of sales
                                                                     -----------
                                                                            44.9
         Separation agreement                                                1.1            S,G and A
                                                                     -----------
                                                                     $      46.0
                                                                     ===========

         S,G and A = Selling, general and administrative expenses`

| | The Company  evaluates the carrying  value of inventory on a quarterly  basis to determine if the carrying
value is recoverable at estimated  selling prices.  The Company  includes  material  costs,  manufacturing
costs  and  direct  selling  expenses  in its  analysis  of  inventory  realization.  To the  extent  that
estimated selling prices do not exceed such costs and expenses,  valuation  reserves are established.  The
Company  generally  considers that  inventory on hand or with  suppliers  which is not expected to be sold
within the next nine months as excess and thus appropriate  reserves are established.  Inventory  reserves
recorded in the second  quarter of 2001  amounted to $16.8  million.  Loss  accruals for related  supplier
purchase  commitments  amounted to $18.3  million.  Additional  accruals of $2.2 million were  recorded to
reflect valuation reserves for inventory in the channel.  Also included in the  non-restructuring  charges
above is $7.6 million  reflecting  the extent to which  undiscounted  future cash flows are expected to be
less than the net book value of related manufacturing equipment.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company  began  shipping a USB Zip 100MB drive in the fourth  quarter of 2000.  This  product is being
replaced  by two new lower  cost  drives  in the  third  quarter  of this  year.  As a result of sales not
meeting  prior Company  forecasts,  which has caused the Company to change  future  expectations,  and the
transition to the new lower cost drives,  the Company recorded  inventory  reserves of $1.4 million;  loss
accruals of $1.3  million for supplier  purchase  commitments  and  write-downs  of related  manufacturing
equipment amounting to $1.8 million.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company began  shipping the FotoShow  digital  viewer in the third quarter of 2000.  The target market
         for this  product is digital  camera  users.  The Company was  unsuccessful  in its efforts to market this
         product  to these  users  through  both  existing  and new  channels.  As a result  sales have not met the
         Company's prior  expectations,  which has caused the Company to change future  expectations.  As a result,
         the Company  recorded  inventory  reserves of $3.7  million;  loss  accruals of $5.0  million for supplier
         purchase commitments and write-downs of related manufacturing equipment amounting to $0.2 million.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company has been shipping  CD-RW products  since August 1999.  Most of the Company's  CD-RW drives are
         purchased  from suppliers and marketed under the Iomega name without  significant  manufacturing  activity
         by the Company.  Due to intense  competitive  pricing  pressures in the CD-RW  market,  prices have fallen
         faster for CD-RW products than the Company  anticipated,  particularly  during the second quarter of 2001.
         The Company was unable to negotiate  lower prices with vendors at the same rate as external  prices to its
         customers  declined.  As a result, the Company recorded inventory reserves of $4.4 million;  loss accruals
         of $2.9  million  for  supplier  purchase  commitments;  $1.8  million of reserves  for channel  inventory
         exposures and write-downs of related manufacturing equipment amounting to $0.9 million.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company  began  shipping  the HipZip  digital  audio player late in the third  quarter of 2000.  Sales
         volumes  during 2001 did not meet the  Company's  expectations,  which caused the Company to change future
         expectations.  The  digital  audio  player  market  has been  saturated  with  other  competitive  product
         offerings.  As a result,  during the second quarter of 2001, the Company  recorded  inventory  reserves of
         $4.6 million;  loss accruals of $9.1 million for supplier purchase  commitments and write-downs of related
         manufacturing equipment amounting to $4.2 million.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Charges taken for Other products were primarily for sourced  products such as Microdrive,  Magneto-Optical
         drives in Europe,  CompactFlash  and  SmartMedia,  which the Company began selling in the first quarter of
         2001.  As a result of sales not  meeting  prior  expectations,  which has  caused  the  Company  to change
         future  expectations,  the  Company  recorded  inventory  reserves of $2.7  million  and  reserves of $0.4
         million  for  channel  inventory  exposures.  The  Company  also  wrote-down  other  excess  miscellaneous
         manufacturing equipment amounting to $0.5 million.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the second  quarter of 2001,  an accrual of $1.1 million was  recorded  reflecting  the  separation
         agreement  between Mr. Bruce  Albertson,  who resigned as President and Chief Executive  Officer,  and the
         Company.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## (4)         
RESTRUCTURING CHARGES

| | Second Quarter 2001 Restructuring Actions.
| | ------------------------------------------

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

| | During the second quarter of 2001, the Company also reorganized its Singapore
operations, which resulted in a reduction of 14 employees in sales, marketing,
logistics and technical support. This reduction resulted in an accrual of $0.3
million for severance and benefits. The cost savings associated with this
headcount reduction were not significant.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The second quarter 2001 restructuring charges are summarized below:
| | -------------------------------------------------------------------

`Utilized
 Second Quarter 2001                            Original    -----------------------         Balance
Restructuring Actions                          Charge (a)     Cash        Non-Cash          07/01/01
      --------------------------------                     ----------   ---------     ---------         --------
                                                                           (in thousands)

      U.S. Manufacturing:
              Severance and benefits                        $   834     $       -     $       -         $   834
                                                            -------     ---------     ---------         -------

      Singapore Reorganization:
              Severance and benefits                            252             -             -             252
                                                            -------     ---------     ---------         -------
                                                            $ 1,086     $       -     $       -         $ 1,086
                                                            =======     =========     =========         =======

      Balance Sheet Breakout:
             Other current liabilities                      $ 1,086     $       -     $       -         $ 1,086
                                                            =======     =========     =========         =======

         (a)  Amounts represent primarily cash charges.`

| | Anticipated Third Quarter 2001 Restructuring and Other Actions.
| | ---------------------------------------------------------------

| | See Note 9 for discussion of  restructuring  and other actions and related  charges  expected in the third
         quarter.
| | ----------------------------------------------------------------------------------------------------------------------------

| | 1999 Restructuring Actions.
| | ---------------------------

| | During 1999,  the Company  recorded  pre-tax  restructuring  charges of $65.8 million as a result of steps
         the Company was taking to organize along  functional  lines,  (for example,  manufacturing,  sales,  etc.)
         consolidate  manufacturing  and other  facilities,  discontinue  certain  products  and  refocus the Clik!
         product  platform  on the  newer  PC  Card  and  OEM  drives.  Of  the  $65.8  million  in  total  pre-tax
         restructuring  charges,  $14.1 million related to inventory and inventory  commitments and was recorded in
         cost of sales.  The $14.1 million  charge was composed of $6.4 million  related to inventory and inventory
         commitments  associated with discontinuing the Buz multimedia  producer and a Jaz development  project and
         $7.7 million of  restructuring  charges  related to inventory and inventory  commitments  associated  with
         Clik! product streamlining.  The remaining $51.7 million was reported separately.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Of the $65.8 million of pre-tax  restructuring  charges,  $41.9 million was recorded in the second quarter
         of 1999 of which $2.0  million was  reversed  in the fourth  quarter of 1999,  and $20.5  million and $5.4
         million in restructuring charges were recorded in the third and fourth quarters of 1999, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Second  Quarter 1999  Restructuring  Actions.  These actions  included the exit of  facilities,  headcount
         reductions,  the  discontinuance  of certain  products and development  projects and  consolidation of the
         Company's  magnetic  technology  expertise at its  headquarters in Roy, Utah. The actions  relating to the
         exit of facilities  included  closing the  Company's  facilities  in Milpitas,  California  and San Diego,
         California,  where primarily  research and  development  activities were conducted for Clik! and Jaz. Also
         included in the  restructuring  actions was the  consolidation  of the Company's  operations in France and
         Scotland.  The  consolidation  of  operations  in France and  Scotland  resulted in the closure of a sales
         office in Paris,  France and a research  facility in  Scotland.  This  restructuring  charge  consisted of
         cash and non-cash charges of approximately $18 million and $24 million,  respectively.  There were not any
         indications of permanent impairment of the assets prior to the restructuring actions.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company  planned on  terminating  the  employment of 450  individuals  in  connection  with the second
         quarter  1999  restructuring  actions.   Through  December  31,  1999,  the  Company  had  terminated  the
         employment  of 355 regular  and  temporary  employees,  consisting  primarily  of  operations  and product
         development  employees  located in Milpitas  and San Diego,  California  and Roy,  Utah,  sales  personnel
         located in Paris,  France and product  development  employees  located in Scotland.  The Company  recorded
         charges  of $10.7  million  for these  workforce  reduction  actions.  Due to  attrition  and a strong job
         market, a number of positions planned for elimination were voluntarily  vacated,  which resulted in a $2.0
         million reversal of severance and benefit reserves in the fourth quarter of 1999.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company  estimated  that annual cost savings  would  approximate  $40 million when these  actions were
         fully  implemented.  The savings were expected to primarily  result from reductions in salaries,  rent and
         depreciation.  However,  it was also anticipated that these savings would be offset by increased  spending
         in other areas such as advertising.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At December  31, 1999,  the Company had  terminated  all affected  employees,  abandoned  all  facilities,
         ceased  utilization  of all fixed assets and ceased  development  and  operations  related to products and
         projects associated with the restructuring actions.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During  the  second  quarter  of 2000,  the  Company  reversed  $1.6  million  of  restructuring  reserves
         associated with the  discontinuance  of development  projects.  The excess  restructuring  reserves were a
         result of negotiating  reductions in purchase  commitments or cancellation charges on inventory and vendor
         equipment and higher than expected proceeds from equipment disposals.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The remaining $1.4 million of restructuring  reserves which relate to contractual  obligations  associated
         with performance  guarantees that would not be met as a result of consolidating  the Company's  operations
         in France,  are in litigation and therefore  have not been settled.  The Company is unable to predict when
         the litigation will be resolved.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Second Half 1999  Restructuring  Actions.  During the third quarter ended  September 26, 1999, the Company
         recorded a pre-tax  restructuring  charge of $20.5 million as a result of restructuring  actions initiated
         to consolidate  worldwide Clik! disk  manufacturing and refocus the Clik! product platform on the newer PC
         Card and OEM drives which  resulted in the Company's  discontinuance  of the Clik!  Mobile  drive.  Of the
         $20.5 million, $7.7 million related to inventory and inventory  commitments  associated with Clik! product
         streamlining  and was recorded in cost of sales.  An  additional  charge of $5.4  million,  primarily  for
         severance and benefits and  write-offs of other prepaid  administrative  expenses  related to the shutdown
         of Avranches,  was taken in the fourth quarter of 1999 in connection  with the cessation of the Avranches,
         France operations where Clik! disks were manufactured.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | These  restructuring  charges  consisted of cash and non-cash  charges of approximately $9 million and $17
         million,  respectively.  There were not any  indications  of permanent  impairment  of the assets prior to
         the restructuring actions.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company did not anticipate material ongoing cost savings from the second half restructuring actions.
| | --------------------------------------------------------------------------------------------------------

| | In  connection  with the Company's  1999 second half  restructuring  actions,  the Company had a workforce
         reduction of  approximately  123 regular and  temporary  employees,  consisting  primarily  of  operations
         employees in Avranches,  France and product development employees in Longmont,  Colorado.  The Company had
         originally  estimated the  termination of employment of 140  employees.  The Company  recorded  charges of
         $4.3 million for these workforce reduction actions in the fourth quarter of 1999.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Operations  ceased in  Avranches,  France during  October  1999. As of December 31, 1999,  the Company had
         ceased  all  operations,  ceased  utilization  of all  facilities  and fixed  assets  and  terminated  the
         employment  of all  affected  employees  except for a few  employees  necessary  to wind up the  Company's
         affairs.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the second quarter of 2000, the Company reversed $0.9 million of restructuring  charges  associated
         with  Clik!  product  streamlining  as  a  result  of  the  Company  negotiating  reductions  in  purchase
         commitments.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The  remaining  $1.8  million  of  restructuring  reserves  related  to  the  manufacturing  cessation  of
         Avranches,  France consists of severance and benefits,  and contract  obligations which are under dispute.
         The  severance  and  benefits  are  anticipated  to be  utilized  by the end of 2001  while  the  contract
         obligations  are being  litigated  and the  Company  is  unable to  predict  when the  litigation  will be
         resolved.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Remaining  restructuring  reserves in the amount of $3.2  million are  included in the  Company's  balance
         sheet  as of July 1,  2001 in  other  current  liabilities.  There  was no  activity  related  to the 1999
         restructuring  reserves  during the  quarter  ended July 1, 2001.  Utilization  of the 1999  restructuring
         reserves during the six months ended July 1, 2001 is summarized below:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Utilized
                                                               Balance     -----------------------        Balance
                1999 Restructuring Actions                    12/31/00       Cash         Non-Cash        07/01/01
             ---------------------------------                --------     --------       --------       ---------
                                                                              (in thousands)
             France/Scotland Consolidation:
                Contract obligations (b)(c)                   $   1,414     $     -       $      -       $   1,414
                                                              ---------     -------       --------       ---------

             Manufacturing Cessation -
                Avranches, France:
                Trade receivables (a)                                47           -            (47)              -
                Other commitments (b)                               511        (356)           (62)             93
                Contract obligations (b)                          1,581           -              -           1,581

                Severance and benefits (b)                          495        (350)             -             145
                                                              ---------    --------       --------       ---------
                                                                  2,634        (706)          (109)          1,819
                                                              ---------    --------       --------       ---------

                                                              $   4,048    $   (706)      $   (109)      $   3,233
                                                              =========    ========       ========       =========

             Balance Sheet Breakout:
                Other current liabilities (b)                 $   4,001    $   (706)      $    (62)      $   3,233
                Trade receivables (a)                                47           -            (47)              -
                                                              ---------    --------       --------       ---------
                                                              $   4,048    $   (706)      $   (109)      $   3,233
                                                              =========    ========       ========       =========

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

## (7)         COMMITMENTS AND CONTINGENCIES

| | Litigation
| | ----------

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

| | As
previously disclosed in the Companys Annual Report on Form 10-K for the
year ended December 31, 2000, and in the Companys Quarterly Report on Form
10-Q for the quarter ended April 1, 2001, on September 10, 1998, a purported
class action lawsuit, Rinaldi, et al. v. Iomega Corporation, was filed
against the Company in the Superior Court of Delaware, New Castle County. The
suit alleged that a defect in the Companys Zip drives causes an abnormal
clicking noise that may indicate damage to the Zip drive or disks. The
plaintiffs sought relief pursuant to claims of breach of warranty, violation of
the Delaware Consumer Fraud Act, negligent design and manufacture, and failure
to warn. On September 3, 1999, the Court dismissed the claims of breach of
warranty and violation of the Consumer Fraud Act, granting the plaintiffs the
opportunity to amend the latter claim. On January 31, 2000, the plaintiffs filed
an amended complaint, reasserting their claim under the Delaware Consumer Fraud
Act and, on February 28, 2000, the Company moved to dismiss this amended claim.
In connection with the same matter, on February 28, 2000, two of the plaintiffs
served the Company with a Notice of Claim under Section 17.46(b) of
the Texas Deceptive Trade Practices Act, asserting allegations similar to those
made in connection with the plaintiffs Delaware Consumer Fraud Act claim
(the Texas Claim). The Texas Claim purports to be on behalf of the
two plaintiffs and a class of other consumers similarly situated in the State of
Texas. It demands relief of $150 for each Zip drive purchased by a class member,
$100 for mental anguish damages to each class member and attorneys fees
and costs. Formal litigation in connection with the Texas Claim has not been
commenced. On March 19, 2001, the parties in the Rinaldi matter submitted to the
Delaware Court a request for certification of the class and approval of a
settlement of the class action. Following notice to the class members, the Court
held a hearing on June 8, 2001 to consider final approval of the settlement and
the objections raised against such approval. On June 29, 2001, the Court issued
an order approving the settlement, which will become final after all appeals of
the order, if any, are resolved. On July 23, 2001, an objector to the settlement
filed a notice of appeal from the Courts order. The appellate court has
yet to set a briefing schedule for this appeal.Pursuant to the terms of
the settlement, class members who have not opted out of the settlement will
release the Company from all claims that were or which could have been raised in
the litigation. For its part, the Company will issue rebates ranging between $5
and $40 to class members who submit a proof of claim. The rebates will remain
available for six months and will be valid for the purchase of certain Zip drive
products and/or disks. The level of the rebate will depend on whether the class
members Zip drive manifested a clicking problem. In addition, the Company
will offer a secondary rebate of $4-15 on Zip disks to those class members who
make a qualified purchase under the initial rebate program. The Company will
also provide dedicated technical assistance personnel for addressing, free of
charge, customer inquiries regarding clicking Zip drives. It will also make a
charitable donation of Zip drives and related software, disks and service, with
a total retail value of $1 million. Finally, counsel for the class applied to
the Court for an award of attorneys fees and costs in the amount of $4.7
million. As part of the Courts June 29 order, it issued an award of $4.1
million for these attorneys fees. The accompanying financial statements
reflect accruals for the charitable donations and for plaintiffs
attorneys fees and costs less estimated insurance coverage. The settlement
will not be construed as a finding of any liability on the Companys part.
Although the Company does not expect this settlement or, if the settlement is
overturned on appeal, the suit or the Texas Claim to have a material adverse
effect on the Companys ongoing business, results of operations or
financial condition, the settlement or an adverse judgment could have a material
adverse effect on the operating results reported by the Company for the period
in which the settlement occurs (or is implemented) or such adverse judgment
occurs.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
previously disclosed in the Companys Annual Report on Form 10-K for the
year ended December 31, 2000, and in the Companys Quarterly Report on Form
10-Q for the quarter ended April 1, 2001, on June 15, 1999, a patent
infringement lawsuit, Valitek, Inc. v. Iomega Corporation, was filed
against the Company in the United States District Court for the Eastern District
of Pennsylvania. The complaint requests injunctive relief against the Company,
as well as monetary damages. On October 26, 1999, the Court granted the
plaintiffs motion to consolidate the action against Iomega, for discovery
purposes only, with a second, similar lawsuit filed by Valitek against
Hewlett-Packard and Imation. Valitek has now settled its lawsuit against
Hewlett-Packard and Imation. On July 27, 2001, the Court granted the
Companys motion to transfer the litigation to Utah. The Company intends to
vigorously defend against this suit.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
previously disclosed in the Companys Annual Report on Form 10-K for the
year ended December 31, 2000, and in the Companys Quarterly Report on Form
10-Q for the quarter ended April 1, 2001, on July 6, 1999, the Company initiated
litigation against Castlewood Systems, Inc. (Castlewood), Iomega Corporation v. Castlewood Systems, Inc., in the United States
District Court for the District of Utah, for infringing the Companys U.S.
Patent No. 4,458,273 and U.S. Patent No. 5,854,719 and for infringing and
diluting the Companys registered trademarks Iomega,
Zip and Jaz. The complaint further alleges that
Castlewood has engaged in federal unfair competition, common law unfair
competition and common law unjust enrichment. Through the complaint, the Company
requests monetary damages and injunctive relief enjoining Castlewood from
further infringement. On August 18, 1999, Castlewood filed an answer and
counterclaims, denying the Companys claims and requesting a declaratory
judgment that the Companys patents are invalid. On September 9, 1999, the
Company filed a reply to the counterclaims, denying that the patents are
invalid. On April 11, 2000, the Company also initiated litigation against
Castlewood in the United States District Court for the District of Utah for
infringement of the Companys U.S. Patent No. 6,049,444. The Companys
complaint requests monetary damages and injunctive relief enjoining Castlewood
from further infringement. Castlewood responded to the complaint on September
15, 2000. The two complaints filed by Iomega in the United States District Court
for the District of Utah have been consolidated. On April 13, 2001, the parties
agreed to stay all proceedings for 60 days to determine whether or not the
dispute can be resolved through mediation. That stay has since been extended to
August 20, 2001 to continue the mediation process. On September 17, 1999, the
Company also initiated litigation against Castlewood in the Paris District Court
based on claims of copyright and patent infringement. The Company sought a
preliminary injunction preventing the sale of Castlewoods infringing
products. Additionally, on September 20, 1999, the Company initiated litigation
on this same basis against Motek, a French retailer of Castlewoods
products, in the Paris District Court. The Court has since denied the
Companys request for a preliminary injunction with respect to the
Companys patent claims and granted the Companys motion for a
preliminary injunction with respect to the Companys trademark claims. The
action on the merits was withdrawn from the records of the court with the
consent of both parties. Either party may revive it within two years. On
November 29, 1999, the Company filed a second suit against Castlewood and Motek
in Paris for patent infringement. The Court denied the Companys motion for
preliminary injunction. This suit was also withdrawn from the records of the
Court, but can be revived by either party within two years.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
previously disclosed in the Companys Annual Report on Form 10-K for the
year ended December 31, 2000, and in the Companys Quarterly Report on Form
10-Q for the quarter ended April 1, 2001, on December 8, 2000, IPDN Corporation
filed a patent infringement complaint against the Company, IPDN
Corporation v. Iomega Corporation, in the U.S. District Court for the
Eastern District of Missouri. IPDN contends that the Companys sale of the
HipZip product constitutes patent infringement as the HipZip incorporates
features or functions that infringe one or more claims of the IPDN patents. On
March 14, 2001, the Company filed a motion to transfer the litigation to Utah.
On April 2, 2001, IPDN filed its opposition to this motion. The Company filed
its reply on April 19, 2001. The motion to transfer is currently pending before
the Court. The Company intends to vigorously defend against this lawsuit.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
previously disclosed in the Companys Annual Report on Form 10-K for the
year ended December 31, 2000, and in the Companys Quarterly Report on Form
10-Q for the quarter ended April 1, 2001, on March 23, 2001, the Company
initiated litigation against Albi Media Manufacturing, SARL (AMM) in
the Tribunal de Grande Instance de Paris for infringing certain Iomega patents
and patent applications in connection with AMMs production and sale of the
Swap 100MB disk, a cartridge that AMM claims can be used with certain of the
Companys Zip drives. The complaint requests monetary damages and other
relief against further infringement by AMM. On May 10, 2001, the Company filed a
motion for a preliminary injunction against AMM before the Tribunal de Grande
Instance de Paris. The motion sought injunctive relief against the continued
manufacture, marketing and sale by AMM of the Swap 100MB disk or other disks,
which infringe the Companys patent rights. On June 22, 2001, the Court
held a hearing regarding the Companys preliminary injunction motion. On
July 24, 2001, the Court granted the preliminary injunction against AMMs
commercialization of the Swap 100MB disk. AMM has changed its name from Albi
Media Manufacturing SARL to Advanced Mass Memories, SARL. The Company intends to
vigorously pursue these claims and to continue its protection of Iomega
intellectual property.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
May 25, 2001, Iomega filed a lawsuit against a French computer distributor,
Squale, before the Paris Tribunal de Grande Instance, alleging patent
infringement with respect to Squales 100 MB disk product. The Squale
product is a private label version of the AMM Swap 100MB disk and the Company
has brought the same claims against both companies. The first procedural hearing
in this matter is scheduled for September 6, 2001. The Company intends to
vigorously pursue these claims and to continue its protection of Iomega
intellectual property.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
July 12, 2001, Corner Stone Services, Inc. (CSS) filed a complaint
against Iomega, CSS, dba Corner Stone Services v. Iomega Corporation, et al., in
the California Superior Court for the County of Orange. CSS seeks damages
related to merchandizing services it allegedly rendered to the Company in late
2000 and early 2001. Iomegas answer is due August 11, 2001. The Company
intends to vigorously defend against this lawsuit.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Nomai/AMM Litigation:
| | ---------------------

| | Nomai
S.A. (Nomai) is a French subsidiary of the Company that was acquired
during the third quarter of 1998. As previously disclosed in the Companys
Annual Report on Form 10-K for the year ended December 31, 2000, and in the
Companys Quarterly Report on Form 10-Q for the quarter ended April 1,
2001, Nomai is currently engaged in several litigation matters that revolve
around (1) Nomais acquisition of certain assets of RPS Media S.A, in
bankruptcy in 1997 and its organization of AMM as a subsidiary to operate such
assets, (2) AMMs involvement in a research and development contract known
as the Magic project, and (3) Nomais subsequent disposition of
AMM in September 1999.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
February 18, 2000, Maître Jean Jacques Savenier, the Commissaire à
lexecution du Plan (bankruptcy trustee) for RPS Media, S.A., filed a
complaint against Nomai. Savenier claimed that Nomai has not complied with the
alleged investment and employment related commitments made by Nomais
former management before the Commercial Court of Albi, France in connection with
Nomais acquisition during 1997 of certain assets of RPS Media in
bankruptcy. The action sought a daily penalty against Nomai of FF 100,000
(approximately $13,500) until Nomai invests FF 48 million (approximately $6.5
million) and hires 100 people. An initial hearing before the Commercial Court
was held on April 4, 2000. On April 18, 2000, the Commercial Court declined, on
jurisdictional grounds, to issue a summary judgment ruling in favor of Savenier.
On February 16, 2001, Savenier filed a new complaint with the Commercial Court,
again asking that the Court order AMM and Nomai to comply with the alleged
employment and investment commitments set forth in the bankruptcy plan or to
fine AMM and Nomai FF 100,000 (approximately $13,500) for each day of
noncompliance. The next hearing in the case is scheduled for September 2001.
Nomai intends to vigorously defend against these allegations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
May 18, 2000, Conseil & Technique, Soterem and IDCC (parties involved with
AMM in the Magic project) filed a lawsuit before the Commercial Court of
Toulouse, France against AMM. Nomai is obligated to indemnify for and defend
against the lawsuit under the agreement whereby Nomai divested its ownership of
AMM to its new owner, Alain Bouttier. Neither Iomega nor Nomai are named parties
to the lawsuit. The lawsuit alleges breach of contract and other claims relating
to the Magic project. The plaintiffs claim total damages of approximately FF 75
million (approximately $10.3 million). The Court held hearings in the case on
June 26, 2000, November 13, 2000, February 5, 2001 and May 15, 2001. At the May
15, 2001 hearing, the Court consolidated this lawsuit with the second Magic
project lawsuit referenced below. The next hearing is scheduled for September 3,
2001. Based on the indemnification obligations described above, Nomai intends to
vigorously defend against these allegations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
January 3, 2001, Nomai was served with a notice of arbitration from Computer
Memories Storage, SARL (CMS), the holding company organized by Alain
Bouttier to own AMM. On February 26, 2001, CMS and AMM filed their complete
request for arbitration. Their action is based on alleged breaches by Nomai of
the agreement whereby Nomai divested its ownership of AMM to Mr. Bouttier. In
particular, CMS and AMM claim that AMM suffered damages as a result of (i)
Nomais treatment of AMM assets prior to the sale to Mr. Bouttier and (ii)
alleged breaches by Nomai of certain post-disposition obligations to AMM. CMS
and AMM seek the nullification of non-competition obligations between AMM and
Nomai and claim damages of approximately FF 142 million (approximately $19.5
million). These claims overlap with those asserted in the Savenier and Magic
matters described above. The arbitration will be heard before a three-member
arbitration panel in Paris. The arbitration panel has been appointed and is
commencing the proceeding. On April 20, 2001, Nomai filed a statement of
defenses and certain counterclaims against CMS and AMM. On May 28, 2001, the
parties approved the arbitrators terms of reference, which set the
schedule for pleadings and hearings. Nomai intends to vigorously defend against
these allegations.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
January 19, 2001, the Commercial Court of Coutances, France, which has
jurisdiction over Nomais commercial registration, ordered Nomai to appear
at a hearing before the Court on February 6, 2001. The purpose of the hearing
was to evaluate Nomais solvency, and, if Nomai were found insolvent, to
start a judicial reorganization proceeding. The Court ordered Nomai to provide
documentation related to its solvency before a hearing, which was held on April
24, 2001. On May 29, 2001, the Court ruled against placing Nomai into
bankruptcy.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
March 29, 2001, Conseil & Technique filed a lawsuit before the Tribunal de
Commerce of Toulouse against Iomega International, S.A. and Nomai. This lawsuit
is based on the same matter as the Magic project lawsuit against AMM described
above. Conseil & Technique claims that Nomai and Iomega International
sabotaged the Magic project and interfered with AMMs performance of the
agreements underlying the Magic project to prevent the development of a
competing product. The lawsuit asks the court to recognize Conseil &
Technique as the owner of the intellectual property rights in the Magic project
and to award damages against Nomai and/or Iomega International totaling
approximately FF 8 million (approximately $1.1 million). On June 19, 2001, the
Court held a procedural hearing. As noted above, the two Magic project lawsuits
have now been consolidated. Iomega International, S.A. and Nomai intend to
vigorously defend against these allegations.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
May 28, 2001, the French Direction Générale de la Concurrence, de la
Consommation et de la Répression des Fraudes (DGCCRF) held a
hearing in Albi regarding a competition law complaint brought by AMM against
Iomega International, S.A. and Iomega Corporation. DGCCRF is a French consumer
protection and competition agency. The complaint alleges that the two Iomega
companies have violated competition restrictions through the following acts: (1)
abusive patent application filings; (2) applying legal and financial pressures
on AMM; (3) initiating commercial nuisances against AMM; and (4) unlawfully
controlling product pricing. To date, the Company has not been contacted by the
DGCCRF regarding this investigation. Iomega International, S.A. and Iomega
Corporation intend to vigorously defend against these allegations.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
May 30, 2001, AMM filed a lawsuit against Iomega International, S.A. and Iomega
Corporation before the Tribunal de Commerce of Albi. The complaint claims that
Iomega International and Iomega Corporation jointly committed fraudulent acts
against AMM and that, as a result, AMM suffered damages of FRF 129 million
(approximately USD $ 16.5 million). The Court has scheduled an initial hearing
for September 28, 2001. Iomega International, S.A. and Iomega Corporation intend
to vigorously defend against these allegations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | On
June 28, 2001, AMM filed an anti-competition complaint with the Conseil de la
Concurrence (Competition Council). AMM alleged that Iomega Corporation and
Iomega International, S.A. have a dominant position in the Zip media
market and that the Iomega companies have abused this position through
anti-competitive practices. The Competition Council held an initial meeting with
AMM on July 10, 2001. The Competition Council held a similar meeting with Iomega
representatives on July 31, 2001. A hearing before the Competition Council is
scheduled for August 29, 2001. The Company intends to vigorously defend against
these allegations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

## (8)         OTHER
MATTERS

| | Significant
Customers -During the quarter ended July 1, 2001, sales to Ingram Micro,
Inc. and Dell Computer Corporation accounted for 16.3%, and 10.3% of
consolidated sales, respectively. Ingram Micro, Inc. and Tech Data Corporation
accounted for 20.6% and 12.1% of sales, respectively, for the quarter ended June
25, 2000. No other single customer accounted for more than 10% of consolidated
sales for these periods.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During  the six  months  ended  July 1,  2001,  sales to Ingram  Micro,  Inc.,  accounted  for  14.6%,
consolidated  sales.  Ingram Micro,  Inc.  accounted for 14.7 % of sales for the six months ended June 25,
2000.  No other single customer accounted for more than 10% of consolidated sales for these periods.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | When
hedging balance sheet exposure, all gains and losses on forward contracts are
recognized in other income and expense in the same period as the gains and
losses on remeasurement of the foreign currency denominated assets and
liabilities occur. All gains and losses related to foreign exchange contracts
are included in cash flows from operating activities in the consolidated
statement of cash flows. The Company typically enters into its foreign exchange
forward contracts a few days before its quarter ends, therefore the change in
value in the contracts that must be recognized in the financial statements is,
under normal circumstances, immaterial.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At July 1, 2001, outstanding forward exchange purchase (sales) contracts, which all
mature in September 2001, were as follows (Rates are quoted as United States
dollar per other currency unit):
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

                European Currency Unit                (3,900,000)              1.16              1.17
                Japanese Yen                        (138,000,000)            123.32            124.75
                Australian Dollar                       (150,000)              1.94              1.96
                Singapore Dollar                       1,400,000               1.82              1.82
                Swiss Franc                           (2,600,000)              1.75              1.80
                British Pound                           (250,000)               .71               .71`

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

## (9)         SUBSEQUENT
EVENTS

| | Anticipated Third Quarter 2001 Restructuring and Other Actions
| | --------------------------------------------------------------

| | The Company expects to record restructuring and other charges during the third
quarter of 2001 in the range of $55 million to $65 million in connection with
the following restructuring and other actions:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o   Adjust the Companys operating structure in accordance with revenue
expectations, reduce the Companys break-even point and improving operating
cash flow;
o   Reduce the Companys global workforce in all functional areas during the
second half of 2001 by approximately 1,250 persons, from 3,300 employees to
2,050 employees;
o   Streamline the Companys supply chain and logistics strategy, including the
closure of the Companys distribution facility in North Carolina.
o   Consolidate labor-intensive tasks into Malaysia;
o   Consolidate the Company's  operations and facilities,  including the relocation of Corporate  Headquarters to the West Coast; and
o   Revise the Company's product strategy.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company expects approximately $43 million of these charges to be cash charges
with the remaining $22 million expected to be non-cash charges. The Company
expects that these actions, when fully implemented over the remainder of the
year, will result in net annual cost reductions of approximately $65 million,
beginning in 2002. Further detail of the expected third quarter charges is
provided below:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Approximate
           Description of Expected Third Quarter Charges                                       Amount
         --------------------------------------------------                                -----------
                                                                                          (In millions)

         Worldwide workforce reduction charges                                                  $ 16
         Lease terminations                                                                       10
         Lease-related asset write-offs                                                           10
         Contract terminations                                                                    14
         Manufacturing, information technology and other asset write-offs                         12
         Other miscellaneous charges                                                               3
                                                                                                ----
                                                                                         Up to  $ 65
                                                                                                ====`

| | Reverse Stock Split
| | -------------------

| | On July 19, 2001, the Company also announced that its Board of
Directors approved, and has recommended to the Companys shareholders for
their approval, a one-for-five reverse stock split of the Companys
outstanding shares of Common Stock. A special meeting of shareholders will be
convened on September 28, 2001 at 9 a.m. Mountain Standard Time at the
Companys Roy, Utah headquarters to obtain shareholder approval for the
reverse stock split. If the reverse stock split is approved, every five
outstanding shares of Common Stock will be automatically changed into one share
of Common Stock, thereby reducing approximately 273 million shares of Common
Stock currently outstanding to approximately 55 million shares.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## IOMEGA
CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

## BUSINESS
SEGMENT INFORMATION

The accounting policies of
the segments are the same as those described in Note 1 of Notes to the Condensed
Consolidated Financial Statements Significant Accounting Policies.
Intersegment sales, eliminated in consolidation, are not material. The Company
evaluates performance based on product profit margin for each segment. Product
profit margin is defined as sales and other income directly related to a
segments operations, less both fixed and variable manufacturing costs,
research and development expenses and selling, general and administrative
expenses directly related to a segments operations. When such costs and
expenses exceed sales and other income, product profit margin is referred to as
product loss. The expenses attributable to corporate activity are not allocated
to the operating segments.

The Company has four
reportable segments based primarily on the nature of the Companys
customers and products: Zip®, Jaz®, Iomega® CD-RW and
PocketZipTM. The Zip segment involves the development, manufacture,
distribution and sales of personal storage products and applications, including
Zip disk and drive systems to retailers, distributors and OEMs throughout the
world. The Zip segment also includes the development, manufacture, distribution
and sales of FotoShowTM digital image centers, which were introduced
during the third quarter of 2000. The Jaz segment involves the development,
manufacture, distribution and sales of professional storage products and
applications, including Jaz disk and drive systems to resellers, distributors
and retailers throughout the world. The Companys CD-RW segment involves
the distribution and sales of CD-RW drives to retailers, distributors and
resellers throughout the world. The PocketZip segment involves the development,
manufacture, distribution and sales of PocketZip drives and disks for use with
portable digital products such as digital cameras, audio players, handheld
personal computers and notebook computers to retailers, distributors, OEMs and
resellers throughout the world. The PocketZip segment also includes the
development, manufacture, distribution and sales of HipZipTM digital
audio players, which were introduced during the third quarter of 2000.

The Other
category includes: PeerlessTM drive systems, which began shipping
during the second quarter of 2001; branded products such as Iomega
MicrodriveTM miniature hard drives, Iomega CompactFlashTMand Iomega SmartMediaTM memory cards and DataSafeTM network
attached storage servers; LifeworksTM software and Iomega
QuikSyncTM software; Ditto® tape products and other
miscellaneous items.

During the second quarter
of 2001, the Company recorded non-restructuring charges of $46.0 million, of
which $44.9 million was charged to the respective product lines as cost of
sales. These charges primarily reflected write-downs of HipZip, FotoShow and
CD-RW inventory and equipment and loss accruals for related supplier purchase
commitments. See the non-restructuring charges discussion below for more
information.

The information in the
following table is derived directly from the segments internal financial
information used for corporate management purposes.

## Reportable
Operating Segment Information:

`For the Quarter Ended        For the Six Months Ended
                                                         -------------------------      ---------------------------
                                                          July 1,         June 25,        July 1,        June 25,
                                                            2001             2000          2001             2000
                                                         ---------     -----------      ----------       ----------
                                                               (In thousands)                   (In thousands)
       Sales:
          Zip                                             $145,207        $ 237,290      $ 349,692        $ 515,807
          Jaz                                               13,275           37,883         39,836           89,730
          CD-RW                                             18,258           24,585         62,742           35,363
          PocketZip                                          2,319            3,209          3,605            5,263
          Other                                              4,992              672          6,351            2,373
                                                          --------        ---------      ---------        ---------
             Total sales                                  $184,051        $ 303,639      $ 462,226        $ 648,536
                                                          ========        =========      =========        =========

       Product profit margin (loss) before
          charges/reversals:
          Zip                                             $ 34,469        $  69,615      $  89,328        $ 157,556
          Jaz                                                2,502           11,803         12,165           24,266
          CD-RW                                            (11,006)             656        (16,910)             552
          PocketZip                                         (5,098)          (3,257)       (13,151)         (12,126)
          Other                                             (7,324)          (2,406)       (13,669)          (4,769)
                                                         ---------        ---------      ---------         --------
             Total product profit margin                    13,543           76,411         57,763          165,479

       Common operating expenses without
          (charges) reversals allocated to
          product profit margin (loss):
          General corporate expenses                       (28,713)         (40,972)       (62,005)         (71,109)
          Restructuring (charges) reversals                 (1,086)           2,497         (1,086)           2,497
          Non-restructuring charges                        (45,986)               -        (45,986)          (7,400)
          Interest and other income, net                     4,068            3,230          9,329            4,463
                                                          --------        ---------      ---------        ---------
             Income (loss) before income taxes            $(58,174)       $  41,166      $ (41,985)       $  93,930
                                                          ========        =========      =========        =========`

`For the Quarter Ended          For the Six Months Ended
                                                        ---------------------------     ---------------------------
                                                          July 1,         June 25,        July 1,         June 25,
                                                           2001             2000           2001             2000
                                                        ----------      -----------     ----------       ----------
                                                               (In thousands)                   (In thousands)
       (Charges)/reversals:
          Restructuring:
             Jaz                                        $       -       $     1,597     $       -        $    1,597
             PocketZip                                          -               900             -               900
             Common                                        (1,086)                -        (1,086)                -
                                                        ----------      -----------     ----------       ----------
                                                        $  (1,086)      $     2,497     $  (1,086)       $    2,497
                                                        =========       ===========     ==========       ==========

          Non-restructuring:
             Zip                                        $ (13,366)      $         -     $ (13,366)       $        -
             CD-RW                                         (9,977)                -        (9,977)                -
             PocketZip                                    (17,926)                -       (17,926)           (7,400)
             Other                                         (3,667)                -        (3,667)                -
             Common                                        (1,050)                -        (1,050)                -
                                                        ---------       ------------    ---------        ----------
                                                        $ (45,986)      $         -     $ (45,986)       $   (7,400)
                                                        =========       ============    =========        ==========

       Product profit margin (loss) after
          charges/reversals:
          Zip                                           $  21,103       $    69,615     $  75,962        $  157,556
          Jaz                                               2,502            13,400        12,165            25,863
          CD-RW                                           (20,983)              656       (26,887)              552
          PocketZip                                       (23,024)           (2,357)      (31,077)          (18,626)
          Other                                           (10,991)           (2,406)      (17,336)           (4,769)
                                                        ---------       -----------     ---------        ----------
             Total product profit (loss) margin           (31,393)           78,908        12,827           160,576

       Common operating expenses with (charges)
       reversals allocated to product profit margin
       (loss):
          General corporate expenses                      (28,713)          (40,972)      (62,005)          (71,109)
          Restructuring charges                            (1,086)                -        (1,086)                -
          Non-restructuring charges                        (1,050)                -        (1,050)                -
          Interest and other income, net                    4,068             3,230         9,329             4,463
                                                        ---------       -----------     ---------        ----------
             Income (loss) before income taxes          $ (58,174)      $    41,166     $ (41,985)       $   93,930
                                                        =========       ===========     =========        ==========`

## NON-RESTRUCTURING
CHARGES

During the second quarter
of 2001, the Company recorded non-restructuring charges of $46.0 million,
primarily reflecting write-downs of HipZip, FotoShow and CD-RW inventory and
equipment and loss accruals for related supplier purchase commitments. In the
first quarter of 2000, the Company recorded non-restructuring charges of $7.4
million primarily reflecting write-downs of Clik! inventory and equipment and
loss accruals for related supplier purchase commitments. A breakdown of the
charges is included in the table below:

`Financial
                                                                                    Statement
           Description of Non-Restructuring Charges                 Amount          Category
         ---------------------------------------------            ---------       -----------
                                                                 (In millions)

         Q2 2001
         -------
         Products:
            Zip                                                   $    4.5        Cost of sales
            FotoShow (part of Zip segment)                             8.9        Cost of sales
            CD-RW                                                     10.0        Cost of sales
            HipZip (part of PocketZip segment)                        17.9        Cost of sales
            Other (primarily sourced products)                         3.6        Cost of sales
                                                                  --------
                                                                      44.9
         Separation agreement                                          1.1          S,G and A
                                                                  --------
                                                                  $   46.0
                                                                  ========

         Q1 2000
         -------
         Excess PocketZip disk manufacturing capacity             $    3.7        Cost of sales
         PocketZip PC Card drive inventory NRV                         2.8        Cost of sales
         Excess PocketZip PC Card drive manufacturing
             equipment                                                 0.6        Cost of sales
         PocketZip PC Card drive purchase commitments                  0.3        Cost of sales
                                                                  --------
                                                                  $    7.4
                                                                  ========

         S,G and A = Selling, general and administrative expenses
         NRV = Net realizable value`

The Company evaluates the
carrying value of inventory on a quarterly basis to determine if the carrying
value is recoverable at estimated selling prices. The Company includes material
costs, manufacturing costs and direct selling expenses in its analysis of
inventory realization. To the extent that estimated selling prices do not exceed
such costs and expenses, valuation reserves are established. The Company
generally considers that inventory on hand or with suppliers which is not
expected to be sold within the next nine months as excess and thus appropriate
reserves are established. Inventory reserves recorded in the second quarter of
2001 amounted to $16.8 million. Loss accruals for related supplier purchase
commitments amounted to $18.3 million. Additional accruals of $2.2 million were
recorded to reflect valuation reserves for inventory in the channel. Also
included in the non-restructuring charges above is $7.6 million reflecting the
extent to which undiscounted future cash flows are expected to be less than the
net book value of related manufacturing equipment.

The Company began shipping
a USB Zip 100MB drive in the fourth quarter of 2000. This product is being
replaced by two new lower cost drives in the third quarter of this year. As a
result of sales not meeting prior Company forecasts, which has caused the
Company to change future expectations, and the transition to the new lower cost
drives, the Company recorded inventory reserves of $1.4 million; loss accruals
of $1.3 million for supplier purchase commitments and write-downs of related
manufacturing equipment amounting to $1.8 million.

The Company began shipping
the FotoShow digital viewer in the third quarter of 2000. The target market for
this product is digital camera users. The Company was unsuccessful in its
efforts to market this product to these users through both existing and new
channels. As a result sales have not met the Companys prior expectations,
which has caused the Company to change future expectations. As a result, the
Company recorded inventory reserves of $3.7 million; loss accruals of $5.0
million for supplier purchase commitments and write-downs of related
manufacturing equipment amounting to $0.2 million.

The Company has been
shipping CD-RW products since August 1999. Most of the Companys CD-RW
drives are purchased from suppliers and marketed under the Iomega name without
significant manufacturing activity by the Company. Due to intense competitive
pricing pressures in the CD-RW market, prices have fallen faster for CD-RW
products than the Company anticipated, particularly during the second quarter of
2001. The Company was unable to negotiate lower prices with vendors at the same
rate as external prices to its customers declined. As a result, the Company
recorded inventory reserves of $4.4 million; loss accruals of $2.9 million for
supplier purchase commitments; $1.8 million of reserves for channel inventory
exposures and write-downs of related manufacturing equipment amounting to $0.9
million.

The Company began shipping
the HipZip digital audio player late in the third quarter of 2000. Sales volumes
during 2001 did not meet the Companys expectations, which caused the
Company to change future expectations. The digital audio player market has been
saturated with othercompetitive product offerings. As a result, during
the second quarter of 2001, the Company recorded inventory reserves of $4.6
million; loss accruals of $9.1 million for supplier purchase commitments and
write-downs of related manufacturing equipment amounting to $4.2 million.

Charges taken for Other
products were primarily for sourced products such as Microdrive, Magneto-Optical
drives in Europe, CompactFlash and SmartMedia, which the Company began selling
in the first quarter of 2001. As a result of sales not meeting prior
expectations, which has caused the Company to change future expectations, the
Company recorded inventory reserves of $2.7 million and reserves of $0.4 million
for channel inventory exposures. The Company also wrote-down other excess
miscellaneous manufacturing equipment amounting to $0.5 million.

During the second quarter
of 2001, an accrual of $1.1 million was recorded reflecting the separation
agreement between Mr. Bruce Albertson, who resigned as President and Chief
Executive Officer, and the Company.

The $7.4 million of
non-restructuring charges recorded in the first quarter of 2000 were comprised
of $3.7 million for excess PocketZip disk manufacturing capacity, $2.8 million
to reflect a reduction in the estimated net realizable value of PocketZip PC
Card drive inventory, $0.6 million for excess PocketZip PC Card drive
manufacturing capacity and $0.3 million for PocketZip PC Card drive purchase
commitments. The $3.7 million excess PocketZip disk manufacturing capacity was
due to the Company not achieving or expecting to achieve its overall disk sales
volumes. As a result, undiscounted future cash flows were not expected to enable
recovery of the carrying value of the equipment. The $2.8 million in PocketZip
PC Card drive inventory charges was due to a reduction in the estimated net
realizable value of PocketZip PC Card drives because expected undiscounted cash
flows would not enable recovery of costs.

## RESTRUCTURING
CHARGES

Second Quarter 2001 Restructuring Actions.

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

During the second quarter
of 2001, the Company also reorganized its Singapore operations, which resulted
in a reduction of 14 employees in sales, marketing, logistics and technical
support. This reduction resulted in an accrual of $0.3 million for severance and
benefits. The cost savings associated with this headcount reduction were not
significant.

The second quarter 2001 restructuring charges are summarized below:

`Utilized
 Second Quarter 2001                            Original    -----------------------         Balance
Restructuring Actions                          Charge (a)     Cash        Non-Cash          07/01/01
      --------------------------------                     ----------   ---------     ---------         --------
                                                                           (in thousands)

      U.S. Manufacturing:
              Severance and benefits                        $   834     $       -     $       -         $   834
                                                            -------     ---------     ---------         -------

      Singapore Reorganization:
              Severance and benefits                            252             -             -             252
                                                            -------     ---------     ---------         -------
                                                            $ 1,086     $       -     $       -         $ 1,086
                                                            =======     =========     =========         =======

      Balance Sheet Breakout:
             Other current liabilities                      $ 1,086     $       -     $       -         $ 1,086
                                                            =======     =========     =========         =======

         (a)  Amounts represent primarily cash charges.`

Anticipated Third Quarter 2001 Restructuring and Other Actions.

The Company expects to
record restructuring and other charges during the third quarter of 2001 in the
range of $55 million to $65 million in connection with the following
restructuring and other actions:

o   Adjust the Companys operating structure in accordance with revenue
expectations, reduce the Companys break-even point and improving operating
cash flow;
o   Reduce the Companys global workforce in all functional areas during the
second half of 2001 by approximately 1,250 persons, from 3,300 employees to
2,050 employees;
o   Streamline the Companys supply chain and logistics strategy, including the
closure of the Companys distribution facility in North Carolina.
o   Consolidate labor-intensive tasks into Malaysia;
o   Consolidate the Company's  operations and facilities,  including the relocation of Corporate  Headquarters to the West Coast; and
o   Revise the Company's product strategy.

The Company expects
approximately $43 million of these charges to be cash charges with the remaining
$22 million expected to be non-cash charges. The Company expects that these
actions, when fully implemented over the remainder of the year, will result in
net annual cost reductions of approximately $65 million, beginning in 2002.
Further detail of the expected third quarter charges is provided below:

`Approximate
           Description of Expected Third Quarter Charges                                     Amount
         --------------------------------------------------                              ------------
                                                                                         (In millions)

         Worldwide workforce reduction charges                                                  $ 16
         Lease terminations                                                                       10
         Lease-related asset write-offs                                                           10
         Contract terminations                                                                    14
         Manufacturing, information technology and other asset write-offs                         12
         Other miscellaneous charges                                                               3
                                                                                                ----
                                                                                         Up to  $ 65
                                                                                                ====`

1999 Restructuring Actions.

During 1999, the Company
recorded pre-tax restructuring charges of $65.8 million as a result of steps the
Company was taking to organize along functional lines, (for example,
manufacturing, sales, etc.) consolidate manufacturing and other facilities,
discontinue certain products and refocus the Clik! product platform on the newer
PC Card and OEM drives. Of the $65.8 million in total pre-tax restructuring
charges, $14.1 million related to inventory and inventory commitments and was
recorded in cost of sales. The $14.1 million charge was composed of $6.4 million
related to inventory and inventory commitments associated with discontinuing the
Buz multimedia producer and a Jaz development project and $7.7 million of
restructuring charges related to inventory and inventory commitments associated
with Clik! product streamlining. The remaining $51.7 million was reported
separately.

Of the $65.8 million of
pre-tax restructuring charges, $41.9 million was recorded in the second quarter
of 1999 of which $2.0 million was reversed in the fourth quarter of 1999, and
$20.5 million and $5.4 million in restructuring charges were recorded in the
third and fourth quarters of 1999, respectively.

Second Quarter 1999
Restructuring Actions. These actions included the exit of facilities,
headcount reductions, the discontinuance of certain products and development
projects and consolidation of the Companys magnetic technology expertise
at its headquarters in Roy, Utah. The actions relating to the exit of facilities
included closing the Companys facilities in Milpitas, California and San
Diego, California, where primarily research and development activities were
conducted for Clik! and Jaz. Also included in the restructuring actions was the
consolidation of the Companys operations in France and Scotland. The
consolidation of operations in France and Scotland resulted in the closure of a
sales office in Paris, France and a research facility in Scotland. This
restructuring charge consisted of cash and non-cash charges of approximately $18
million and $24 million, respectively. There were not any indications of
permanent impairment of the assets prior to the restructuring actions.

The Company planned on
terminating the employment of 450 individuals in connection with the second
quarter 1999 restructuring actions. Through December 31, 1999, the Company had
terminated the employment of 355 regular and temporary employees, consisting
primarily of operations and product development employees located in Milpitas
and San Diego, California and Roy, Utah, sales personnel located in Paris,
France and product development employees located in Scotland. The Company
recorded charges of $10.7 million for these workforce reduction actions. Due to
attrition and a strong job market, a number of positions planned for elimination
were voluntarily vacated, which resulted in a $2.0 million reversal of severance
and benefit reserves in the fourth quarter of 1999.

The Company estimated that
annual cost savings would approximate $40 million when these actions were fully
implemented. The savings were expected to primarily result from reductions in
salaries, rent and depreciation. However, it was also anticipated that these
savings would be offset by increased spending in other areas such as
advertising.

At December 31, 1999, the
Company had terminated all affected employees, abandoned all facilities, ceased
utilization of all fixed assets and ceased development and operations related to
products and projects associated with the restructuring actions.

During the second quarter
of 2000, the Company reversed $1.6 million of restructuring reserves associated
with the discontinuance of development projects. The excess restructuring
reserves were a result of negotiating reductions in purchase commitments or
cancellation charges on inventory and vendor equipment and higher than expected
proceeds from equipment disposals.

The remaining $1.4 million
of restructuring reserves which relate to contractual obligations associated
with performance guarantees that would not be met as a result of consolidating
the Companys operations in France, are in litigation and therefore have
not been settled. The Company is unable to predict when the litigation will be
resolved.

Second Half 1999
Restructuring Actions.During the third quarter ended September 26, 1999,
the Company recorded a pre-tax restructuring charge of $20.5 million as a result
of restructuring actions initiated to consolidate worldwide Clik! disk
manufacturing and refocus the Clik! product platform on the newer PC Card and
OEM drives which resulted in the Companys discontinuance of the Clik!
Mobile drive. Of the $20.5 million, $7.7 million related to inventory and
inventory commitments associated with Clik! product streamlining and was
recorded in cost of sales. An additional charge of $5.4 million, primarily for
severance and benefits and write-offs of other prepaid administrative expenses
related to the shutdown of Avranches, was taken in the fourth quarter of 1999 in
connection with the cessation of the Avranches, France operations where Clik!
disks were manufactured.

These restructuring charges
consisted of cash and non-cash charges of approximately $9 million and $17
million, respectively. There were not any indications of permanent impairment of
the assets prior to the restructuring actions.

The Company did not
anticipate material ongoing cost savings from the second half restructuring
actions.

In connection with the
Companys 1999 second half restructuring actions, the Company had a
workforce reduction of approximately 123 regular and temporary employees,
consisting primarily of operations employees in Avranches, France and product
development employees in Longmont, Colorado. The Company had originally
estimated the termination of employment of 140 employees. The Company recorded
charges of $4.3 million for these workforce reduction actions in the fourth
quarter of 1999.

Operations ceased in
Avranches, France during October 1999. As of December 31, 1999, the Company had
ceased all operations, ceased utilization of all facilities and fixed assets and
terminated the employment of all affected employees except for a few employees
necessary to wind up the Companys affairs.

During the second quarter
of 2000, the Company reversed $0.9 million of restructuring charges associated
with Clik! product streamlining as a result of the Company negotiating
reductions in purchase commitments.

The remaining $1.8 million
of restructuring reserves related to the manufacturing cessation of Avranches,
France consists of severance and benefits, and contract obligations which are
under dispute. The severance and benefits are anticipated to be utilized by the
end of 2001 while the contract obligations are being litigated and the Company
is unable to predict when the litigation will be resolved.

Remaining restructuring
reserves in the amount of $3.2 million are included in the Companys
balance sheet as of July 1, 2001 in other current liabilities. There was no
activity related to the 1999 restructuring reserves during the quarter ended
July 1, 2001. Utilization of the 1999 restructuring reserves during the six
months ended July 1, 2001 is summarized below:

`Utilized
                                                               Balance     -----------------------        Balance
                1999 Restructuring Actions                    12/31/00       Cash         Non-Cash        07/01/01
             ---------------------------------                --------     --------       --------       ---------
                                                                              (in thousands)
             France/Scotland Consolidation:
                Contract obligations (b)(c)                   $   1,414    $      -       $      -       $   1,414
                                                              ---------    --------       --------       ---------

             Manufacturing Cessation -
                Avranches, France:
                Trade receivables (a)                                47           -            (47)              -
                Other commitments (b)                               511        (356)           (62)             93
                Contract obligations (b)                          1,581           -              -           1,581

                Severance and benefits (b)                          495        (350)             -             145
                                                              ---------    --------       --------       ---------
                                                                  2,634        (706)          (109)          1,819
                                                              ---------    --------       --------       ---------

                                                              $   4,048    $   (706)      $   (109)      $   3,233
                                                              =========    ========       ========       =========

             Balance Sheet Breakout:
                Other current liabilities (b)                 $   4,001    $   (706)      $    (62)      $   3,233
                Trade receivables (a)                                47           -            (47)              -
                                                              ---------    --------       --------       ---------
                                                              $   4,048    $   (706)      $   (109)      $   3,233
                                                              =========    ========       ========       =========

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

## SEASONALITY

The Companys Zip
products are targeted primarily to the personal computer, consumer digital
electronic, OEM, enterprise and business professional markets. The
Companys Jaz products are targeted primarily to the business professional
market. The Companys CD-RW products are targeted to the retail consumer
and enterprise markets. The Companys PocketZip products are targeted to
the enterprise market, to various electronics device OEMs and to the retail
consumer markets. Management believes the markets for the Companys
products are generally seasonal, with a higher proportional share of total sales
typically occurring in the fourth quarter and sales slowdowns commonly occurring
during the second quarter and summer months. Accordingly, revenues and growth
rates for any prior quarter are not necessarily indicative of the revenues or
growth rates to be expected in any future quarter.

## RESULTS OF
OPERATIONS

The Company reported sales
of $184.1 million and a net loss of $35.9 million, or $0.13 per diluted share,
for the second quarter of 2001. Results for the second quarter of 2001 include
pre-tax non-restructuring charges totaling $46.0 million, primarily reflecting
write-downs of HipZip, CD-RW and FotoShow inventory and equipment, loss accruals
for related supplier purchase commitments, and other charges and pre-tax
restructuring charges of $1.1 million. The 2001 second quarter results compared
to second quarter 2000 sales of $303.6 million and net income of $40.4 million,
or $0.15 per diluted share, which included $15.3 million, or $0.05 per diluted
share, attributable to a decrease in the valuation allowance for net deferred
tax assets and also included a pre-tax $2.5 million reversal of restructuring
reserves previously recorded in 1999.

For the six months ended
July 1, 2001, the Company reported sales of $462.2 million and a net loss of
$26.0 million, or $0.10 per diluted share. Results for the first six months of
2001 include pre-tax non-restructuring charges totaling $46.0 million, primarily
reflecting write-downs of HipZip, CD-RW and FotoShow inventory and equipment,
loss accruals for related supplier purchase commitments, and other charges and
pre-tax restructuring charges of $1.1 million. Results for the six months ended
July 1, 2001 compared to the six months ended June 25, 2001, with sales of
$648.5 million and net income of $92.2 million, or $0.33 per diluted share,
which included $37.8 million, or $0.13 per diluted share, attributable to a
decrease in the Companys valuation allowance for net deferred tax assets,
and also included a pre-tax $2.5 million reversal of restructuring reserves
previously recorded in 1999.

## SALES

Sales for the quarter ended
July 1, 2001 of $184.1 million decreased $119.5 million, or 39.4%, when compared
to sales of $303.6 million for the second quarter of 2000. This decrease was
primarily a result of lower Zip drive and disk sales and lower Jaz drive and
disk sales. Total drive sales of $115.8 million decreased by 31.9% compared to
the second quarter of 2000. Total drive units shipped (excluding licensees) for
the quarter ended July 1, 2001 decreased by 22.7% compared to the second quarter
of 2000. Total disk sales of $66.0 million decreased by 49.2% compared to the
second quarter of 2000. Total disk units shipped for the quarter ended July 1,
2001 decreased by 39.9% compared to the second quarter of 2000. In addition to
lower drive and disk shipments, the decrease in revenue was impacted by price
reductions and rebates, the majority associated with Zip products, which
reflected the Companys strategy to gain increased market penetration for
its Zip products.

Zip product sales for the
second quarter of 2001 totaled $145.2 million, representing a decrease of $92.1
million, or 38.8%, compared to sales of $237.3 million for the second quarter of
2000. Sales of Zip products represented 78.9% of total sales for the second
quarter of 2001, compared to 78.1% for the second quarter of 2000. Zip drive
sales of $88.2 million for the second quarter of 2001 decreased by $38.7
million, or 30.5%, from $126.9 million in the second quarter of 2000. The
Companys Zip drive units shipped decreased by 25.7% from the second
quarter of 2000. Zip drive units shipped to aftermarket channels dropped 32.3%
while aftermarket channel revenue dropped 30.5% compared to the second quarter
of 2000. Zip drive units shipped to OEMs decreased 19.1% while OEM revenue
decreased 14.9% when compared to the second quarter of 2000, due to increased
sales mix of higher priced Zip 250MB drives to OEMs during the second
quarter of 2001. Shipments of Zip OEM drives accounted for approximately 55% of
total Zip drive shipments in the second quarter of 2001, compared to
approximately 50% in the second quarter of 2000. Zip disk units shipped
decreased by 39.7% from the second quarter of 2000. Zip disk revenue of $56.4
million for the second quarter of 2001 decreased by $52.6 million, or 48.3%,
from $109.0 million for the second quarter of 2000. When compared to the second
quarter of 2000, lower units shipped, net of favorable product mix, accounted
for $62.0 million of the decrease in Zip product revenue and pricing actions
accounted for $30.1 million of the decrease in Zip product revenue.

Jaz product sales for the
second quarter of 2001 totaled $13.3 million, representing a decrease of $24.6
million or 65% compared to sales of $37.9 million for the second quarter of
2000. Sales of Jaz products represented 7.2% of total sales for the second
quarter of 2001, compared to 12.5% for the second quarter of 2000. Jaz drive and
disk units shipped decreased by 61.8% and 55.1%, respectively, when compared to
the second quarter of 2000. Lower units shipped and pricing actions accounted
for $23.2 million and $1.4 million, respectively, of the decrease in Jaz revenue
when compared to the second quarter of 2000.

CD-RW product sales for the
second quarter of 2001 totaled $18.3 million, representing a $6.3 million, or
25.7%, decrease compared to sales of $24.6 million for the second quarter of
2000. Sales of CD-RW products represented 9.9% of total sales for the second
quarter of 2001 compared to 8.1% for the second quarter of 2000. CD-RW units
shipped increased 20% compared to the second quarter of 2000. When compared to
the second quarter of 2000, pricing actions of $11.1 million resulting from
pricing actions taken to meet competitive pressures were partially offset by
$4.8 million of additional revenue from higher units shipped.

PocketZip product sales for
the second quarter of 2001 totaled $2.3 million, representing a decrease of $0.9
million, or 27.7%, compared to sales of $3.2 million for the second quarter of
2000. Sales of PocketZip products represented 1.3% of total sales in the second
quarter of 2001, compared to 1.1% for the second quarter of 2000. PocketZip
drive units shipped increased 26.9% compared to the second quarter of 2000,
while PocketZip disks units shipped decreased by 23.6%. Pricing actions
accounted for $1.7 million of the lower revenue and was partially offset by $0.8
million from higher units shipped, primarily drives, resulting in the lower
PocketZip revenue when compared to the second quarter of 2000.

Geographically, sales in
the Americas totaled $124.4 million, or 67.6% of total sales, in the second
quarter of 2001, compared to $195.4 million, or 64.4% of total sales, in the
second quarter of 2000. This decrease was primarily due to lower Zip and Jaz
sales. Sales in Europe totaled $43.7 million, or 23.7% of total sales, in the
second quarter of 2001, compared to $78.4 million, or 25.8% of total sales, in
the second quarter of 2000. This decrease was primarily due to lower Zip and Jaz
sales. Sales in Asia totaled $16.0 million, or 8.7% of total sales, in the
second quarter of 2001, compared to $29.9 million, or 9.8% of total sales, in
the second quarter of 2000. This decrease was primarily due to lower Zip sales.

Sales for the six months
ended July 1, 2001 of $462.2 million decreased by $186.3 million, or 28.7%,
compared to sales of $648.5 million for the six months ended June 25, 2000. This
decrease was primarily a result of lower Zip drive and disk sales and lower Jaz
drive and disk sales, offset in part by higher CD-RW drive sales. Total drive
sales of $291.7 million decreased by 19.5% compared to the first six months of
2000. Total drive units shipped (excluding licensees) for the six months ended
July 1, 2001 decreased by 16.8% compared to the six months ended June 25, 2000.
Total disk sales of $165.4 million decreased by 40.6% compared to the first six
months of 2000. Total disk units shipped for the six months ended July 1, 2001
decreased by 31.7% compared to the six months ended June 25, 2000. In addition
to lower drive and disk shipments, the decrease in revenue was impacted by price
reductions and rebates, the majority associated with Zip products, which
reflected the Companys strategy to gain increased market penetration for
its Zip products.

Zip product sales for the
first six months of 2001 totaled $349.7 million, representing a decrease of
$166.1 million, or 32.2%, compared to sales of $515.8 million for the first six
months of 2000. Sales of Zip products represented 75.7% of total sales for the
first six months of 2001, compared to 79.5% for the first six months of 2000.
Zip drive sales of $208.7 million for the first six months of 2001 decreased by
$79.3 million, or 27.5%, from $288.0 million in the first six months of 2000.
The Companys Zip drive units shipped decreased by 23.4% from the first six
months of 2000. Zip drive units shipped to aftermarket channels dropped 30.4%
while aftermarket channel revenue dropped 27.5% compared to the first six months
of 2000. Zip drive units shipped to OEMs decreased 14.1% while OEM revenue
decreased 8.2% compared to the first six months of 2000, due to increased sales
mix of higher priced Zip 250MB drives to OEMs during the first six months
of 2001. Shipments of Zip OEM drives accounted for approximately 48.3% of total
Zip drive shipments in the first six months of 2001, compared to approximately
43.1% in the first six months of 2000. Zip disk units shipped decreased by 31.2%
from the first six months of 2000. Zip disk revenue of $140.2 million for the
six months ended July 1, 2001 decreased by $85.4 million, or 37.9%, from $225.6
million for the six months ended June 25, 2000. When compared to the first six
months of 2000, lower units shipped, net of favorable product mix, accounted for
$98.0 million of the decrease in Zip product revenue and pricing actions
accounted for $68.1 million and of the decrease in Zip product revenue.

Jaz product sales for the
six months ended July 1, 2001 totaled $39.8 million, representing a decrease of
$49.9 million, or 55.6%, compared to sales of $89.7 million for the six months
ended June 25, 2000. Sales of Jaz products represented 8.6% of total sales for
the first six months of 2001, compared to 13.8% for the first six months of
2000. Jaz drive and disk units shipped decreased by 51.7% and 50.7%,
respectively, when compared to the first six months of 2000. Lower units shipped
and pricing actions accounted for $47.0 million and $2.9 million, respectively,
of the decrease in Jaz revenue when compared to the first six months of 2000.

CD-RW product sales for the
six months ended July 1, 2001 totaled $62.7 million, representing an increase of
$27.3 million, or 77.4%, compared to sales of $35.4 million for the six months
ended June 25, 2000. Sales of CD-RW products represented 13.6% of total sales
for the first six months of 2001 compared to 5.5% for the first six months of
2000. CD-RW units shipped increased almost 1.5 times compared to the first six
months of 2000. Higher units shipped accounted for $44.1 million of the
increased sales and was partially offset by pricing actions of $16.7 million
resulting from pricing actions taken to meet competitive pressures when compared
to the first six months of 2000.

PocketZip product sales for
the six months ended July 1, 2001 totaled $3.6 million, representing a decrease
of $1.7 million, or 31.5%, compared to sales of $5.3 million for the six months
ended June 25, 2000. Sales of PocketZip products represented 0.8% of total sales
for both the first six months of 2001 and 2000. PocketZip drive units shipped
increased 17.5% compared to the first six months of 2000, while PocketZip disks
units shipped decreased by 31.0%. Pricing actions accounted for $2.2 million of
the lower revenue and was partially offset by $0.5 million from higher units
shipped, primarily drives, resulting in the lower PocketZip revenue when
compared to the first six months of 2000.

Geographically, sales in
the Americas totaled $315.7 million, or 68.3% of total sales, in the six months
ended July 1, 2001, compared to $412.9 million, or 63.7% of total sales, in the
six months ended June 25, 2000. This decrease was primarily due to lower Zip and
Jaz sales, partially offset by higher CD-RW sales. Sales in Europe totaled
$111.5 million, or 24.1% of total sales, in the six months ended July 1, 2001,
compared to $173.3 million, or 26.7% of total sales, in the six months ended
June 25, 2000. This decrease was primarily due to lower Zip and Jaz sales. Sales
in Asia totaled $35.0 million, or 7.6% of total sales, in the six months ended
July 1, 2001, compared to $62.3 million, or 9.6% of total sales, in the six
months ended June 25, 2000. This decrease was primarily due to lower Zip sales.

## GROSS MARGIN

The Companys overall
gross margin was $7.3 million, or 4.0%, in the second quarter of 2001, compared
to $120.0 million, or 39.5%, in the second quarter of 2000. This decrease in
gross margin of $112.7 million was due primarily to lower Zip, Jaz and CD-RW
revenue and non-restructuring charges of $44.9 million, primarily reflecting
writedowns of HipZip, CD-RW and FotoShow inventory and equipment and loss
accruals for related supplier purchase commitments and lower CD-RW gross
margins. Excluding the non-restructuring charges, gross margin for the second
quarter of 2001 was 28.4%. This gross margin percentage decrease from 39.5% for
the second quarter of 2000 resulted primarily from significantly lower CD-RW
gross margins caused by intense pricing pressures and from lower Zip margins
which declined from 43% in the second quarter of 2000 to approximately 40% in
the second quarter of 2001, largely a reflection of pricing actions.

The Companys overall
gross margin was $93.0 million, or 20.1%, in the six months ended July 1, 2001,
compared to $247.9 million, or 38.2%, in the six months ended June 25, 2000. The
decrease in gross margin of $154.9 million was due primarily to lower Zip and
Jaz revenue, lower CD-RW gross margins and non-restructuring charges of $44.9
million in 2001 offset in part by non-restructuring charges in 2000 of $7.4
million. Excluding the non-restructuring charges in both years the gross margin
for the first six months of 2001, was 29.8% compared to 39.4% for the first six
months of 2000. This gross margin percentage decrease resulted primarily from
lower CD-RW gross margins caused by intense pricing pressures and from lower Zip
margins which declined from 43% in the first six months of 2000 to approximately
39% in the first six months of 2001, largely a reflection of pricing actions.

Future gross margin
percentages will depend on: sales mix between aftermarket and OEM channels, as
OEM sales generally provide lower gross margins than sales through other
channels; sales mix of Zip 100MB and Zip 250MB drives and disks, as sales of Zip
250MB products have higher gross margins; sales volumes of Zip and Jaz disks,
which generate significantly higher gross margins than the corresponding drives;
the mix between disks and drives; the mix between Zip, Jaz, Peerless and
PocketZip products, as well as the mix of lower margin branded products such as
CD-RW, Microdrive, CompactFlash, DataSafe and SmartMedia; future pricing actions
or promotions; the impact of any future material cost reductions; the impact of
any rebate that may be implemented as part of the Rinaldi settlement (See Note 7
to the condensed consolidated financial statements for more information); the
ability to avoid further inventory and fixed asset charges; the ability to
accurately forecast future product demand; the ability to cover fixed costs
associated with recently introduced products such as HipZip, FotoShow and
Peerless; potential start-up costs associated with the introduction of new
products; price competition from other substitute third-party storage products;
and general economic conditions in the PC industry.

## SEGMENT
PRODUCT PROFIT MARGIN (LOSS) BEFORE CHARGES/REVERSALS

Zip segment product profit
margin for the second quarter of 2001 of $34.5 million decreased by $35.1
million, or 50.5%, compared to Zip segment product profit margin of $69.6
million for the second quarter of 2000, primarily from pricing actions and lower
units shipped. Product profit margin as a percentage of Zip sales decreased to
23.7% for the second quarter of 2001, compared to 29.3% for the second quarter
of 2001, primarily due to pricing actions.

Jaz segment product profit
margin for the second quarter of 2001 of $2.5 million decreased by $9.3 million,
or 78.8%, compared to Jaz segment product profit margin of $11.8 million for the
second quarter of 2000, primarily from lower units shipped and fixed costs
decreasing at a slower rate than revenue declined. Product profit margin as a
percentage of Jaz sales decreased to 18.8% for the second quarter of 2001,
compared to 31.2% for the second quarter of 2000, due to fixed costs decreasing
at a slower rate than revenue declined.

CD-RW segment product loss
for the second quarter of 2001 of $11.0 million represented an $11.7 million
reduction in profitability compared to a CD-RW segment product profit margin of
$0.7 million for the second quarter of 2000, primarily due to pricing actions as
a result of pricing pressure.

PocketZip segment product
loss of $5.1 million increased $1.8 million in the second quarter of 2001,
compared to a PocketZip segment product loss of $3.3 million in the second
quarter of 2000, primarily due to lower revenues resulting primarily from
pricing actions and from higher material costs.

Other product losses of
$7.3 million increased $4.9 million in the second quarter of 2001, compared to
Other product losses of $2.4 million in the second quarter of 2000, primarily
due to development costs associated with Peerless which began shipping late in
the second quarter of 2001.

Zip segment product profit
margin for the first six months of 2001 of $89.3 million decreased by $68.3
million, or 43.3%, compared to Zip segment product profit margin of $157.6
million for the first six months of 2000, primarily due to pricing actions and
lower units shipped. Product profit margin as a percentage of Zip sales
decreased to 25.5% for the first six months of 2001, compared to 30.5% for the
first six months of 2000, primarily due to pricing actions and lower units
shipped partially offset by favorable product mix.

Jaz segment product profit
margin for the first six months of 2001 of $12.2 million decreased by $12.1
million, or 49.8%, compared to Jaz segment product profit margin of $24.3
million for the first six months of 2000, primarily due to lower units shipped.
Product profit margin as a percentage of Jaz sales increased to 30.5% for the
first six months of 2001, compared to 27.0% for the first six months of 2000,
primarily due to lower warranty and repair costs and lower depreciation
expenses.

CD-RW segment product loss
for the first six months of 2001 of $16.9 million represented a $17.5 million
reduction in profitability compared to a CD-RW segment product profit margin of
$0.6 million for the first six months of 2000, primarily due to price reductions
and rebates as a result of pricing pressure.

PocketZip segment product
loss for the first six months of 2001 of $13.1 million increased $1.1 million,
compared to PocketZip segment product loss of $12.1 million for the first six
months of 2000, primarily due to lower revenues resulting primarily from pricing
actions.

Other product loss of $13.7
million increased $8.9 million for the first six months of 2001, compared to
Other product loss of $4.8 million for the first six months of 2000, primarily
due to development costs associated with Peerless which began shipping late in
the second quarter of 2001.

## SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Including Bad Debt)

Selling, general and
administrative expenses (including bad debt) of $55.2 million for the second
quarter of 2001 decreased by $14.1 million, or 20.4%, compared to $69.3 million
for the second quarter of 2000. The $14.1 million decrease in selling, general
and administrative expenses resulted primarily from a $6.8 million decrease in
marketing expenditures; a $4.8 million decrease in general and administrative
expenses due primarily to lower legal and system upgrade costs and to cost
cutting efforts; a $1.3 million decrease in bonus accruals and a $1.2 million
decrease due to cost efficiencies in the customer satisfaction function.
Selling, general and administrative expenses increased as a percentage of sales
to 30.0% for the second quarter of 2001, from 22.8% in the corresponding quarter
of 2000, as a result of lower sales in the second quarter of 2001.

Selling, general and
administrative expenses (including bad debt) of $115.9 million for the first six
months of 2001 decreased by $18.6 million, or 13.8%, compared to $134.5 million
for the first six months of 2000. The $18.6 million decrease in selling, general
and administrative expenses resulted primarily from a $6.4 million decrease in
bonus accruals; a $5.9 million decrease in marketing expenditures; a $4.9
million decrease in general and administrative expenses due to cost cutting
efforts and a $1.4 million decrease due to cost efficiencies in the customer
satisfaction function. Selling, general and administrative expenses increased as
a percentage of sales to 25.1% for the first six months of 2001, from 20.7% in
the corresponding period of 2000, as a result of lower sales during the first
six months of 2001.

## RESEARCH AND
DEVELOPMENT EXPENSES

Research and development expenses
of $13.2 million for the second quarter of 2001 decreased by $2.1 million, or
13.7%, when compared to $15.3 million for the second quarter of 2000. The lower
research and development expenses for the second quarter of 2001 was due
primarily to lower spending on Zip, Jaz, PocketZip and CD-RW development
projects partially offset by increased spending on the new Peerless drive system
and for software development projects. Research and development expenses
increased as a percentage of sales to 7.2% in the second quarter of 2001, from
5.0% in the second quarter of 2000 as a result of lower revenue.

Research and development
expenses of $27.3 million for the first six months of 2001 increased by $0.9
million, or 3.4%, when compared to $26.4 million for the first six months of
2000. The increase in research and development expenses for the first six months
of 2001 was due primarily to increased spending for the development of the new
Peerless drive system and for software development, partially offset by lower
Zip, Jaz and PocketZip development expenditures. Research and development
expenses increased as a percentage of sales to 5.9% in the first six months of
2001, from 4.1% in the corresponding period of 2000 primarily as a result of
lower revenue.

## INTEREST AND
OTHER INCOME AND EXPENSE

Interest income of $4.3
million in the second quarter of 2001 decreased $1.1 million from $5.4 million
in the second quarter of 2000. Lower interest rates during the second quarter of
2001 were partially offset by higher average cash balances. Interest income of
$9.6 million for the first six months of 2001 increased $0.7 million from $8.9
million for the first six months of 2000. Higher average cash and investment
balances during the first six months of 2001 were partially offset by lower
interest rates.

Interest expense of $0.1
million and $0.2 million during the second quarter and first six months of 2001,
respectively, decreased from $1.4 million and $2.8 million during the second
quarter and first six months of 2000, respectively. The lower interest expense
resulted from no debt balances in 2001 other than capital lease obligations of
$1.9 million compared to the second quarter of 2000, when the Company had $45.5
million in convertible subordinated notes outstanding and capital lease
obligations of $5.2 million. The convertible subordinated notes were paid off in
October 2000.

Included in other income
and expense were bank charges, miscellaneous royalty income, gains and losses on
disposal of assets and foreign currency gains and losses.

## INCOME TAXES

For the quarter ended July
1, 2001, the Company recorded an income tax benefit of $22.3 million on a
pre-tax loss of $58.2 million. The tax benefit for the second quarter of 2001
was calculated using an estimated annual effective tax rate of approximately
39%. This compares to an income tax provision of $0.8 million on pre-tax income
of $41.2 million representing a tax rate of 2% for the second quarter of 2000,
reflecting a $15.3 million decrease in the valuation allowance for net deferred
tax assets. Excluding the $15.3 million decrease in the valuation allowance, the
tax rate for the second quarter of 2000 was 39%.

The Companys current
deferred tax assets reflect temporary differences between the book and tax
treatment of current assets and liabilities, mainly reserves for accounts
receivable, inventories and accrued expenses. The non-current deferred tax
assets reflect temporary differences between the book and tax treatment of
non-current assets and liabilities, plus the tax benefit of tax credit
carryforwards and net operating loss carryforwards. At July 1, 2001, the Company
had $14.8 million of deferred tax assets related to domestic net operating loss
carryforwards, which reflect the tax benefit of approximately $37.9 million in
future domestic tax deductions. These carryforwards expire at various dates
beginning in 2020.

The Company continues to
maintain a full valuation allowance of $15.9 million for net deferred tax assets
related to foreign net operating loss carryforwards, which reflect the tax
benefit of approximately $36.3 million in future tax deductions. These
carryforwards expire at various dates beginning in 2004. These deferred tax
assets remain fully valued because their realization is dependent on earning
future foreign taxable income in the tax jurisdictions to which the net
operating loss carryforwards relate. The largest of these foreign net operating
loss carryforwards relates to the Companys French subsidiary, Nomai S.A.
This subsidiarys operations have been shut down. Therefore, the foreign
net operating loss carryforward related to Nomai S.A. is not likely to be
realized in the future.

Deferred tax liabilities  for estimated U.S.  federal and state taxes of $58.7 million and $55.4 million as of July
1, 2001 and December 31, 2000,  respectively,  have been accrued on unremitted  foreign  earnings of $150.6 million
and $142.0  million as of July 1, 2001 and December 31, 2000,  respectively.  U.S. taxes have not been provided for
unremitted  foreign  earnings  of $112  million.  These  earnings  are  considered  to be  permanently  invested in
non-U.S.  operations.  The additional  U.S. tax liability,  if such amounts were remitted,  would be  approximately
$44 million.  Cash dividends of unremitted  foreign  earnings to the U.S.  would be considered  taxable in the U.S.
for federal and state tax purposes at a rate of approximately 39%.

Net deferred tax assets for
the Company at July 1, 2001 are $29.0 million. The minimum amount of future
taxable income that would have to be generated to realize the net deferred tax
assets is approximately $75 million.

For the six-month period
ended July 1, 2001, the Company recorded an income tax benefit of $16.0 million
on a pre-tax loss of $42.0 million. The tax benefit for the first six months of
2001 was calculated using an estimated annual effective tax rate of
approximately 39%. This compares to an income tax provision of $1.7 million on
pre-tax income of $93.9 million representing a tax rate of 2% for the first six
months of 2000, reflecting a $37.8 million decrease in the valuation allowance
for net deferred tax assets. Excluding the $37.8 million decrease in the
valuation allowance, the tax rate for first six months of 2000 was 42%. Cash
paid for income taxes was $1.2 million and $1.4 million for the first six months
of 2001 and 2000, respectively.

## LIQUIDITY AND
CAPITAL RESOURCES

At July 1, 2001, the
Company had cash, cash equivalents and temporary investments of $359.9 million,
compared to $377.9 million at December 31, 2000, a decrease of $18.0 million or
4.8%.

At July 1, 2001, $144.6
million of cash, cash equivalents and temporary investments were on deposit in
the U.S. compared to $199.2 million at December 31, 2000.

At July 1, 2001, $215.3
million of cash, cash equivalents and temporary investments were on deposit in
foreign countries (primarily Western Europe) compared to $178.7 million at
December 31, 2000. Unremitted earnings of foreign subsidiaries amounted to
$262.5 million as of July 1, 2001. Cash dividends of unremitted foreign earnings
to the U.S. would be considered taxable in the U.S. for federal and state tax
purposes at a rate of approximately 39% (See Income Taxes above for
more detail).

Working capital of $378.4
million decreased by $11.8 million compared to $390.2 million at December 31,
2000. The Companys ratio of current assets to current liabilities of 2.5
to 1 at July 1, 2001 increased compared to 2.3 to 1 at December 31, 2000.

During the six months ended
July 1, 2001, cash used by operating activities amounted to $3.3 million, a
decrease of $157.6 million compared to cash provided from operating activities
of $154.3 million for the first six months of 2000. The decreased cash provided
from operating activities resulted primarily from lower operating results and
from changes in current assets and current liabilities as described below.

Accounts receivable
decreased in the first six months of 2001 primarily from lower sales. Inventory
decreased in the first six months of 2001 primarily due to inventory write-downs
of HipZip, FotoShow and CD-RW inventory. Accounts payable decreased primarily
from lower levels of purchasing that has resulted from lower sales volumes. The
decrease in other current liabilities was due to a combination of decreases in
accrued marketing, lower bonus accrual balances due to bonus payments made with
respect to 2000 and no accruals being made with respect to the first six months
of 2001 and decreases in various other accrued liabilities which were partially
offset by increases in inventory purchase commitments.

The Company believes that
its balance of cash, cash equivalents and temporary investments, together with
cash flow from operations and future sources of available financing, will be
sufficient to fund the Companys anticipated working capital requirements,
capital expenditures, previously announced stock repurchase program and cash
required for restructuring and other activities during the next twelve months.
However, cash flow from operations, investing activities and the precise amount
and timing of the Companys future financing needs, cannot be determined at
this time and will depend on a number of factors, including the market demand
for the Companys products, the Companys ability to stop its revenue
decline, worldwide economic conditions, the availability of critical components,
the progress of the Companys product development efforts and the success
of the Company in managing its inventory, trade receivables and accounts
payable.

Reverse Stock Split.
On July 19, 2001, the Company also announced that its Board of Directors
approved, and has recommended to the Companys shareholders for their
approval, a one-for-five reverse stock split of the Companys outstanding
shares of Common Stock. A special meeting of shareholders will be convened on
September 28, 2001 at 9 a.m. Mountain Standard Time at the Companys Roy,
Utah headquarters to obtain shareholder approval for the reverse stock split. If
the reverse stock split is approved, every five outstanding shares of Common
Stock will be automatically changed into one share of Common Stock, thereby
reducing approximately 273 million shares of Common Stock currently outstanding
to approximately 55 million shares.

## OTHER MATTERS

SEC Review. As
previously disclosed in the Companys Annual Report on Form 10-K for the
year ended December 31, 2000, and Form 10-Q for the quarter ended April 1, 2001,
in connection with a review of the Companys periodic SEC reports, the
Company has received comments from the staff of the SEC requesting various
supplemental information and certain additional disclosures. The staff has also
questioned aspects of the Companys accounting for its 1998 acquisition of
Nomai, the subsequent evaluation of impairment of goodwill relating to the Nomai
acquisition and the restructuring charges recorded by the Company in 1999.

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

The Companys
management believes that the Companys accounting for each of these
matters, which is described in the Companys 2000 Annual Report on Form
10-K, is in accordance with generally accepted accounting principles and
applicable accounting literature. However, there can be no assurance that the
Company will prevail in its position. If the Company does not prevail, the
Company may be required to restate its financial statements in order to adjust
the manner in which it has accounted for the Nomai acquisition, the subsequent
evaluation of the impairment of the goodwill relating to the Nomai acquisition
and the 1999 restructuring actions. The Company does not believe that any such
restatement would have a material adverse effect on the Companys current
financial condition or future results of operations.

Recent Accounting
Pronouncements.In July 2001, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 141,
Accounting for Business Combinations (SFAS 141). SFAS
141 establishes accounting and reporting standards for business combinations
initiated after June 30, 2001. It requires that all business combinations use
the Purchase Method of Accounting. Goodwill will continue to be initially
recognized as an asset in the financial statements and goodwill will be measured
as the excess of the cost of an acquired entity over the net of the amounts
assigned to assets acquired and liabilities assumed. An intangible asset
acquired in a business combination is recognized as an asset apart from goodwill
if that asset arises from contractual or other legal rights. SFAS 141 will not
have a material effect on the Companys results of operations, financial
position or liquidity.

In July 2001, the Financial
Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 142, Accounting for Goodwill and Intangible
Assets (SFAS 142). Under this statement, goodwill is not
amortized but rather is tested for impairment annually at the reporting unit
level. A recognized intangible asset is amortized over its useful life and
reviewed for impairment in accordance with Statement 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. A recognized intangible asset with an indefinite useful life is not
amortized until its life is determined to be finite. The provisions of this
Statement are required to be applied starting with fiscal years beginning after
December 15, 2001. The Company will adopt SFAS No. 142 beginning on January 1,
2002. Upon adoption, the Company will no longer book amortization of
approximately $3 million per year. The Company has not yet made a determination
of how much, if any, of the Companys existing goodwill is impaired under
SFAS No. 142 or what charges would have to be recorded upon the Companys
adoption of SFAS No. 142.

In April 2001, the Emerging
Issues Task Force (EITF) reached a consensus on Issue No. 00-25,
Vendor Income Statement Characterization of Consideration Paid to a
Reseller of the Vendors Products. This issue concluded that certain
consumer and trade sales promotion expenses are presumed to be a reduction of
the selling prices of the vendors products and therefore, should be
characterized as a reduction of revenue when recognized in the vendors
income statement. The provisions of this pronouncement are required to be
applied starting with fiscal years beginning after December 15, 2001. The
Company will adopt this pronouncement on January 1, 2002. Reclassification of
prior period financial statements is required if practical. This issue could
result in adjustments to net sales and selling, general and administrative
expenses though the extent of these reclassifications have not yet been
determined by the Company. The adoption of EITF 00-25 will have no impact on
operating income, net income, or earnings per share.

## FACTORS
AFFECTING FUTURE OPERATING RESULTS

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

The Companys business
strategy is substantially dependent on maximizing sales of its proprietary Zip,
Jaz, PocketZip and Peerless disks, which generate significantly higher margins
than the related drives. If this strategy is not successful, either because the
Company does not establish a sufficiently large installed base of product
drives, because the sales mix between disks and drives is below levels
anticipated by the Company, because another party succeeds in producing or
marketing disks that are compatible with any of the Companys drive
products without infringing the Companys proprietary rights or for any
other reason, the Companys sales would be adversely affected and its
results of operations would be disproportionately adversely affected.

Sales of Zip products have
accounted for a significant majority of the Companys revenue since 1996.
However, these sales may not be indicative of the long-term demand for Zip
products and, in the second quarter of 2001, Zip revenue decreased approximately
39% from second quarter of 2000. The level of future shipments of Zip drives to
OEM customers will depend in great part on the Companys ability to further
reduce the cost of Zip drives and on the extent to which the incorporation of
CD-RW or DVD-Recordable drives into OEM products results in a reduction in the
demand for OEM products also incorporating a built-in Zip drive. During the
second quarter of 2001, on its Zip product line (excluding FotoShow), the
Company recorded inventory reserves of $1.4 million; loss accruals of $1.3
million for supplier purchase commitments and write-downs of related
manufacturing equipment amounting to $1.8 million. There can be no assurance
that the Company will not be required to take additional charges associated with
the Zip platform in the future. The Companys future operating results are
dependent upon its ability to stabilize the Zip products business and to stop
the Zip revenue decline. There can be no assurance that the Company will be
successful in achieving this business objective.

The Company anticipates
continued sales decline in the future for the Jaz product platform as a result
of replacement products entering the market and changing customer requirements.
The process of managing Jaz and maximizing its profitability is different than
managing a growing product platform and involves maintaining the size of the
products infrastructure and monitoring vendor commitments and inventory
levels to prevent inventory write-offs and cancellation costs. There can be no
assurance that the Company will be successful in managing the Jaz product
platform and in maximizing its profitability in the future.

The Companys business
strategy for CD-RW is different from its strategy for its Zip, Jaz, and
PocketZip products because most of the drives are purchased from suppliers and
marketed under the Iomega name without any significant manufacturing activity by
the Company. The CD-RW drive does not use proprietary media and has lower
overall margins. Given the low margins and frequency of new product
introductions, the Company must closely monitor its sales channels, advertising
and other marketing expenses in order to sell the product profitably. The CD-RW
drive market is very competitive and includes several established participants.
Since the Companys introduction of its CD-RW products in 1999, the Company
has reported product losses on CD-RW each year. In the second quarter of 2001,
the Company recorded inventory reserves of $4.4 million; loss accruals of $2.9
million for supplier purchase commitments; $1.8 million of reserves for channel
inventory exposures and write-downs of related manufacturing equipment amounting
to $0.9 million. There is no assurance that the Company will not be required to
take additional charges associated with the CD-RW platform in the future. This
product line has not been profitable and, in light of the competitive
marketplace for this product line and the lower margins, the Company is at risk
that it will never be able to sell this product line profitably.

Since the introduction of
the PocketZip segment in 1998, the Company has incurred product losses including
non-restructuring charges totaling $17.9 million, $7.4 million and $55.6 million
in 2001, 2000 and 1999, respectively, related to the net realizable value of
inventory, equipment and supplier purchase commitments associated with the
PocketZip segment. There is no assurance that there will not be additional
charges. Market acceptance of PocketZip products as a storage solution for
digital audio players, digital cameras and other electronic devices is dependent
upon obtaining a significant market presence and developing OEM relationships
with manufacturers, who produce digital devices incorporating built-in PocketZip
drives. This product line has not been profitable and, in light of the
competitive marketplace for this product and the lower margins, it is likely
that the Company will never be able to sell this product line profitably.

The Company has entered
into various arrangements under which the Company purchases products from other
businesses and markets those products under the Iomega name. In addition to
CD-RW, examples of this strategy include Microdrive, CompactFlash, SmartMedia
and DataSafe products all announced since the beginning of the fourth quarter of
2000. Since these products are manufactured by other parties, the Company does
not have control of the manufacturing process and has to closely monitor its
sales channels to control inventory levels. During the 2001 second quarter, the
Company recorded inventory reserves of $2.7 million and reserves of $0.4 million
for channel inventory exposures relating to these products. The Company also
wrote-down other excess miscellaneous manufacturing equipment amounting to $0.5
million. There is no assurance that the Company will not be required to take
additional charges associated with these products in the future. The Company
also has to closely monitor its advertising and other marketing expenses in the
Companys efforts to differentiate these products from those of the
manufacturer. In light of the competitive marketplace for this product and the
lower margins, the Company is at risk that it will not be able to sell these
products profitably.

With the introduction of
several new products such as HipZip (part of the PocketZip segment), FotoShow
(part of the Zip segment) and various software products, the Company has
expanded into new markets and channels such as digital audio players, digital
photo storage/display and packaged software in which the Company does not have
significant prior experience. During the second quarter of 2001, in connection
with HipZip, the Company recorded inventory reserves of $4.6 million; loss
accruals of $9.1 million for supplier purchase commitments and write-downs of
related manufacturing equipment amounting to $4.2 million. Also in the second
quarter of 2001, in connection with FotoShow, the Company recorded inventory
reserves of $3.7 million; loss accruals of $5.0 million for supplier purchase
commitments and write-downs of related manufacturing equipment amounting to $0.2
million. There is no assurance that the Company will not be required to take
additional charges associated with these products or other recently introduced
products in the future. The HipZip and FotoShow products have not been
profitable and, in light of the competitive marketplace for these products and
the lower margins, it is likely that the Company will never be able to sell
these products profitably.

During the second quarter
of 2001, the Company began selling the new Peerless drive system. In addition to
the other risks described herein which relate to all of the Companys
products, additional risks relating to Peerless include the Companys
dependency upon a third party for some of the key technology used in the product
and the fact that a number of the potential market applications for Peerless are
new. In addition to stabilization of the Zip business, as discussed above, the
Company believes that future operating results are further dependent upon the
success of Peerless and other new product offerings. There can be no assurance
that Peerless or other new products will achieve significant market presence or
otherwise be successful.

The Company has experienced
and may in the future experience significant fluctuations in its quarterly
operating results. Moreover, because the Companys expense levels
(including budgeted selling, general and administrative and research and
development expenses) are based in part on expectations of future sales levels,
a shortfall in expected sales could result in a disproportionate adverse effect
on the Companys net income and cash flow. For example, during the second
quarter of 2001, decreases in operating expense levels were not able to keep up
with the unexpected downturn in sales.

The Companys future
operating results are subject to risks associated with general economic
conditions and consumer confidence. A decrease in consumer spending could have a
direct impact on the Companys revenue.

Management of the
Companys inventory levels is very complex. The Companys customers
frequently adjust their ordering patterns in response to various factors
including: perceptions of the Companys ability to meet demand; the
Companys and competitors inventory supply in the retail and
distribution channel; timing of new product introductions; seasonal
fluctuations; Company and customer promotions; the consolidation of customer
distribution centers; pricing considerations; and the attractiveness of the
Companys products compared with competing products. Customers may increase
orders during times of shortages, cancel orders if the channel is filled with
currently available products, or delay orders in anticipation of new products.
Any excess supply could result in price reductions and inventory write-downs,
which in turn could adversely affect the Companys results of operations.
For example, during the second quarter of 2001, the Company recorded inventory
reserves of $16.8 million. Loss accruals for related supplier purchase
commitments amounted to $18.3 million. Additional accruals of $2.2 million were
recorded to reflect valuation reserves for inventory in the channel.

The Companys business
includes a significant volume of OEM sales. In an OEM business, a high
proportion of sales are concentrated among a small number of customers. Although
the Company believes its relationships with OEM customers are generally good, a
relatively small number of customers could represent a business risk that the
loss of one or more accounts could adversely affect the Companys financial
condition or operating results. The Companys customers are generally not
obligated to purchase any minimum volume and are generally able to terminate
their relationship with the Company at will. If changes in purchase volume or
customer relationships resulted in decreased OEM demand for the Companys
drives, whether by loss of or delays in orders, the Companys financial
condition or operating results could be adversely affected.

The Company believes that
in order to compete successfully against current and future sources of
competition, it will be necessary to further reduce the manufacturing costs of
its products, thus enabling the Company to sell its products at lower prices.
The Company is continuing to focus on reducing the manufacturing costs of its
products by: reducing the cost of parts and components used in the
Companys products through improved inventory management and product design
modifications and by taking advantage of industry-wide reductions in costs;
increasing manufacturing efficiencies; consolidating worldwide manufacturing
operations into the Companys Penang, Malaysia manufacturing facility and
decreasing defect rates. The need to further reduce costs is particularly
important for the Companys OEM business, as OEM customers are highly price
sensitive. If the lower sales volumes recently reported by the Company result in
less favorable pricing for components purchased from third parties, the
Companys ability to reduce manufacturing costs may be adversely affected.

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

The Company has experienced
problems and may experience problems in the future, relating to the quality,
reliability and/or availability of certain of its products. For example, the
Company has recalled certain products and experienced manufacturing
interruptions due to quality problems. Any product availability, quality or
reliability problems experienced by the Company, or claims filed against the
Company as a result of these problems, could have an adverse effect on the
Companys sales and net income, result in damage to the Companys
reputation in the marketplace and subject the Company to damage claims from its
customers. In addition, component problems, shortages, quality issues or other
factors affecting the supply of the Companys products could provide an
opportunity for competing products to increase their market share.

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

The Company has experienced
difficulty in the past and may experience difficulty in the future, in obtaining
a sufficient supply of many key components on a timely and cost effective basis.
Also, many components incorporated or used in the manufacture of the
Companys products are currently available only from single or sole source
suppliers or from a limited number of suppliers and are purchased by the Company
without guaranteed supply arrangements. In particular, media used in Zip 250MB
disks and PocketZip disks is obtained exclusively from Fuji Photo Film, certain
integrated circuits used in Zip drives are obtained exclusively from Texas
Instruments, motors used in Jaz and PocketZip drives are obtained exclusively
from Nidec Corporation, head stack assemblies (HSAs) used in Jaz
drives are obtained exclusively from Read Rite International, HSAs used in Zip
notebook and PocketZip drives are obtained exclusively from SAE Magnetics and
disk enclosures used in PocketZip disks are obtained exclusively from J.E.B.
Engineering Design, Ltd. There can be no assurance that the Company will be able
to obtain a sufficient supply of components on a timely and cost effective
basis. The inability to obtain sufficient components and equipment to obtain or
develop alternative sources of supply at competitive prices and quality or to
avoid manufacturing delays could: prevent the Company from producing sufficient
quantities of its products to satisfy market demand (or, in the case of a
component purchased exclusively from one supplier, the Company could be
prevented from producing any quantity of the affected product(s) until such
component becomes available from an alternative source); delay product
shipments; increase the Companys material or manufacturing costs; cause an
imbalance in the inventory levels of certain components and cause the Company to
modify the design of its products to use a more readily available component,
which may result in product performance problems. Any or all of these problems
could in turn result in the loss of customers, provide an opportunity for
competing products to achieve market acceptance and otherwise adversely affect
the Companys business and financial results.

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

During the 2001 second
quarter, the Company recorded pre-tax restructuring charges of approximately
$0.8 million related to the consolidation of manufacturing operations at the
Companys Penang, Malaysia manufacturing facility. There can be no
assurance that the Company will be successful in consolidating worldwide
manufacturing operations into the Penang, Malaysia manufacturing facility
without incurring significant legal or other costs that have not been accrued
for in the restructuring charges. Management expects that these restructuring
actions will reduce future operational and manufacturing expenses; however,
there can be no assurance that the Company will be successful in its efforts to
reduce expenses in future periods.

During the 2001 second
quarter, the Company also recorded pre-tax restructuring charges of
approximately $0.3 million related to the reduction of personnel in the
Companys Singapore office. Management expects that these restructuring
actions will reduce future operational expenses; however, there can be no
assurance that the Company will be successful in its efforts to reduce expenses
in future periods.

The Company expects to
record restructuring and other charges during the third quarter of 2001 in the
range of $55 million to $65 million in connection with the following
restructuring and other actions: adjust the Companys operating structure
in accordance with revenue expectations, reducing the Companys break-even
point and improve operating cash flow; reduce the Companys global
workforce in all functional areas during the second half of 2001 by
approximately 1,250 persons, from 3,300 employees to 2,050 employees; streamline
the Companys supply chain and logistics strategy, including the closure of
the Companys distribution facility in North Carolina; consolidate
labor-intensive tasks into Malaysia; consolidate the Companys operations
and facilities, including the relocation of Corporate Headquarters to the West
Coast; and revise the Companys product strategy. There can be no assurance
that additional restructuring and other actions will not be necessary in the
fourth quarter of 2001 or subsequent quarters. There can be no assurance that
the Company will be successful in undertaking these additional cost reduction
actions, or even do so without incurring significant legal or other costs.
Management expects that these restructuring and other actions will reduce future
operational and manufacturing expenses; however, there can be no assurance that
the Company will be successful in its efforts to reduce expenses in future
periods. In carrying out these actions, the Company is at risk that key
personnel and experience may be lost. In particular, there may be high employee
turnover in relocating the Companys headquarters to the West Coast. The
Company may experience short-term disruptions of IT systems and other business
operations. The Company may incur legal liability and claims associated with the
restructuring and mass layoff. In consolidating facilities, including the
Companys North Carolina distribution center, the Company may experience
short-term disruptions in product shipments.

The Companys success
depends in large part upon the services of a number of key employees and the
loss of the services of one or more of these key employees could have a material
adverse effect on the Company. In June 2001, Werner T. Heid joined the Company
as President and Chief Executive Officer replacing Bruce R. Albertson who
resigned as President and Chief Executive Officer in May 2001. With this change
in the Chief Executive Officer, the Company has had several other changes in its
senior management team. The Companys success will depend in part on its
ability to attract and retain highly skilled personnel and on the success of the
Companys senior management team in learning to work effectively as a team.

During the 1999 third
quarter, the Company announced plans to cease manufacturing operations in
Avranches, France and ceased operations shortly thereafter. There can be no
assurance that the Companys cessation of manufacturing operations in
France will not result in significant legal or other costs that have not been
accrued for in the restructuring charges recorded in 1999. The legal
requirements in France relating to workforce reductions are very strict and the
social plan approved for the workforce can take up to two years to fully
administrate. The Company is currently undergoing a tax audit in France. The
audit covers payroll and benefits, corporate income taxes and VAT (value added
tax). It is too early to assess the outcome of this audit. There can be no
assurance that the Company will not incur claims or assessments from this audit
that have not been accrued.

Significant portions of the
Companys revenue are generated in Europe and Asia. The Companys
existing infrastructure outside of the United States is less mature and
developed than in the United States. Consequently, future sales and operating
income from these regions are less predictable than in the United States. The
Company has also experienced significant turnover in its international
management and the managing directors for both the Asia Pacific and European
operations have been in their present positions less than one year. The
Companys international sales transactions are generally denominated in
U.S. dollars. Fluctuation in the value of foreign currencies relative to the
U.S. dollar that are not sufficiently hedged by foreign customers could result
in lower sales and have an adverse effect on future operating results (see
Quantitative and Qualitative Disclosures About Market Risk below).

The Company has issued
stock options that are subject to variable plan accounting in accordance with
FASB Interpretation No. 44 Accounting for Certain Transactions Involving
Stock Compensation (Interpretation 44). Under variable plan
accounting, the Company is required to recognize compensation expense in its
statement of operations for any increase in the market price of the
Companys Common Stock above $4.00 (the market price at July 1, 2000 which
was the effective date of Interpretation 44). This compensation expense must be
recorded on a quarterly basis until the option is exercised, forfeited or
expires unexercised. The impact of the new options granted under the Exchange
Program on the Companys financial statements will depend on quarterly
fluctuations in the Companys Common Stock price and the dates of
exercises, forfeitures or cancellations of the new options by employees.
Depending on these factors, the Company could be required to record significant
compensation expense during the life of the options, which expire in April 2010.
Moreover, because the precise amount of compensation expense will depend on the
market price of the Common Stock at the end of each quarterly period, the
Company will not be able to forecast in advance the amount of compensation
expense that it will incur in any future period.

Factors other than those
discussed above that could cause actual events or actual results to differ
materially from those indicated by any forward-looking statements include the
ability of management to manage an increasingly complex business, transportation
issues, product and component pricing, changes in analysts earnings
estimates, competition, technological changes and advances, adoption of
technology or communications standards affecting the Companys products,
intellectual property rights, litigation, general economic conditions, 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. The Company did not have any significant debt
outstanding at July 1, 2001. Should the Company need to borrow funds in the
future, it would be subject to interest rate risks. The Company is also subject
to interest rate risks on its current cash balances.

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 generally accepted accounting principles, impact the
consolidated statement of operations. All forward contracts entered into by the
Company are components of hedging programs and are entered into for the sole
purpose of hedging an existing or anticipated currency exposure, not for
speculation or trading purposes. Currently, the Company is using forward
contracts only to hedge balance sheet exposure. The contracts are primarily in
European currencies, the Singapore dollar and the Japanese yen. The contracts
normally have maturities that do not exceed three months. The Company has a
substantial presence in Malaysia. In September 1998, the ruling party in
Malaysia fixed the Malaysian Ringgit to the U.S. dollar. The Company has
material amounts of accounts payable denominated in Ringgit. Currently, the
foreign currency markets are closed to hedging alternatives in Ringgit. When the
foreign currency markets re-open for the Ringgit, the Company plans to
re-evaluate its hedging strategy for Ringgit exposure.

When hedging balance sheet
exposure, all gains and losses on forward contracts are recognized in other
income and expense in the same period as the gains and losses on remeasurement
of the foreign currency denominated assets and liabilities occur. All gains and
losses related to foreign exchange contracts are included in cash flows from
operating activities in the consolidated statement of cash flows. The Company
typically enters into its foreign exchange forward contracts a few days before
its quarter ends, therefore the change in value in the contracts that must be
recognized in the financial statements is, under normal circumstances,
immaterial.

The fair value of the
Corporations forward contracts is subject to change as a result of
potential changes in market rates and prices. The Company has performed a
sensitivity analysis assuming a hypothetical 10% adverse movement in foreign
exchange rates and interest rates applied to the forward contracts and
underlying exposures described above. As of July 1, 2001, the analysis indicated
that such market movements would not have a material effect on the
Companys consolidated financial position, results of operations or cash
flows. Factors that could impact the effectiveness of the Companys hedging
programs include volatility of the currency and interest rate markets,
availability of hedging instruments and the Companys ability to accurately
project net asset or liability positions. Actual gains and losses in the future
may differ materially from the Companys analysis depending on changes in
the timing and amount of interest rate and foreign exchange rate movements and
the Companys actual exposure and hedges.

# IOMEGA
CORPORATION

## PART II -
OTHER INFORMATION

## ITEM 1. LEGAL
PROCEEDINGS

A discussion of the
Companys legal proceedings appears in Item 1 of this Form 10-Q under Note
7 of the Notes to Condensed Consolidated Financial Statements.

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

The Company did not sell
any equity securities during the second quarter of 2001 that were not registered
under the Securities Act of 1933.

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

|(a) | Exhibits. The  exhibits  listed on the  Exhibit  Index filed as a part of this  Quarterly  Report on Form
 10-Q are incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Reports on Form 8-K. On May 22, 2001, the Company filed a Form 8-K
underItem 5, Other Events containing a press release issued by the
Company on May 21, 2001 announcing the resignation of Bruce R. Albertson,
President and CEO. No financial statements were included.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# SIGNATURES

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

`IOMEGA CORPORATION
                                                              ------------------
                                                                  (Registrant)



                                                              /s/ Werner T.Heid                                  .
------------------                                            --------------------------------------
Dated:   8/14/01                                              Werner T. Heid
                                                                 President and Chief Executive Officer



                                                              /s/ Philip G. Husby                                 .
------------------                                            ---------------------------------------
Dated:   8/14/01                                              Philip G. Husby
                                                                 Senior Vice President, Finance and
                                                                 Chief Financial Officer`

# EXHIBIT INDEX

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

`Exhibit No.                Description
-----------                -----------

10.24                      Separation agreement and General Release, dated May 21, 2001, between the
                           Company and Bruce R. Albertson.

10.25                      Employment letter, dated June 18, 2001, between the Company and Werner T. Heid`