---

# UNITED STATESSECURITIES
AND EXCHANGE COMMISSION

                                                        WASHINGTON, D.C. 20549

---

# FORM 10-Q

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

## FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 26, 2004

## OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                                                         EXCHANGE ACT OF 1934
 For the Transition Period from............to...............

## COMMISSION FILE NUMBER 1-12333

Iomega Corporation(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction
      of incorporation or organization | 86-0385884(IRS employer identification number)
|--------------------------------------------------------------------------- | ----------------------------------------------

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

(858) 314-7000(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  
Yes    X      
No

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock
as of October 29, 2004.

|Common Stock, par value $.03 1/3(Title of each class) | 51,588,642(Number of shares)
|----------------------------------------------------- | ----------------------------

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# IOMEGA CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS

`Page

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

                                            PART I - FINANCIAL STATEMENTS

Item 1.  Financial Statements (Unaudited)

         Condensed Consolidated Balance Sheets at September 26, 2004
             and December 31, 2003.................................................................       4

         Condensed Consolidated Statements of Operations for the Quarters
             Ended September 26, 2004 and September 28, 2003.......................................       6

         Condensed Consolidated Statements of Operations for the Nine Months
             Ended September 26, 2004 and September 28, 2003................................. ......      7

         Condensed Consolidated Statements of Cash Flows for the Nine Months
             Ended September 26, 2004 and September 28, 2003.......................................       8

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

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk................................      70

Item 4.  Controls and Procedures...................................................................      71

                                             PART II - OTHER INFORMATION

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds...............................      73

Item 6.  Exhibits..................................................................................      73

Signatures.........................................................................................      74

Exhibit Index......................................................................................      75`

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

1

---

## NOTE
REGARDING FORWARD-LOOKING STATEMENTS

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

- plans to pursue licensing agreements for
the Digital Capture Technology development program (DCT Program);
- goals to recruit original equipment manufacturer (OEM) customers for REV products;
- plans to develop and introduce  follow-on REV products and plans to launch the REV-based  Autoloader during
         the fourth quarter of 2004;
- the Company's goal to increase REV revenues, gross margins and PPM;
- expected cost and expense savings from the 2004 restructuring actions and
expected charges in the fourth quarter of 2004 and the first quarter of 2005
related to the 2004 restructuring actions;
- attempts to manage the
continued decline in the Companys core Zip Products business;
- the
expected sales volumes and profitability, or the lack thereof, on certain
product lines;
- the Companys continued goal to profitably grow its
Network Storage Systems (NSS) business;
- the timeframe to achieve
overall Company profitability and the goal to reverse negative cash flows from
operations;
- the Companys belief that its balance of unrestricted cash, cash
equivalents and temporary investments is sufficient to operate the business and
fund the investments required for REV products and other new products for at
least one more year;
- anticipated benefits from
the Companys information technology system upgrade;
- anticipated benefits
from the Companys transition to a new worldwide logistics provider;
- the expectation of continuing to lower product procurement costs;
- the goal to
improve the procurement and commodity business processes to realize
profitability on Sourced Branded products;
- the goal to  transition  Sourced  Branded  products to a regional  assembly  process  and to improve  gross
margins;
- anticipated marketing spend levels on REV products;
- anticipated reductions in
research and development spending in the fourth quarter of 2004;
- the goal to manage Zip products for cash flow;
- the impacts of expensing stock option grants;
- the factors affecting future gross margins;
- expected sales levels due to seasonal demand;
- the expectation that the Company can obtain sufficient
product and components thereof to meet business requirements;
- anticipated hedging strategies;
- expectations relating to revenue recognition, price protection and rebate
reserves, marketing program accruals, allowances for doubtful accounts,
inventory valuation reserves, and tax valuation allowances and
- the possible effects of an adverse outcome in any legal proceedings.

Any other statements
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words
believes, anticipates, plans,
expects, intends and similar expressions, including but
not limited to expressions of the Companys goals, are intended to identify
forward-looking statements, although not all forward-looking statements contain
these words.

2

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## NOTE REGARDING
FORWARD-LOOKING STATEMENTS (Continued)

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

3

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

`September 26,      December 31,
                                                                               2004              2003
                                                                           -------------      ------------
                                                                            (Unaudited)
Current Assets:
   Cash and cash equivalents                                                 $ 100,633         $ 122,591
   Restricted cash                                                                 250               200
   Temporary investments                                                        18,380            46,140
   Trade receivables, less allowance for doubtful accounts
      of $2,703 and $2,899, respectively                                        34,120            37,234
   Inventories                                                                  23,732            23,745
   Deferred income taxes                                                        11,255            16,938
   Income taxes receivable                                                         232                 -
   Other current assets                                                          7,469             7,553
                                                                             ---------         ---------
      Total Current Assets                                                     196,071           254,401
                                                                             ---------         ---------

Property and Equipment, at Cost                                                132,585           136,205
Accumulated Depreciation and Amortization                                     (118,323)         (120,152)
                                                                             ---------         ---------
   Net Property and Equipment                                                   14,262            16,053
                                                                             ---------         ---------

Goodwill                                                                        11,691            11,691
Other Intangibles, Net                                                           2,967             4,525
Other Assets                                                                        82                71
                                                                             ---------         ---------
   Total Assets                                                              $ 225,073         $ 286,741
                                                                             =========         =========`

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

4

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

`September 26,      December 31,
                                                                                2004             2003
                                                                           -------------      ------------
                                                                            (Unaudited)
Current Liabilities:
   Accounts payable                                                          $  35,313         $  38,000
   Other current liabilities                                                    66,653            81,339
   Income taxes payable                                                              -             3,531
                                                                             ---------         ---------
      Total Current Liabilities                                                101,966           122,870
                                                                             ---------         ---------

Other Long-Term Liabilities                                                        656             1,471

Deferred Income Taxes                                                           23,800            24,512

Commitments and Contingencies (Notes 4 and 6)

Stockholders' Equity:
   Preferred Stock, $0.01 par value - authorized 4,600,000
      shares, none issued                                                            -                 -
   Series A Junior Participating Preferred Stock - authorized
      400,000 shares, none issued                                                    -                 -
   Common Stock, $0.03 1/3 par value - authorized 400,000,000
      shares, issued 55,018,723 and 54,931,209 shares,
      respectively                                                               1,837             1,834
   Additional paid-in capital                                                   78,394            77,120
   Less: 3,431,175 and 3,428,590 Common Stock treasury
      shares, respectively, at cost                                            (33,791)          (33,791)
   Retained earnings                                                            52,211            92,725
                                                                             ---------         ---------
      Total Stockholders' Equity                                                98,651           137,888
                                                                             ---------         ---------
         Total Liabilities and Stockholders' Equity                          $ 225,073         $ 286,741
                                                                             =========         =========`

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

5

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

`For the Quarter Ended
                                                                           -------------------------------
                                                                           September 26,     September 28,
                                                                                2004             2003
                                                                           -------------     -------------
                                                                                     (Unaudited)
Sales                                                                        $  77,262         $  90,990
Cost of sales                                                                   65,413            72,817
                                                                             ---------         ---------
   Gross margin                                                                 11,849            18,173
                                                                             ---------         ---------

Operating Expenses:
   Selling, general and administrative                                          21,546            26,291
   Research and development                                                      6,899             7,545
   Restructuring charges                                                         2,293             7,007
   Bad debt expense (credit)                                                       205               (37)
                                                                             ---------         ---------
      Total Operating Expenses                                                  30,943            40,806
                                                                             ---------         ---------

Operating loss                                                                 (19,094)          (22,633)
Interest income                                                                    361             1,230
Interest expense and other income and expense, net                               2,062              (669)
                                                                             ---------         ---------
Loss before income taxes                                                       (16,671)          (22,072)
Benefit for income taxes                                                           815             8,988
                                                                             ---------         ---------
Net loss                                                                     $ (15,856)        $ (13,084)
                                                                             =========         =========


Net loss per basic and diluted common share                                  $   (0.31)        $   (0.25)
                                                                             =========         =========

Weighted average common shares outstanding                                      51,565            51,372
                                                                             =========         =========

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

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

6

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

`For the Nine Months Ended
                                                                           -------------------------------
                                                                           September 26,     September 28,
                                                                               2004              2003
                                                                           -------------     -------------
                                                                                     (Unaudited)
Sales                                                                        $ 239,030         $ 297,974
Cost of sales                                                                  188,050           208,329
                                                                             ---------         ---------
   Gross margin                                                                 50,980            89,645
                                                                             ---------         ---------

Operating Expenses:
   Selling, general and administrative                                          69,182            77,449
   Research and development                                                     20,068            23,768
   Restructuring charges                                                         2,991             6,929
   Bad debt credit                                                                 (55)           (1,740)
                                                                             ---------         ---------
      Total Operating Expenses                                                  92,186           106,406
                                                                             ---------         ---------


Operating loss                                                                 (41,206)          (16,761)
Interest income                                                                  1,093             4,742
Interest expense and other income and expense, net                               1,553            (1,132)
                                                                             ---------         ---------
Loss before income taxes                                                       (38,560)          (13,151)
Benefit (provision) for income taxes                                            (1,954)            9,787
                                                                             ---------         ---------
Net loss                                                                     $ (40,514)        $  (3,364)
                                                                             =========         =========


Net loss per basic and diluted common share                                  $   (0.79)        $   (0.07)
                                                                             =========         =========

Weighted average common shares outstanding                                      51,540            51,322
                                                                             =========         =========

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

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

7

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

`For the Nine Months Ended
                                                                           -------------------------------
                                                                           September 26,     September 28,
                                                                               2004              2003
                                                                           -------------     -------------
Cash Flows from Operating Activities:                                                (Unaudited)
   Net loss                                                                  $ (40,514)        $  (3,364)
   Non-Cash Adjustments:
      Depreciation and amortization                                              6,658             9,816
      Deferred income tax provision/(benefit)                                    4,971            (8,718)
      Loss on disposal and write-off of fixed assets                               716               121
      Loss on impairment of assets                                               4,896                 -
      Stock compensation expense                                                 1,002               224
      Non-cash restructuring charges                                               427                 -
      Amortization of premium on temporary investments                              39             2,411
      Bad debt credit                                                              (55)           (1,740)
      Other                                                                        116               210
                                                                             ---------         ---------
                                                                               (21,744)           (1,040)
   Changes in Assets and Liabilities:
      Restricted cash                                                              (50)            3,600
      Trade receivables                                                          3,169            19,571
      Inventories, net                                                              13            14,565
      Other current assets                                                          84             4,261
      Accounts payable                                                          (2,687)          (27,805)
      Other current liabilities                                                (13,403)          (18,704)
      Accrued restructuring                                                     (1,283)            3,242
      Income taxes                                                              (3,763)           (1,470)
                                                                             ---------         ---------
         Net cash used in operating activities                                 (39,664)           (3,780)
                                                                             ---------         ---------

Cash Flows from Investing Activities:
   Purchases of property and equipment                                          (9,348)           (6,102)
   Purchases of temporary investments                                         (210,429)         (529,095)
   Sales of temporary investments                                              238,150           702,021
   Net change in other assets and other liabilities                               (826)             (483)
                                                                             ---------         ---------
      Net cash provided by investing activities                                 17,547           166,341
                                                                             ---------         ---------
Cash Flows from Financing Activities:
   Proceeds from sales of Common Stock                                             159               549
                                                                             ---------         ---------
      Net cash provided by financing activities                                    159               549
                                                                             ---------         ---------
Net Change in Total Cash and Cash Equivalents                                  (21,958)          163,110
Total Cash and Cash Equivalents at Beginning of Period                         122,591           241,519
                                                                             ---------         ---------
Total Cash and Cash Equivalents at End of Period                             $ 100,633         $ 404,629
                                                                             =========         =========

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

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

8

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

## (1)
Significant Accounting Policies

In the opinion of the
Companys management, the accompanying condensed consolidated financial
statements reflect all adjustments of a normal recurring nature which are
necessary to present fairly the financial position of the Company as of
September 26, 2004 and December 31, 2003, the results of operations for both
quarters and nine months ending September 26, 2004 and September 28, 2003 and
cash flows for the nine months ended September 26, 2004 and September 28, 2003.

The results of operations
for the quarter and nine months ended September 26, 2004 are not necessarily
indicative of the results to be expected for the entire year or for any future
period.

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

Principles of Consolidation

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

Pervasiveness of Estimates

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

Reclassifications

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

9

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

## (1) Significant Accounting Policies (Continued)

Revenue Recognition

The Companys
customers include OEMs, retailers, distributors, value added resellers
(VARs), catalog resellers, private label customers and end users.
Typically, retail and distribution customer agreements have provisions that
allow the customer to return product under certain conditions within specified
time periods. Sales, less reserves for estimated returns, are generally
recognized upon shipment and passage of title to the customer. The Company has
established reserves for estimated returns, which are reflected as a reduction
of sales and trade receivables in the condensed consolidated financial
statements. The reserves for estimated returns totaled $1.6 million at September
26, 2004 and $3.1 million at December 31, 2003.

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

The Company bundles various
extended service plans with selected Network Attached Storage (NAS)
servers and sells additional NAS extended service plans on a standalone basis.
The service periods of the extended service plans are up to five years, with the
vast majority of the plans being for three years. The Company defers revenue
from the sale of extended service plans and recognizes the sales ratably over
the respective life of the service plan at the earlier of the extended service
plan being registered with the Company by the end-user or three months after
sell-in.

The margin on deferred
sales related to the estimated excess channel inventory and NAS extended
warranties totaled $7.3 million at September 26, 2004 and $8.7 million at
December 31, 2003 and is included in other current liabilities in
the condensed consolidated balance sheets.

Price Protection and Rebate Reserves

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

10

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

## (1) Significant Accounting Policies (Continued)

Reserves for volume and
other rebates and price protection totaled $17.0 million at September 26, 2004
and $18.7 million at December 31, 2003 and are netted against trade receivables
in the condensed consolidated balance sheets.

Cash and Cash Equivalents

For the purposes of the
condensed consolidated statements of cash flows, cash and cash equivalents
include all marketable securities purchased with maturities of three or fewer
months. Cash equivalents at September 26, 2004 and December 31, 2003 consisted
primarily of investments in repurchase agreements, corporate obligations,
certificates of deposit and U.S. agencies.

Temporary Investments

Investments purchased with
maturities in excess of three months are classified as temporary investments.
Temporary investments at September 26, 2004 consisted primarily of U.S.
treasuries, corporate notes, bonds and paper and U.S. agencies. Temporary
investments at December 31, 2003 consisted primarily of corporate notes, bonds
and paper, U.S. treasuries, certificates of deposit, asset-backed securities and
mortgage-backed securities. None of the Companys temporary investments
have an effective maturity greater than 24 months and at September 26, 2004 the
average duration of the Companys temporary investments was approximately
17 months as compared to an average duration of 14 months at December 31, 2003.
At September 26, 2004, the Company had debt security investments of $3.5 million
that will mature within one year and $14.9 million that will mature in more than
one year but less than two years. The Company seeks to minimize its credit risk
associated with temporary investments by purchasing investment grade, liquid
securities. The Company has classified all of its temporary investments as
available-for-sale securities.

Inventories

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

`September 26,     December 31,
                                                       2004              2003
                                                   ------------      -----------
                                                           (In thousands)
         Raw materials                               $    467          $  3,875
         Finished goods                                23,265            19,870
                                                     --------          --------
                                                     $ 23,732          $ 23,745
                                                     ========          ========`

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

11

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

## (1) Significant Accounting Policies (Continued)

Other Current Liabilities

Other current liabilities
consist of the following:

`September 26,     December 31,
                                                       2004              2003
                                                   -------------     ------------
                                                           (In thousands)
         Accrued marketing (a)                       $  8,147          $  8,588
         Accrued payroll, vacation and bonus            7,904            10,104
         Margin on deferred sales                       7,687             9,953
         Accrued restructuring charges                  6,879             8,162
         Accrued warranty                               5,070             5,225
         Accrued excess purchase commitments            4,178             4,744
         Other accrued liabilities (b)                 26,788            34,563
                                                     --------          --------
                                                     $ 66,653          $ 81,339
                                                     ========          ========`

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

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

Net Income (Loss) Per Common Share

Basic net income (loss) per
common share (Basic EPS) excludes dilution and is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding during the period. Diluted net income (loss) per common share
(Diluted EPS) reflects the potential dilution that could occur if
stock options or other contracts to issue common stock were exercised or
converted into common stock. The computation of Diluted EPS does not assume
exercise or conversion of securities that would have an anti-dilutive effect on
net loss per common share. In periods where losses are recorded, common stock
equivalents would decrease the loss per share and therefore are not added to the
weighted average shares outstanding. Losses have been recorded for both quarters
and nine months ending September 26, 2004 and September 28, 2003, thus there was
no dilution as all outstanding options and all unvested restricted common shares
granted under the Management Incentive Plan (the MIP) were
considered anti-dilutive. The Company had no securities that were considered
dilutive for these periods.

For the quarter ended
September 26, 2004, there were outstanding options to purchase 2,393,271 shares
that had an exercise price greater than the average market price of the common
shares. For the quarter ended September 28, 2003, there were outstanding options
to purchase 1,302,109 shares that had an exercise price greater than the average
market price of the common shares. At September 26, 2004, there were also 16,713
shares of restricted common shares granted under the MIP that were not yet
vested, whereas, at September 28, 2003, there were 32,576 shares of restricted
common shares granted under the MIP that were not yet vested. For the nine
months ended September 26, 2004, there were outstanding options to purchase
969,705 shares that had an exercise price greater than the average market price
of the common shares. For the nine months ended September 28, 2003, there were
outstanding options to purchase 1,306,897 shares that had an exercise price
greater than the average market price of the common shares.

12

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

## (1) Significant Accounting Policies (Continued)

Stock Compensation Expense

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

Effective January 1, 2003,
the Company adopted the fair value recognition provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation (SFAS 123). The Company selected the
prospective method, which was one of the three transition methods allowed by
SFAS No. 148, Accounting for Stock-Based Compensation  Transition
and Disclosure, to transition to the fair value method of measuring
stock-based compensation expense. Under the prospective method, only those
employee stock options that are granted or modified after January 1, 2003 are
expensed as compensation.

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

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

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

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

13

---

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

## (1) Significant Accounting Policies (Continued)

Stock compensation expense
for the MIP restricted stock, which was approved by stockholders during the
second quarter of 2003, has been accounted for under SFAS 123, with the fair
value of the restricted stock being recognized over the vesting period of the
restricted stock. The fair value of the discount associated with the ESPPs is
being expensed in accordance with SFAS 123.

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

`For the Quarter Ended         For the Nine months Ended
                                               ---------------------         -------------------------
                                               Sept. 26,   Sept. 28,         Sept. 26,       Sept. 28,
                                                  2004        2003              2004            2003
                                               ---------   ---------         ---------       ---------
                                                        (In thousands, except per share data)

Net loss as reported                           $ (15,856)  $ (13,084)        $ (40,514)      $ (3,364)
   Add: Stock compensation expense
      included in reported net loss,
      net of related tax effects                     252          39               535            136
   Less: Total stock compensation expense
      determined under fair value method
      for all awards, net of related tax
      effects                                       (252)       (281)             (535)        (1,158)
                                               ---------   ---------         ---------       --------
Pro forma net loss                             $ (15,856)  $ (13,326)        $ (40,514)      $ (4,386)
                                               =========   =========         =========       ========

Basic EPS:
   As reported                                 $   (0.31)  $   (0.25)        $   (0.79)      $  (0.07)
                                               =========   =========         =========       ========
   Pro forma                                   $   (0.31)  $   (0.26)        $   (0.79)      $  (0.09)
                                               =========   =========         =========       ========

Diluted EPS:
   As reported                                 $   (0.31)  $   (0.25)        $   (0.79)      $  (0.07)
                                               =========   =========         =========       ========
   Pro forma                                   $   (0.31)  $   (0.26)        $   (0.79)      $  (0.09)
                                               =========   =========         =========       ========`

Accrued Warranty

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

14

---

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

## (1) Significant Accounting Policies (Continued)

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

`For the Quarter Ended         For the Nine months Ended
                                               ---------------------         -------------------------
                                               Sept. 26,   Sept. 28,         Sept. 26,       Sept. 28,
                                                  2004        2003             2004            2003
                                               ---------   ---------         ---------       ---------
                                                                 (In thousands)

Balance at beginning of period                  $ 5,109     $ 6,474           $ 5,225         $ 8,035
   Accruals/additions                             1,346       1,224             4,181           5,342
   Claims                                        (1,385)     (1,864)           (4,336)         (7,543)
                                                -------     -------           -------         -------
Balance at end of period                        $ 5,070     $ 5,834           $ 5,070         $ 5,834
                                                =======     =======           =======         =======`

Guarantees

During the third quarter of
2003, the Company entered into a limited guarantee with a component supplier
whereby the Company agreed to provide a guarantee of payments for purchases by a
contract manufacturer of the component suppliers product. The contract
manufacturer incorporates the component suppliers product into Iomega
branded DVD products. The Company has guaranteed purchases of the component
suppliers product by the contract manufacturer for up to $3 million. All
purchase orders placed by the contract manufacturer must be countersigned or
approved by a Company representative in advance of the transaction. This
guarantee will remain in effect until the Company is no longer selling the
component suppliers product under the Iomega brand or until the component
supplier extends a credit facility to the contract manufacturer that does not
require a guarantee by the Company. The Company entered into this guarantee to
facilitate the purchase of product by the contract manufacturer directly from
the component supplier. The Company is only obligated to make payments under
this guarantee in the event that the contract manufacturer is in material
payment default. However, if the contract manufacturer defaults on payment to
the component supplier, the Company would be entitled to withhold any related
amounts due from the Company to the contract manufacturer. The component
supplier has presently granted a $2 million line of credit to the contract
manufacturer. Accordingly, the current potential exposure to the Company under
the guarantee is $2 million. The Company has recorded a $75 thousand liability
to reflect the fair value of this guarantee. The fair value was based on the
estimated market value of a similar stand-alone letter of credit.

New Accounting Pronouncements

In March of 2004, the
Emerging Issues Task Force (EITF) reached a consensus on issue
03-01, The Meaning of Other-Than-Temporary Impairments and Its Application
to Certain Investments (EITF 03-01). EITF 03-01 provided
guidance on determining when a debt or equity security is impaired and whether
that impairment is other than temporary. Impairment was defined as when the fair
value of a debt or equity security is less than its cost. Per EITF 03-01, the
impairment is other than temporary if the Company does not have the ability to
hold onto the investment for a reasonable period of time to allow for recovery
of fair value up to the cost of the investment and evidence exists that the
investment will probably not recover its fair value within a reasonable period
of time. If an investment is determined to have an other than temporary
impairment, the Company is required to recognize an impairment loss equal to the
difference between the investments cost and fair value. EITF 03-01 also required
additional disclosures for those other than temporary impaired investments. The
recognition and disclosure requirements of EITF 03-01 were originally effective
for reporting periods ending after June 15, 2004. However, in September, the
Financial Accounting Standards Board (FASB) issued FASB Staff
Position 03-01-1, Effective Date of Paragraphs 10-20 of EITF Issue No.
03-01, The Meaning of Other-Than-Temporary Impairments and Its Application to
Certain Investments, which suspends for further discussion the
recognition criteria of EITF 03-01. However, the disclosure guidance of EITF
03-01 remains in effect. At September 26, 2004, the Companys temporary
investments that are in an unrealized loss position represent a nominal and
immaterial amount.

15

---

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

## (1) Significant Accounting Policies (Continued)

In October of 2004, the
EITF reached a consensus on issue 04-10, Applying Paragraph 19 of FASB
Statement No. 131, Disclosures about Segments of an Enterprise and Related
Information, in Determining Whether to Aggregate Operating Segments That Do
Not Meet the Quantitative Thresholds (EITF 04-10). EITF 04-10
provided additional guidance on when operating segments that are below the 10%
threshold can be aggregated. EITF 04-10 states that segments can only be
aggregated if they have similar economic characteristics and if they are similar
in areas such as similar production processes, types of customers, distribution
channels and the products themselves are similar. The consensus reached by EITF
04-10 is effective for fiscal years ending after October 13, 2004. The Company
is already in compliance with this guidance.

## (2) Income Taxes

For the quarter ended
September 26, 2004, the Company recorded a net tax benefit of $0.8 million, on a
pre-tax loss of $16.7 million. The net tax benefit was comprised of a $6.5
million statutory tax benefit on the quarters pre-tax loss and a $1.2
million benefit primarily from additional state net operating loss carryforwards
(NOLs), partially offset by a $6.9 million tax provision from an
increased valuation allowance primarily from changes in NOLs. The resulting
effective tax benefit rate of 5% on a pre-tax loss for the third quarter of 2004
resulted from the valuation allowance and the additional state NOLs. This
compares to an income tax benefit of $9.0 million on a pre-tax loss of $22.1
million for the third quarter of 2003, reflecting an effective tax benefit rate
of 41%.

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

16

---

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

## (2) Income Taxes (Continued)

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

`September 26,      December 31,
                                                              2004               2003
                                                          -------------      ------------
                                                                   (In thousands)
         Deferred Tax Assets (Liabilities):
         Current Deferred Tax Assets:
            Trade receivable reserves                      $    5,106         $   5,193
            Inventory reserves                                  2,757             3,753
            Accrued expense reserves                           10,665            10,911
            Other                                                  24                53
                                                           ----------         ---------
         Total current deferred tax assets                     18,552            19,910
                                                           ----------         ---------

         Non-Current Deferred Tax Assets:
            Fixed asset reserves                                2,266               370
            Tax credit carryforwards                           35,159            29,839
            Accelerated depreciation and amortization           4,153             4,522
            U.S. and foreign loss carryforwards                25,097            34,141
            Other                                               1,087             1,938
                                                           ----------         ---------
         Total non-current deferred tax assets                 67,762            70,810
                                                           ----------         ---------
         Total deferred tax assets                             86,314            90,720
                                                           ----------         ---------

         Non-Current Deferred Tax Liabilities:
            Tax on unremitted foreign earnings                (50,321)          (69,701)
            Purchased goodwill                                 (4,699)           (4,824)
                                                           ----------         ---------
         Total non-current deferred tax liabilities           (55,020)          (74,525)
                                                           ----------         ---------
         Current valuation allowance                           (7,297)           (2,972)
         Non-current valuation allowance                      (36,542)          (20,797)
                                                           ----------         ---------
            Net deferred tax liabilities                   $  (12,545)        $  (7,574)
                                                           ==========         =========
         As Reported on the Balance Sheets:
            Current deferred tax assets                    $   11,255         $  16,938
                                                           ==========         =========
            Non-current deferred tax liabilities           $  (23,800)        $ (24,512)
                                                           ==========         =========`

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

17

---

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

## (2) Income Taxes (Continued)

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

`September 26,
                                                              2004          Expiration Dates
                                                          -------------     ----------------
                                                          (In thousands)
U.S. and Foreign Loss Deferred Tax Assets:
   Federal NOLs (1)                                         $  6,139        2022 to 2023
   State NOLs                                                 10,399        2005 to 2023
   Foreign NOLs                                                8,129        2010 to indefinite
   Capital losses                                                430        2006
                                                            --------
                                                            $ 25,097
                                                            ========

Tax Credit Deferred Tax Assets:
    Foreign tax credits                                     $ 23,630        2005 to indefinite
    Research credits                                          10,182        2007 to 2023
    Alternative minimum tax credits                            1,347        Indefinite
                                                            --------
                                                            $ 35,159
                                                            ========

(1) NOLs = Net Operating Loss Carryforwards`

At September 26, 2004, the
Company had $6.1 million of deferred tax assets related to U.S. federal net
NOLs, which reflect a tax benefit of approximately $17.4 million in future U.S.
federal tax deductions. At September 26, 2004, the Company had $10.4 million of
deferred tax assets related to state NOLs, which reflect a tax benefit of
approximately $260 million in future state tax deductions. The difference in the
amount of future federal and state tax deductions related to the NOLs is
primarily attributable to two factors: 1) The difference between federal and
state NOL carryback rules which have allowed the use of federal NOLs in
instances where state NOLs could not be utilized and 2) the difference in the
taxable portion for federal and state purposes of dividends received from the
Companys foreign subsidiaries.

Net deferred tax
liabilities for the Company at September 26, 2004 were $12.5 million. As of
September 26, 2004, deferred tax liabilities for estimated U.S. federal and
state income taxes and foreign withholding taxes of $50.3 million have been
accrued on unremitted foreign earnings of $114.8 million. Taxes have not been
provided for unremitted foreign earnings of $11.1million as these
earnings are considered to be permanently invested in non-U.S. operations.

For the nine months ended
September 26, 2004, the Company recorded a net tax provision of $2.0 million, on
a pre-tax loss of $38.6 million. The net tax provision was comprised of a $20.1
million increase in the valuation allowance resulting primarily from new foreign
tax credits and loss carryforwards, partially offset by the statutory tax
benefit of $15.0 million on the pre-tax loss for the nine months ended September
26, 2004, a $1.9 million benefit resulting primarily from the release of tax
accruals associated with the Companys foreign operations and a $1.2
million benefit resulting primarily from additional state NOLs. Included in the
$20.1 million increase in the valuation allowance was a $7.8 million increased
valuation allowance resulting from new foreign tax credits created by deemed
Swiss withholding taxes on foreign earnings. The recording of the new foreign
tax credits were the result of a change in the Companys intention to
repatriate foreign cash to the U.S. in the form of dividends in the future. The
resulting effective tax provision rate of 5% on a pre-tax loss for the nine
months ended September 26, 2004, resulted from the increase in the valuation
allowance, the release of tax accruals and from additional state NOLs. This
compares to an income tax benefit of $9.8 million on a pre-tax loss of $13.2
million for the nine months ended September 28, 2003, which included a benefit
of $4.6 million for research tax credits. The resulting effective tax benefit
rate of 74% on the pre-tax loss for the nine months ended September 28, 2003
resulted from the $4.6 million of research tax credits.

18

---

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

## (3) Business
Segment Information

The Company has organized
its six reportable segments which are based primarily on the nature of the
Companys products, into three broad business categories to align with the
Companys target customers: a) Mobile and Desktop Storage Products, b)
Professional Storage Systems and c) New Technologies. Mobile and Desktop Storage
Products include: (i) Zip products, (ii) Sourced Branded products (comprised of
the former Optical Products segment as well as portable and desktop hard disk
drives (HDD), Iomega Mini and Micro Mini USB and external floppy
disk drives [which were all previously reported in the Other Mobile and Desktop
Storage products segment] and (iii) Other Mobile and Desktop Storage products
[which no longer includes HDD, Iomega Mini and Micro Mini USB and external
floppy disk drives]). Professional Storage Systems include: REV products and
NSS. New Technologies, which no longer includes REV products, had no sales and
comprised the Companys research and development efforts on the DCT
Program. The Company has announced its cancellation of the DCT Program and has
substantially wound down development efforts.

Mobile and Desktop Storage Products

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

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

The Other Mobile and
Desktop Storage products segment consists of products that have been
discontinued or which are otherwise immaterial, including: Jaz and PocketZip
disks; Peerless drive systems; Iomega software products such as Iomega Automatic
Backup software and other miscellaneous products. Jaz, PocketZip and Peerless
drives were discontinued in 2002, though the Company continues to sell the
respective disks to support the installed drive base of these products. Jaz and
PocketZip were previously reported as separate segments.

19

---

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

## (3) Business
Segment Information (Continued)

Professional Storage Systems

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

The NSS segment consists
primarily of the development, distribution and sale of NAS servers targeted
toward small- and medium-sized businesses and enterprise workgroups. In the
fourth quarter of 2003, the Company decided to exit the high end of the targeted
NAS server market and focus its efforts on the entry-level and low-end of the
targeted market where the Company believes it can better leverage its small- to
medium-sized business customer base and channel customers, including existing
VARs already focused on these customers.

New Technologies

The New Technologies
segment included the research and development of the DCT Program, a small-form
factor removable flexible magnetic storage device that was expected to have a
capacity of about 1.2 to 1.5GB. There have been no sales associated with the DCT
Program. During the third quarter of 2004, the Company announced that it was
winding down its DCT Program development efforts and as a result, recorded $4.6
million of impairment and other charges during the third quarter of 2004.

Product Profit Margin

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

20

---

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

## (3) Business
Segment Information (Continued)

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

## Reportable
Operating Segment Information:

`For the Quarter Ended         For the Nine Months Ended
                                               ---------------------         -------------------------
                                               Sept. 26,   Sept. 28,         Sept. 26,       Sept. 28,
                                                  2004       2003              2004             2003
                                               ---------   ---------         ---------      ----------
                                                                  (In thousands)
Sales:
Mobile and Desktop Storage Products:
   Zip products                                $  31,880   $  58,953         $ 108,419      $ 198,706
   Sourced Branded products                       30,892      27,009            98,749         83,564
   Other                                             870       1,406             3,386          6,721
                                               ---------   ---------         ---------      ---------
      Total Mobile and Desktop Storage
         Products                                 63,642      87,368           210,554        288,991
Professional Storage Systems:
   REV products                                   10,338           -            17,829              -
   NSS                                             3,282       3,622            10,647          8,983
                                               ---------   ---------         ---------      ---------
      Total Professional Storage Systems          13,620       3,622            28,476          8,983
                                               ---------   ---------         ---------      ---------
      Total Sales                              $  77,262   $  90,990         $ 239,030      $ 297,974
                                               =========   =========         =========      =========

PPM (Product Loss):
Mobile and Desktop Storage Products:
   Zip products                                $  12,551   $  14,993         $  41,393      $  70,907
   Sourced Branded products                       (2,872)     (1,749)           (3,596)          (395)
   Other                                             421        (439)            2,293          1,971
                                               ---------   ---------         ---------      ---------
      Total Mobile and Desktop Storage
Products                                          10,100      12,805            40,090         72,483
Professional Storage Systems:
   REV products                                   (5,612)     (4,046)          (17,898)       (10,493)
   NSS                                               (27)     (3,666)             (521)       (11,883)
                                               ---------   ---------         ---------      ---------
      Total Professional Storage Systems          (5,639)     (7,712)          (18,419)       (22,376)
New Technologies (a)                              (7,004)     (2,976)          (13,163)        (7,468)
                                               ---------   ---------         ---------      ---------
      Total PPM                                   (2,543)      2,117             8,508         42,639

Common Expenses:
   General corporate expenses                    (14,258)    (17,743)          (46,723)       (52,471)
   Restructuring charges                          (2,293)     (7,007)           (2,991)        (6,929)
   Interest and other income, net                  2,423         561             2,646          3,610
                                               ---------   ---------         ---------      ---------
      Loss Before Income Taxes                 $ (16,671)  $ (22,072)        $ (38,560)     $ (13,151)
                                               =========   =========         =========      =========`

(a) New Technologies, i.e., the DCT development program, was discontinued during the third quarter of 2004.

21

---

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

## (4) Restructuring Charges and Reversal

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

`September 26,      December 31,
                                                              2004               2003
                                                          -------------      ------------
                                                                   (In thousands)
Other Current Liabilities:
   2004 Restructuring Actions                                $ 1,712           $     -
   2003 Restructuring Actions                                  1,122             3,564
   2001 Restructuring Actions                                  4,045             4,598
                                                             -------           -------
      Total                                                  $ 6,879           $ 8,162
                                                             =======           =======

Fixed Asset Reserves:
   2004 Restructuring Actions                                $   427           $     -
   2003 Restructuring Actions                                    194               597
   2001 Restructuring Actions                                    201               299
                                                             -------           -------
      Total                                                  $   822           $   896
                                                             =======           =======`

During the third quarter of
2004, the Company recorded pre-tax restructuring charges of $2.3 million. These
charges included $2.1 million for the 2004 restructuring actions and $0.2
million for the 2001 restructuring actions. The $0.2 million was related to
lease expenses for facilities vacated in 2001 as part of the restructuring
actions initiated during 2001, which the Company was unable to sublease until
the fourth quarter of 2004.

During the second quarter
of 2004, the Company recorded pre-tax restructuring charges of $0.2 million
related to the ratable recognition of severance for those employees that were on
transition during the second quarter of 2004 under the 2003 restructuring
actions.

During the first quarter of
2004, the Company recorded pre-tax restructuring charges of $0.5 million related
to lease expenses for facilities vacated in 2001 as part of the 2001
restructuring actions, which the Company had been unable to sublease.

During the third quarter of
2003, the Company recorded pre-tax restructuring charges of $12.0 million. Of
the $12.0 million of charges, $11.1 million was for restructuring actions
initiated during the third quarter of 2003 and $0.9 million was associated with
restructuring actions initiated during the third quarter of 2001. The $0.9
million was related to lease expenses for a facility vacated in 2001 and which
the Company had been unable to sublease.

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

22

---

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

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

2004 Restructuring Actions

The Company recorded $2.1
million of pre-tax charges in the third quarter of 2004 for the 2004
restructuring actions, including $1.7 million of cash charges for severance and
benefits for 114 regular and temporary personnel worldwide (approximately 20% of
the Companys worldwide workforce) who were notified by September 26, 2004
that their positions were being eliminated and $0.4 million of non-cash charges
related to excess furniture. All of the $2.1 million of restructuring charges
recorded in the third quarter of 2004 are being shown as restructuring expenses
as a component of operating expenses. The Company made no cash payments during
the third quarter of 2004 for any of these charges. The restructuring actions
are part of an effort to align the Companys cost structure with its
expected future revenue levels.

Of the $1.7 million
severance and benefits charges for the 114 regular and temporary personnel that
were notified by September 26, 2004 that their positions were being eliminated,
$1.5 million was for 100 North American employees and $0.2 million was for 5
European employees. In addition, 9 Asian employees were notified that their
positions were being eliminated. The worldwide workforce reduction was across
all business functions and across all levels of the Company. At September 26,
2004, of the 114 individuals worldwide whose positions were identified and who
were notified that their positions were being eliminated, 53 had been released,
54 are scheduled to work on a transition basis through the fourth quarter of
2004 and 7 are scheduled to work on a transition basis through the first quarter
of 2005. Transition pay is not a part of the restructuring charges but rather is
reported in normal operations as incurred. Separation pay was based on years of
service and job level and included health insurance continuance payments.
Separation payments, for most employees, will be made after the last day of
employment after separation agreements have been signed by the employees except
for those where continuous payments are legally required and for one other
employee. The Company anticipates that the total separation payments or
liability for the 114 employees notified during the third quarter of 2004 will
be $2.5 million. The $1.7 million severance and benefits costs recognized during
the third quarter of 2004 included the costs associated with those employees
whose positions were eliminated during the third quarter of 2004 and the ratable
recognition of the severance and benefits costs to be paid to the 61employees who will remain in transition beyond the minimum retention period
(60 days) as defined by SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. The remaining $0.8 million of severance and
benefits costs related to the 61 transition employees will be recognized ratably
over their respective future transition periods. There will be an additional 33
employees who will be notified in the fourth quarter of 2004 that their
positions are being eliminated. This additional reduction in force of 33
employees will bring the total reduction of employees under the 2004
restructuring actions to 147 positions or 26% of the Companys worldwide
workforce.

As part of the 2004
restructuring actions, the Company recorded a $0.4 million non-cash charge
related to excess furniture that is no longer being utilized as a result of the
Companys continuing downsizing. The Company anticipates disposing of this
furniture by the end of 2005.The Company anticipates recording an
additional charge of $0.2 million for excess furniture once certain facilities
have been exited and the furniture is no longer being utilized.

The Company currently
anticipates recording approximately another $2 million to $3 million of
restructuring charges related to the 2004 restructuring actions once the Company
has vacated certain facilities in North America and Asia. These facilities are
anticipated to be vacated during the fourth quarter of 2004 and the first
quarter of 2005.

23

---

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

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

In summary, the Company
anticipates recording another $0.8 million for severance and benefits, $0.2
million for excess furniture and between $2 million to $3 million for exiting
excess facilities as the 2004 restructuring actions are fully implemented. The
substantial majority of these charges are expected to be recorded in the fourth
quarter of 2004, with the remainder being recorded in the first quarter of 2005.
Once fully implemented, the total charges for the 2004 restructuring actions are
anticipated to be between approximately $5 million to $6 million. None of these
charges will be allocated to any of the business product segments. All but the
$0.6 million of excess furniture charges are expected to be paid in cash.

Restructuring reserves in
the amount of $1.7 million are included in the Companys other current
liabilities and $0.4 million are included in the fixed asset reserves as of
September 26, 2004. No reserves were utilized during the three months ended
September 26, 2004. The 2004 restructuring charges are summarized below:

`Foreign
                                              Original      Currency        Balance
       2004 Restructuring Actions              Charge        Changes       09/26/04
       --------------------------             -------       ---------      --------
                                                          (In thousands)

          Severance and benefits              $ 1,708         $   4         $ 1,712
          Furniture                               427             -             427
                                              -------         -----         -------
                                              $ 2,135         $   4         $ 2,139
                                              =======         =====         =======

       Balance Sheet Breakout:
          Other current liabilities           $ 1,708         $   4         $ 1,712
          Fixed asset reserves                    427             -             427
                                              -------         -----         -------
                                              $ 2,135         $   4         $ 2,139
                                              =======         =====         =======`

2003 Restructuring Actions

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

Of the $14.5 million
recorded in 2003 for the 2003 restructuring actions, $5.0 million was charged to
cost of sales with the remaining $9.5 million being shown as restructuring
expenses as a component of operating expenses. The $5.0 million charged to cost
of sales included $2.6 million to reimburse a strategic supplier for its
restructuring expenses and $2.4 million to exit a third-party Zip disk
manufacturing agreement. This $5.0 million was charged to the Zip Products
segment and the remaining $9.5 million was not allocated to any of the business
segments. Of the $14.5 million restructuring charges, all but the $0.6 million
related to excess furniture will be paid in cash. As of September 26, 2004, the
Company has made $12.9million in cash payments related to the 2003
restructuring actions, of which $1.5 million, $0.6 million and $0.5 million was
disbursed during the first, second and third quarters of 2004, respectively.

24

---

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

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

Of the 198 individuals
worldwide whose positions were identified for elimination in the third quarter
of 2003, 7 employees worked on a transition basis into the first quarter of
2004, 4 additional employees worked on a transition basis into the second
quarter of 2004 and 3 more employees worked on a transition basis into the third
quarter of 2004. The $6.5 million of severance and benefits costs recognized
during 2003 included the costs associated with those employees whose positions
were eliminated during 2003 and the ratable recognition of the severance and
benefits costs to be paid to the employees who remained in transition into 2004.
The total separation payments or liability for the 198 employees notified during
2003 was $6.7 million. During the first and second quarters of 2004, the Company
recorded $0.3 million and $0.2 million, respectively, of expense related to the
ratable recognition of the severance and benefits costs to be paid to the
employees who remained in transition into 2004. There was less than $0.1 million
of expenses recorded in the third quarter of 2004 related to the ratable
recognition of the severance and benefits costs to be paid to the employees who
remained in transition into 2004. However, during the first quarter of 2004, the
Company also released $0.3 million of outplacement reserves as employee usage of
outplacement resources was less than originally estimated. The Company does not
anticipate recording any other expenses related to the 2003 restructuring
actions.

Remaining restructuring
reserves in the amount of $1.1 million are included in the Companys other
current liabilities and $0.2 million are included in the fixed asset reserves as
of September 26, 2004. Utilization of and other activity relating to the 2003
restructuring charges during the quarter ended September 26, 2004 are summarized
below:

`Balance           Utilized                                       Balance
                                                  ------------------
                                     06/27/04      Cash     Non-Cash     Additions    (Reversals)     09/26/04
                                     --------     ------    --------     ---------    -----------     --------
                                                                  (In thousands)
2003 Restructuring Actions:
   Severance and benefits            $   351      $ (294)    $    -         $ 11        $     -       $    68
   Lease termination costs             1,249        (195)         -            -              -         1,054
   Furniture                             348           -       (154)           -              -           194
                                     -------      ------     ------         ----        -------       -------
                                     $ 1,948      $ (489)    $ (154)        $ 11        $     -       $ 1,316
                                     =======      ======     ======         ====        =======       =======

Balance Sheet Breakout:
   Other current liabilities         $ 1,600      $ (489)    $    -         $ 11        $     -       $ 1,122
   Fixed asset reserves                  348           -       (154)           -              -           194
                                     -------      ------     ------         ----        -------       -------
                                     $ 1,948      $ (489)    $ (154)        $ 11        $     -       $ 1,316
                                     =======      ======     ======         ====        =======       =======`

25

---

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

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

Utilization of and other
activity relating to the 2003 restructuring charges during the nine months ended
September 26, 2004 are summarized below:

`Balance          Utilized                                         Balance
                                                 -------------------
                                     12/31/03     Cash      Non-Cash     Additions    (Reversals)     09/26/04
                                     --------    -------    --------     ---------    -----------     --------
                                                               (In thousands)
2003 Restructuring Actions:
   Severance and benefits            $ 1,323     $(1,420)    $    -        $ 452        $ (287)        $    68
   Contract cancellations                500        (500)         -            -             -               -
   Lease termination costs             1,741        (687)         -            -             -           1,054
   Furniture                             597           -       (403)           -             -             194
                                     -------     -------     ------        -----        ------         -------
                                     $ 4,161     $(2,607)    $ (403)       $ 452        $ (287)        $ 1,316
                                     =======     =======     ======        =====        ======         =======

Balance Sheet Breakout:
   Other current liabilities         $ 3,564     $(2,607)    $    -        $ 452        $ (287)        $ 1,122
   Fixed asset reserves                  597           -       (403)           -            -              194
                                     -------     -------     ------        -----        ------         -------
                                     $ 4,161     $(2,607)    $ (403)       $ 452        $ (287)        $ 1,316
                                     =======     =======     ======        =====        ======         =======`

As of September 26, 2004,
the remaining severance and benefits are associated with those employees who are
receiving their severance payments on a continuous payment basis. Lease payments
are being made on a continuous monthly basis, and of these facilities, the last
lease expires at the end of 2006 and the Company is trying to sublease these
facilities. The Company anticipates completing the disposal of the furniture by
the end of the second quarter of 2005.

2001 Restructuring Actions

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

During the first quarter of
2003, severance and benefit reserves of $0.1 million were reversed due to the
original estimates being higher than what was utilized. During the first quarter
of 2004, the Company recorded an additional $0.5 million in restructuring
charges for the Ireland facility due to continuing depressed real estate market
conditions in Ireland. During the third quarter of 2004, the Company recorded an
additional $0.2 million for the Ireland facility, which the Company was unable
to sublease until the fourth quarter of 2004.

26

---

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

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

Remaining restructuring
reserves in the amount of $4.0 million are included in the Companys other
current liabilities and $0.2 million are included in the fixed asset reserves as
of September 26, 2004. Utilization of the 2001 restructuring reserves during the
quarter ended September 26, 2004 is summarized below:

`Balance           Utilized                        Balance
                                                 -------------------
                                     06/27/04      Cash     Non-Cash     Additions     09/26/04
                                     --------    --------   --------     ---------     --------
                                                          (In thousands)
2001 Restructuring Actions:
North America Reorganization:
   Lease cancellations               $ 2,729     $ (182)     $   -         $   -       $ 2,547
   Leasehold improvements and
      furniture                          234          -        (33)            -           201
                                     -------     ------      -----         -----       -------
                                       2,963       (182)       (33)            -         2,748
                                     -------     ------      -----         -----       -------

Europe Reorganization:
   Lease cancellations                 1,466       (115)         -           147         1,498
                                     -------     ------      -----         -----       -------
                                     $ 4,429     $ (297)     $ (33)        $ 147       $ 4,246
                                     =======     ======      =====         =====       =======

Balance Sheet Breakout:
   Other current liabilities         $ 4,195     $ (297)     $   -         $ 147       $ 4,045
   Fixed asset reserves                  234          -        (33)            -           201
                                     -------     ------      -----         -----       -------
                                     $ 4,429     $ (297)     $ (33)        $ 147       $ 4,246
                                     =======     ======      =====         =====       =======`

Utilization of and other
activity relating to the 2001 restructuring reserves during the nine months
ended September 26, 2004 are summarized below:

`Balance          Utilized                         Balance
                                                ---------------------
                                     12/31/03     Cash      Non-Cash     Additions     09/26/04
                                     --------   --------    --------     ---------     --------
                                                         (In thousands)
2001 Restructuring Actions:
North America Reorganization:
   Lease cancellations               $ 3,274    $   (727)    $   -         $   -       $ 2,547
   Leasehold improvements and
      furniture                          299           -       (98)            -           201
                                     -------    --------     -----         -----       -------
                                       3,573        (727)      (98)            -         2,748
                                     -------    --------     ------        -----       -------

Europe Reorganization:
   Lease cancellations                 1,324        (517)        -           691         1,498
                                     -------    --------     -----         -----       -------
                                     $ 4,897    $ (1,244)    $ (98)        $ 691       $ 4,246
                                     =======    ========     =====         =====       =======

Balance Sheet Breakout:
   Other current liabilities         $ 4,598    $ (1,244)    $   -         $ 691       $ 4,045
   Fixed asset reserves                  299           -       (98)            -           201
                                     -------    --------     -----         -----       -------
                                     $ 4,897    $ (1,244)    $ (98)        $ 691       $ 4,246
                                     =======    ========     =====         =====       =======`

As of September 26, 2004,
the remaining leasehold improvements are associated with subleased facilities
and cannot be disposed of until the related subleases expire. The last sublease
will expire in March 2006. Lease payments are being made on a continuous monthly
basis and the Company is still trying to sublease one of the facilities, where
the lease expires in 2009. At the beginning of the fourth quarter of 2004, the
Company was able to sublease the Ireland facility which released the Company
completely from further obligations related to this facility.

27

---

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

## (5) DCT
Program Impairment and Other Charges

During the third quarter of
2004, the Company recorded as cost of sales, impairment and other charges of
$4.6 million, related to the wind down of the DCT Program development. The $4.6
million charge was attributable to the New Technologies business segment. As the
Company has previously disclosed, its DCT business plan was dependent upon
significant consumer electronics OEM adoption. Unfortunately, the Company was
not successful in securing OEM commitments. During the second quarter of 2004,
the Company investigated the possibility of bringing the DCT technology to
market as a stand-alone computer peripheral storage device. However, based on
the Companys analysis and objective evaluation of the market environment
in which the DCT technology would compete, the Company concluded that it did not
have sufficient resources to simultaneously pursue the opportunities of the DCT
technology and REV products. Consequently, the Company decided not to launch an
Iomega branded PC peripheral DCT device and began winding down the DCT Program
during the third quarter of 2004. As part of the wind down activities, the
Company determined that fixed assets related solely to the DCT Program were
impaired and thus recorded $4.1 million of impairment charges. The fair value of
the assets was determined based on industry knowledge and from the disposition
of similar assets in the past.

The $0.5 million of other
charges was comprised primarily of supplier claims, for equipment and parts that
had been committed to by both the Companys suppliers as well as second
tier suppliers. The write-off was for the amount of the canceled commitments.

A breakdown of the DCT Program impairment and other charges is included in the table below:

`Financial
                                                                             Statement
Description of DCT Program Impairment and Other Charges     Amount           Line-Item
-------------------------------------------------------     ------         -------------
                                                        (In thousands)

   Fixed Asset Impairments                                  $ 4,095        Cost of Sales
   Other charges (primarily supplier claims)                    527        Cost of Sales
                                                            -------
                                                            $ 4,622
                                                            =======`

## (6)
Commitments and Contingencies

Litigation

There are no material legal
proceedings to which the Company or any of its subsidiaries is a party or to
which any of their property is subject. The Company is involved in lawsuits and
claims generally incidental to its business.

28

---

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

## (7) Other
Matters

Other Intangible Assets

At September 26, 2004, the
Company had $3.0 million in net other intangible assets, all of which are
subject to amortization. During the quarter and nine months ended September 26,
2004, amortization expense was $0.5 million and $1.5 million, respectively.
Amortization expense for each of the next five fiscal years is anticipated to be
approximately $0.5 million for the remainder of 2004, $2 million in 2005, $0.5
million in 2006 and zero thereafter. As of September 26, 2004, the
weighted-average useful life of the Companys intangible assets is
approximately 1 1/2 years.

`September 26,         December 31,
                                                   2004                  2003
                                               -------------         ------------
                                                       (In thousands)
Other Intangible Assets:
   Gross value                                   $ 11,791              $ 11,791
   Accumulated amortization                        (8,824)               (7,266)
                                                 --------              --------
      Net intangible assets                      $  2,967              $  4,525
                                                 ========              ========`

Significant Customers

During the quarter ended
September 26, 2004, sales to Ingram Micro, Inc. and Tech Data Corporation
accounted for 21% and 13% of consolidated sales, respectively. Ingram Micro,
Inc. and Tech Data Corporation accounted for 18% and 11% of consolidated sales,
respectively, for the quarter ended September 28, 2003. No other single customer
accounted for more than 10% of consolidated sales for these periods.

During the nine months
ended September 26, 2004, sales to Ingram Micro, Inc. and Tech Data Corporation
accounted for 20% and 13% of consolidated sales, respectively. Ingram Micro,
Inc. and Tech Data Corporation accounted for 16% and 11% of consolidated sales,
respectively, for the nine months ended September 28, 2003. No other single
customer accounted for more than 10% of consolidated sales for these periods.

29

---

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

## (7) Other
Matters (Continued)

Forward Exchange Contracts

All forward contracts
entered into by the Company are components of hedging programs and are entered
into for the sole purpose of hedging an existing exposure or expected exposure,
not for speculation or trading purposes. At September 26, 2004, outstanding
forward exchange buy/(sell) contracts, which all mature in November 2004, were
as follows (rates are quoted as other currency unit per one United States
dollar):

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

      European Currency Unit                  (19,300,000)              0.8151               0.8151
      Swiss Franc                              (3,000,000)              1.2590               1.2590
      Singapore Dollar                            500,000               1.6896               1.6896
      British Pound                              (300,000)              0.5560               0.5560`

Legal Settlements

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

30

---

## IOMEGA CORPORATION AND SUBSIDIARIES

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

## Overview

Iomega designs and markets
products that help customers protect, secure, capture and share their valuable
digital information. The Companys reportable segments are based primarily
on the nature of the Companys products and the primary reportable segments
include Zip products, Sourced Branded products, REV products (which began
shipping in April 2004), Network Storage Systems (NSS) and New
Technologies. New Technologies, which no longer includes REV products, had no
sales and comprised the Companys research and development efforts on the
Digital Capture Technology development program (DCT Program).

During the third quarter of
2004, the Company reported a net loss of $15.9 million, or $0.31 per share, on
sales of $77.3 million which compares to a net loss in the third quarter of 2003
of $13.1 million, or $0.25 per share, on sales of $91.0 million. Sales in the
third quarter of 2004 decreased compared to the third quarter of 2003 primarily
due to declining Zip product and Optical drive product sales, partially offset
by sales of the Companys new REV products and higher sales of non-Optical
Sourced Branded products.

The net loss for the third
quarter of 2004 included $4.6 million in pre-tax impairment and other charges
associated with the discontinuance of the Companys DCT Program, $2.3
million in pre-tax restructuring charges and a $1.8 million benefit associated
with the release of various accruals for a European subsidiary for which
operations have ceased. The net loss for the third quarter of 2004 included a
net tax benefit of $0.8 million, which was comprised of a $6.5 million statutory
tax benefit on the quarters pre-tax loss and a $1.2 million benefit
primarily from additional state net operating loss carryforwards
(NOLs), partially offset by a $6.9 million tax provision from an
increased valuation allowance primarily from changes in NOLs. The net loss for
the third quarter of 2004 also included manufacturing startup and marketing
launch costs associated with the new REV products, expenses to upgrade the
Companys information technology systems and costs associated with supply
chain modifications. The net loss for the third quarter of 2003 included $12.0
million of pre-tax restructuring charges and was favorably impacted by the
recording of $4.6 million of research tax credits following the completion of a
research tax credit study and an IRS audit.

During the first nine
months of 2004, the Company reported a net loss of $40.5 million, or $0.79 per
share, on sales of $239.0 million which compares to a net loss for the first
nine months of 2003 of $3.4 million, or $0.07 per share, on sales of $298.0
million. Sales in the first nine months of 2004 decreased compared to the first
nine months of 2003, primarily due to the continuing decline of Zip product
sales and lower Optical drive sales, partially offset by higher sales of the
Companys non-Optical Sourced Branded products and sales of the new REV
products.

During both the third
quarter and the first nine months of 2004, Zip product sales continued to
decline both in terms of unit volumes and revenues as the product segment
reaches the end of its lifecycle. The Company expects Zip product sales to
continue to decline. In addition, the Company believes Zip product gross margins
will become increasingly difficult to predict, due to the uncertainty of future
unit volumes and increased manufacturing and component costs on reduced volumes,
drive and disk mix and potential end of life component supplier charges.

31

---

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

## Overview
(Continued)

Sourced Branded product
sales continued to grow in both the third quarter and the first nine months of
2004 when compared to the respective prior year periods. However, the sales
growth occurred with continued pressure on gross margins, as the gross margin
percentage decreased in both the third quarter of 2004 and the first nine months
of 2004 when compared to the respective prior year periods. The Company began
implementing supply chain improvements during the third quarter of 2004 which
negatively impacted Optical product margins due to startup and transition costs.
The supply chain improvements are being made with the goal to positively impact
Sourced Branded product gross and profit margins and will continue to be
implemented during the fourth quarter. However, the Company also anticipates
continued competitive pricing pressure on all of its Sourced Branded products,
which could offset any potential cost savings.

The Company launched its
new REV products in April 2004 and has been encouraged by the initial reception
of REV products in the marketplace. The Companys goal is to develop REV
products into a significant part of its overall product portfolio; the Company
continues plans to launch additional interface models for REV drives and plans
to launch its REV-based Autoloader in the fourth quarter of 2004. During the
third quarter of 2004 and for the first nine months of 2004, REV products have
had product losses, primarily due to development expenses in completing the REV
products, manufacturing startup costs, marketing launch expenses and follow-on
development expenses. The Company anticipates that REV product gross margins
will continue to improve through the fourth quarter of 2004 as manufacturing
startup costs wind down and volumes increase. However, the Company will continue
to spend considerable resources generating awareness of this new product. The
Company has not yet reached any agreements with tier one original equipment
manufacturers (OEMs) with respect to REV internal drives, but has
qualified REV internal drives with several second tier OEMs. The Company
continues to focus on tier one OEM qualification and market adoption of REV
internal drives.

Although NSS sales
decreased during the third quarter of 2004 when compared to the third quarter of
2003, they have increased for the first nine months of 2004 when compared to the
first nine months of 2003. After recording its first quarterly positive product
profit margin (PPM) in the second quarter of 2004, NSS had a
break-even PPM during the third quarter of 2004. NSS has drastically reduced its
losses, when compared with the respective three and nine month periods of 2003,
which reflects the benefits of the Companys reorientation of this product
line during the fourth quarter of 2003 towards the entry-level and low-end
segments of the market. The Company maintains its goal to profitably grow the
NSS business. There can, however, be no assurances as to whether this goal will
be achieved.

As the Company has
previously disclosed, it has decided to wind down its DCT Program. As a result
of this decision, the Company recorded impairment and other charges of $4.6
million in the third quarter of 2004 (See the DCT Program Impairment and
Other Charges discussion below for more detail of the charges). The
Company is continuing to pursue licensing agreements for the DCT technology.

During the third quarter of
2004, the Company recorded $2.3 million of pre-tax restructuring charges, of
which $0.2 million related to the 2003 restructuring actions. The remaining
restructuring charges are associated with the 2004 restructuring actions which
are part of an effort to align the Companys cost structure with its
expected future revenue levels.

32

---

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

## Overview
(Continued)

As previously disclosed,
the Company does not expect to have an operating profit in 2004 primarily due to
declining Zip product sales, the costs associated with increasing market
awareness of REV products and continued low Sourced Branded product margins. The
Companys primary goals for the fourth quarter of 2004 are to ramp REV
product sales with the goal to further improve REV product sales and margins,
review and take actions to improve the financial results of the Sourced Branded
business, profitably grow the NSS business, manage the Zip product business for
cash flow and develop a business operating plan for 2005 based on these goals.

At September 26, 2004, the
Companys total cash, cash equivalents and temporary investment balance was
$119.3 million (See the Liquidity and Capital Resources discussion
for more detail on the tax impacts of repatriating the foreign cash). The
Company believes this total cash is sufficient to operate the business and fund
the investments required for REV products and other new products for at least
one more year.

## Application of
Critical Accounting Policies

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

## Business
Segment Information

The Company has organized
its six reportable segments which are based primarily on the nature of the
Companys products, into three broad business categories to align with the
Companys target customers: a) Mobile and Desktop Storage Products, b)
Professional Storage Systems and c) New Technologies. Mobile and Desktop Storage
Products include: (i) Zip products, (ii) Sourced Branded products (comprised of
the former Optical Products segment as well as portable and desktop hard disk
drives (HDD), Iomega Mini and Micro Mini USB and external floppy
disk drives [which were all previously reported in the Other Mobile and Desktop
Storage products segment] and (iii) Other Mobile and Desktop Storage products
[which no longer includes HDD, Iomega Mini and Micro Mini USB and external
floppy disk drives]). Professional Storage Systems include: REV products and
NSS. New Technologies, which no longer includes REV products, had no sales and
comprised the Companys research and development efforts on the DCT
Program. The Company has announced its cancellation of the DCT Program and has
substantially wound down development efforts.

33

---

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

## Business
Segment Information (Continued)

Mobile and Desktop Storage Products

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

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

The Other Mobile and
Desktop Storage products segment consists of products that have been
discontinued or which are otherwise immaterial, including: Jaz and PocketZip
disks; Peerless drive systems; Iomega software products such as Iomega Automatic
Backup software and other miscellaneous products. Jaz, PocketZip and Peerless
drives were discontinued in 2002, though the Company continues to sell the
respective disks to support the installed drive base of these products. Jaz and
PocketZip were previously reported as separate segments.

Professional Storage Systems

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

The NSS segment consists
primarily of the development, distribution and sale of Network Attached Storage
(NAS) servers targeted toward small- and medium-sized businesses and
enterprise workgroups. In the fourth quarter of 2003, the Company decided to
exit the high end of the targeted NAS server market and focus its efforts on the
entry-level and low-end of the targeted market where the Company believes it can
better leverage its small- to medium-sized business customer base and channel
customers, including existing VARs already focused on these customers.

New Technologies

The New Technologies
segment included the research and development of the DCT Program, a small-form
factor removable flexible magnetic storage device that was expected to have a
capacity of about 1.2 to 1.5GB. There have been no sales associated with the DCT
Program. During the third quarter of 2004, the Company announced that it was
winding down its DCT Program development efforts and as a result, recorded $4.6
million of impairment and other charges during the third quarter of 2004.

34

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

## Business
Segment Information (Continued))

Product Profit Margin

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

35

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

## Business Section
(Continued)

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

`Reportable Operating Segment Information:

                                               For the Quarter Ended         For the Nine Months Ended
                                               ---------------------         -------------------------
                                               Sept. 26,   Sept. 28,         Sept. 26,       Sept. 28,
                                                  2004       2003              2004             2003
                                               ---------   ---------         ---------      ----------
                                                                  (In thousands)
Sales:
Mobile and Desktop Storage Products:
   Zip products                                $  31,880   $  58,953         $ 108,419      $ 198,706
   Sourced Branded products                       30,892      27,009            98,749         83,564
   Other                                             870       1,406             3,386          6,721
                                               ---------   ---------         ---------      ---------
      Total Mobile and Desktop Storage
         Products                                 63,642      87,368           210,554        288,991
Professional Storage Systems:
   REV products                                   10,338           -            17,829              -
   NSS                                             3,282       3,622            10,647          8,983
                                               ---------   ---------         ---------      ---------
      Total Professional Storage Systems          13,620       3,622            28,476          8,983
                                               ---------   ---------         ---------      ---------
      Total Sales                              $  77,262   $  90,990         $ 239,030      $ 297,974
                                               =========   =========         =========      =========

PPM (Product Loss):
Mobile and Desktop Storage Products:
   Zip products                                $  12,551   $  14,993         $  41,393      $  70,907
   Sourced Branded products                       (2,872)     (1,749)           (3,596)          (395)
   Other                                             421        (439)            2,293          1,971
                                               ---------   ---------         ---------      ---------
      Total Mobile and Desktop Storage
Products                                          10,100      12,805            40,090         72,483
Professional Storage Systems:
   REV products                                   (5,612)     (4,046)          (17,898)       (10,493)
   NSS                                               (27)     (3,666)             (521)       (11,883)
                                               ---------   ---------         ---------      ---------
      Total Professional Storage Systems          (5,639)     (7,712)          (18,419)       (22,376)
New Technologies (a)                              (7,004)     (2,976)          (13,163)        (7,468)
                                               ---------   ---------         ---------      ---------
      Total PPM                                   (2,543)      2,117             8,508         42,639

Common Expenses:
   General corporate expenses                    (14,258)    (17,743)          (46,723)       (52,471)
   Restructuring charges                          (2,293)     (7,007)           (2,991)        (6,929)
   Interest and other income, net                  2,423         561             2,646          3,610
                                               ---------   ---------         ---------      ---------
      Loss Before Income Taxes                 $ (16,671)  $ (22,072)        $ (38,560)     $ (13,151)
                                               =========   =========         =========      =========`

(a) New Technologies, i.e., the DCT development program, was discontinued during the third quarter of 2004.

36

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

## Seasonality

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

## Sales

Sales for the quarter ended
September 26, 2004 of $77.3 million decreased $13.7 million, or 15%, when
compared to sales of $91.0 million for the quarter ended September 28, 2003.
This decrease was primarily due to declining Zip product and Optical drive
sales, partially offset by sales of the Companys new REV products and
higher sales of non-Optical Sourced Branded products.

Zip product sales for the
third quarter of 2004 totaled $31.9 million, representing a decrease of $27.1
million, or 46%, compared to sales of $59.0 million for the third quarter of
2003. Sales of Zip products represented 41% of total sales for the third quarter
of 2004, compared to 65% of total sales for the third quarter of 2003. Zip drive
sales of $18.5 million for the third quarter of 2004 decreased by $20.3 million,
or 52%, while Zip drive units also decreased 52%. Zip OEM drive units accounted
for approximately 55% of total Zip drive units in the third quarter of 2004
compared to approximately 54% in the third quarter of 2003. Zip disk sales of
$13.4 million for the third quarter of 2004 decreased by $6.8 million, or 34%,
while Zip disk units decreased by 43% from the third quarter of 2003. The
decline in Zip disk units was greater than the Zip disk sales declines primarily
from lower pricing actions and promotions in the third quarter of 2004 as
compared to the third quarter of 2003. The third quarter of 2003 included
approximately $3 million of various pricing programs associated with the
transition to a dual-format (i.e., PC and Mac) Zip disk.

Sourced Branded product
sales for the third quarter of 2004 totaled $30.9 million, representing an
increase of $3.9 million, or 14%, compared to sales of $27.0 million for the
third quarter of 2003. Sales of Sourced Branded products represented 40% of
total sales for the third quarter of 2004, compared to 30% for the third quarter
of 2003. The percentage of total sales increased in the third quarter of 2004
primarily from lower total consolidated sales. The $3.9 million increase in
Sourced Branded product sales was comprised of increases of $5.3 million in HDD
drives, $2.3 million in Iomega Mini and Micro Mini USB drives, $0.9 million in
floppy external drives and $0.6 million in DVD rewritable drives, partially
offset by a $5.2 million decrease in CD-RW drive sales. Higher overall Sourced
Branded products unit volumes were partially offset by lower prices on all
Sourced Branded products. Continued price competition is expected throughout the
Sourced Branded product line for the foreseeable future.

REV product sales for the
third quarter of 2004 totaled $10.3 million. REV drives and disks began shipping
in April 2004. REV product sales represented 13% of total sales for the third
quarter of 2004. The Companys goal is to continue increasing REV product
sales.

37

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

## Sales (Continued)

NSS sales for the third
quarter of 2004 totaled $3.3 million, representing a $0.3 million decrease,
compared to sales of $3.6 million for the third quarter of 2003. NSS sales
represented 4% of total sales for both the third quarter of 2004 and 2003. The
decrease in NSS sales resulted primarily from seasonal weakness and a delay in
launching the new NAS 100d until the end of the third quarter of 2004.

Geographically, sales in
the Americas totaled $42.4 million, or 55% of total sales, in the third quarter
of 2004, compared to $59.4 million, or 65% of total sales, in the third quarter
of 2003. The decrease in sales dollars in the Americas was primarily due to
lower Zip product sales, partially offset by REV product sales and higher
Sourced Branded product sales. Sales in Europe totaled $28.7 million, or 37% of
total sales, in the third quarter of 2004, compared to $23.6 million, or 26% of
total sales, in the third quarter of 2003. The increase in sales dollars in
Europe was primarily due to REV product sales and higher Sourced Branded product
sales, partially offset by lower Zip product sales. Sales in Asia totaled $6.2
million, or 8% of total sales, in the third quarter of 2004, compared to $8.0
million, or 9% of total sales, in the third quarter of 2003. The decrease in
sales dollars in Asia was primarily due to lower Zip, Sourced Branded and NSS
product sales, partially offset by REV product sales.

Sales for the nine months
ended September 26, 2004 of $239.0 million decreased $59.0 million, or 20%, when
compared to sales of $298.0 million for the nine months ended September 28,
2003. This decrease was primarily due to declining Zip product and Optical drive
sales, partially offset by higher sales of the Companys non-Optical
Sourced Branded products and sales of REV products.

Zip product sales for the
first nine months of 2004 totaled $108.4 million, representing a decrease of
$90.3 million, or 45%, compared to sales of $198.7 million for the first nine
months of 2003. Sales of Zip products represented 45% of total sales for the
first nine months of 2004, compared to 67% for the first nine months of 2003.
Zip drive sales of $61.1 million for the first nine months of 2004 decreased by
$62.1 million, or 50%, while Zip drive units decreased 48%. Zip OEM drive units
accounted for approximately 52% of total Zip drive units in the first nine
months of 2004 compared to approximately 53% in the first nine months of 2003.
Zip disk sales of $47.2 million for the first nine months of 2004 decreased by
$28.3 million, or 38%, while Zip disk units decreased by 37% from the first nine
months of 2003. Increased usage of rebates and promotions in the first nine
months of 2004 for both drive and disks were partially offset by $3 million of
various pricing programs associated with the transition to a dual-format Zip
disk in the third quarter of 2003.

Sourced Branded product
sales for the first nine months of 2004 totaled $98.7 million, representing an
increase of $15.1 million, or 18%, compared to sales of $83.6 million for the
first nine months of 2003. Sales of Sourced Branded products represented 41% of
total sales for the first nine months of 2004, compared to 28% for the first
nine months of 2003. The percentage of total sales increased in the first nine
months of 2004 primarily from lower total consolidated sales. The $15.1 million
increase in Sourced Branded product sales was comprised from increases of $10.8
million in HDD drives, $9.0 million in Iomega Mini and Micro Mini USB drives,
$7.0 million in DVD rewritable drives and $4.7 million in floppy external
drives, partially offset by a $16.4 million decrease in CD-RW drive sales. The
Company began selling DVD rewritable and external floppy drives late in the
first quarter of 2003. Higher overall Sourced Branded product unit volumes were
partially offset by lower prices on all Sourced Branded products.

38

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

## Sales (Continued)

REV product sales for the
first nine months of 2004 totaled $17.8 million. REV drives and disks began
shipping in April 2004. REV product sales represented 7% of total sales for the
first nine months of 2004.

NSS sales for the first
nine months of 2004 totaled $10.6 million, representing a $1.6 million increase,
compared to sales of $9.0 million for the first nine months of 2003. The higher
sales were primarily due to the Companys redirected strategy to
concentrate on the entry-level and low-end markets as well as related new
product introductions that occurred during the first half of 2004.

Geographically, sales in
the Americas totaled $128.7 million, or 54% of total sales, in the first nine
months of 2004, compared to $186.8 million, or 63% of total sales, in the first
nine months of 2003. The decrease in sales dollars in the Americas was primarily
due to lower Zip product sales, partially offset by higher Sourced Branded
product and REV product sales. Sales in Europe totaled $91.6 million, or 38% of
total sales, in the first nine months of 2004, compared to $85.5 million, or 29%
of total sales, in the first nine months of 2003. The increase in sales dollars
in Europe was primarily due to higher Sourced Branded product and REV product
sales, partially offset by lower Zip product sales. Sales in Asia totaled $18.7
million, or 8% of total sales, in the first nine months of 2004, compared to
$25.7 million, or 8% of total sales, in the first nine months of 2003. The
decrease in sales dollars in Asia was primarily due to lower Zip product,
Sourced Branded products and NSS product sales, partially offset by REV product
sales.

## Gross Margin

The Companys overall
gross margin of $11.8 million, or 15%, in the third quarter of 2004 compares to
$18.2 million, or 20%, in the third quarter of 2003. Total gross margin dollars
in the third quarter of 2004 decreased $6.4 million, or 35% from the third
quarter of 2003, primarily from a lower proportion of sales from higher margin
Zip products, lower Sourced Branded product margins, REV product startup costs
and costs associated with supply chain modifications, partially offset by higher
Zip product margins. The third quarter of 2004 included $4.6 million of
impairment and other charges related to the discontinuance of the DCT Program
while the third quarter of 2003 included $5.0 million of restructuring charges
related to Zip products (See the DCT Program Impairment and Other
Charges and Restructuring Charges and Reversal discussions
below for more detail on these charges). The decrease in the gross margin
percentage was primarily due to the same factors described above for gross
margin dollars.

The Zip product gross
margin percentage for the third quarter of 2004 of 45% increased from 31% in the
third quarter of 2003. The third quarter of 2003 included $5.0 million of
restructuring charges and approximately $3 million of various pricing programs
associated with the transition to a dual-format Zip disk.

39

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

## Gross Margin
(Continued)

The decline in Sourced
Branded product gross margins for the third quarter of 2004, when compared to
the third quarter of 2003, resulted primarily from significantly lower Mini USB
drive gross margins due to intense price competition and increased costs due to
transitioning to a regional assembly process for its Sourced Branded products,
partially offset by higher Optical and HDD drive product gross margins. All of
the Companys Sourced Branded products faced competitive pricing pressures.
The Companys goal is that its transition to a regional assembly process
will positively impact Sourced Branded product gross margins during the fourth
quarter of 2004. There can be no assurance that these cost savings will be
achieved or that any cost savings will be sufficient to offset price declines.

The Companys overall
gross margin of $51.0 million, or 21%, for the first nine months of 2004
compares to $89.6 million, or 30%, for the first nine months of 2003. Total
gross margin dollars in the first nine months of 2004 decreased $38.6 million,
or 43%, from the first nine months of 2003, primarily from a lower proportion of
sales from higher margin Zip products, lower Sourced Branded product margins and
REV product startup costs. The first nine months of 2004 included $4.6 million
of impairment and other charges related to the discontinuance of the DCT Program
while the first nine months of 2003 included $5.0 million of restructuring
charges related to Zip products (See the DCT Program Impairment and Other
Charges and Restructuring Charges and Reversal discussions
below for more detail on these charges). The decrease in the gross margin
percentage was primarily due to the same factors described above for gross
margin dollars.

The Zip product gross
margin percentage for the first nine months of 2004 of 43% increased from 42% in
the first nine months of 2003. The slightly higher gross margin percentage
resulted primarily from $5.0 million of restructuring charges and approximately
$3 million of various pricing programs associated with the transition to a
dual-format Zip disk in the first nine months of 2003, partially offset by
certain end of life material charges in the first nine months of 2004.

The decline in Sourced
Branded product gross margins for the first nine months of 2004, when compared
to the first nine months of 2003, resulted primarily from lower sales of the
higher margin CD-RW drives, intense price competition on Mini USB drive
products, increased costs due to transitioning to a regional assembly process
for its Sourced Branded products and the Companys first half 2004 plan to
lower margins on certain Sourced Branded products in an attempt to gain greater
retail penetration in the U.S. market.

Future gross margin
percentages will depend on a number of factors including: the future sales
volume of Zip and REV products; pricing actions or promotions; the mix between
Zip products compared to Sourced Branded, REV and NSS products; sales mix
between aftermarket and OEM or private label channels, as OEM and private label
sales generally provide lower gross margins than sales through other channels;
sales mix of Zip 100, 250 and 750 megabyte drives and disks (where megabyte
equals 1 million bytes), as sales of the various Zip products have differing
gross margins; sales volumes of Zip disks, which generate significantly higher
gross margin percentages than the corresponding drives; the impact of rising Zip
manufacturing costs and end of life material charges; the sales ramp of the new
REV products; the impact of supply chain improvements on Sourced Branded product
margins; the strength or weakness of foreign currencies, especially the euro;
the impact of any future material cost changes; supply or other disruptions; the
ability to avoid future inventory and fixed asset charges; the ability to
accurately forecast future product demand; the ability to cover fixed costs
associated with newly introduced products, particularly REV products; startup
costs associated with the introduction of new products; price competition from
other substitute third-party storage products; possible payment of license
royalties to resolve alleged patent infringement disputes and general economic
conditions.

40

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

## Product
Segment PPM

Zip PPM for the third
quarter of 2004 was $12.6 million and decreased by $2.4 million, or 16%, when
compared to Zip PPM of $15.0 million for the third quarter of 2003. The decrease
in Zip PPM resulted primarily from lower sales partially offset by higher gross
margins as described above. Zip PPM as a percentage of Zip product sales
increased to 39% for the third quarter of 2004 from 25% for the third quarter of
2003, primarily from the higher gross margin percentage as described above and
from lower operating expenses resulting from the 2003 restructuring actions.

The Sourced Branded product
loss for the third quarter of 2004 was $2.9 million and increased by $1.1
million, compared to a product loss of $1.8 million for the third quarter of
2003. Sourced Branded PPM as a percentage of Sourced Branded product sales
declined to a negative 9% in the third quarter of 2004 compared to a negative 7%
in the third quarter of 2003. The Sourced Branded product loss deterioration in
the third quarter of 2004 resulted primarily from the lower gross margins
described above and from higher sales and marketing expenses.

REV products had a product
loss of $5.6 million for the third quarter of 2004. REV products began shipping
in April 2004. The REV product loss was attributable to manufacturing startup
costs and high marketing expenses. It is the Companys goal to continue
improving REV PPM as volumes increase and manufacturing startup costs wind down.
However, the Company will continue to spend considerable resources generating
awareness of this new product. Sales and marketing expenses for REV products in
the fourth quarter of 2004 are anticipated to remain close to third quarter 2004
levels at approximately $3 million per quarter.

NSS had a breakeven PPM in
the third quarter of 2004 which represented a $3.7 million, or 101%, improvement
compared to a product loss of $3.7 million in the third quarter of 2003. The
improved PPM resulted primarily from lower costs reflecting the Companys
reorientation of the NSS product line during the fourth quarter of 2003 and from
higher sales and marketing and research and development spending in the first
nine months of 2003 when the Company was attempting to broaden the NSS product
offering by entering into the high end of the target market.

The New Technologies
product loss of $7.0 million increased by $4.0 million, or 135%, in the third
quarter of 2004 compared to a product loss of $3.0 million in the third quarter
of 2003. During the third quarter of 2004, the Company recorded impairment and
other charges of $4.6 million related to the wind down of the DCT Program. See
the DCT Program Impairment and Other Charges discussion below for
more detail about the charges.

General corporate expenses
of $14.3 million that were not allocated to PPM in the third quarter of 2004,
decreased $3.4 million, or 20%, compared to $17.7 million for the third quarter
of 2003. The $3.4 million decrease reflected lower costs resulting from the
restructuring plans implemented in the third quarter of 2003.

41

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

## Product
Segment PPM (Continued)

Zip PPM for the first nine
months of 2004 was $41.4 million and decreased by $29.5 million, or 42%, when
compared to Zip PPM of $70.9 million for the third quarter of 2003. The decrease
in Zip PPM resulted primarily from lower sales, partially offset by higher gross
margins as described above. Zip PPM as a percentage of Zip product sales
increased to 38% for the first nine months of 2004 from 36% for the first nine
months of 2003, primarily from the higher gross margin percentages as described
above and from lower operating expenses resulting from the 2003 restructuring
actions.

The Sourced Branded product
loss for the first nine months of 2004 was $3.6 million and increased by $3.2
million, compared to a product loss of $0.4 million for the first nine months of
2003. Sourced Branded PPM as a percentage of Sourced Branded product sales
declined to a negative 4% in the first nine months of 2004 from 0% in the first
nine months of 2003. The Sourced Branded product loss deteriorated in the first
nine months of 2004 primarily from lower gross margins as described above and
from higher sales and marketing expenses.

REV products had a product
loss of $17.9 million, which increased by $7.4 million, or 71%, for the first
nine months of 2004, compared to a product loss of $10.5 million for the first
nine months of 2003. REV products began shipping in April 2004. The increased
REV product loss was attributable to higher development costs in the first half
of 2004 to complete the development of REV products, manufacturing startup costs
and high marketing and awareness generation expenses.

NSS had a product loss of
$0.5 million in the first nine months of 2004 which represented an $11.4
million, or 96%, improvement compared to a product loss of $11.9 million in the
first nine months of 2003. The improved PPM resulted primarily from lower costs
reflecting the Companys reorientation of the NSS product line during the
fourth quarter of 2003 and higher sales and marketing and research and
development spending in the first nine months of 2003 when the Company was
attempting to broaden the NSS product offering by entering into the high end of
the target market.

The New Technologies
product loss of $13.2 million increased by $5.7 million, or 76%, in the first
nine months of 2004 compared to a product loss of $7.5 million in the first nine
months of 2003. The higher loss resulted primarily from the impairment and other
charges of $4.6 million related to the wind down of the DCT Program and from
increased spending on the DCT Program in the first half of 2004 as the Company
pushed to complete the development of the DCT technology. See the DCT
Program Impairment and Other Charges discussion below for more detail on
these charges.

General corporate expenses
of $46.7 million that were not allocated to PPM for the first nine months of
2004, decreased $5.8 million, or 11%, compared to $52.5 million for the first
nine months of 2003. The $52.5 million of general corporate expenses for the
first nine months of 2003 included favorable net legal settlements of $6.0
million. The $5.8 million decrease, which includes the $6.0 million of favorable
net legal settlements for the first quarter of 2003, reflected lower costs
resulting from the restructuring plans implemented in the third quarter of 2003,
partially offset by $2.5 million of increased expenses relating to the
Companys information technology system upgrade which was implemented
during the third quarter of 2004 and $0.8 million of costs for certain strategic
planning consulting services to evaluate potential future business strategies of
the Company.

42

---

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

## Selling,
General and Administrative Expenses

Selling, general and administrative
expenses of $21.5 million for the third quarter of 2004 decreased by $4.8
million, or 18%, compared to $26.3 million for the third quarter of 2003. The
$4.8 million decrease of selling, general and administrative expenses reflected
lower costs resulting from the restructuring plans implemented in the third
quarter of 2003, partially offset by higher marketing costs associated with the
launch of the new REV products.

Selling, general and
administrative expenses decreased as a percentage of sales to 28% for the third
quarter of 2004, from 29% in the third quarter of 2003.

Selling, general and
administrative expenses of $69.2 million for the first nine months of 2004
decreased by $8.2 million, or 11%, compared to $77.4 million for the first nine
months of 2003. The $77.4 million of selling, general and administrative
expenses for the first nine months of 2003 included favorable net legal
settlements of $6.0 million. The $8.2 million decrease, which includes the $6.0
million of favorable net legal settlements for the first quarter of 2003,
reflected the lower costs resulting from the restructuring plans implemented in
the third quarter of 2003, partially offset by $2.5 million of higher costs in
2004 related to the Companys information technology system upgrade which
was implemented during the third quarter of 2004, higher marketing costs
associated with the new REV products and $0.8 million of costs for certain
strategic planning consulting services to evaluate potential future business
strategies of the Company.

Selling, general and
administrative expenses increased as a percentage of sales to 29% for the first
nine months of 2004, from 26% in the first nine months of 2003, as sales
declined at a faster rate than overall selling, general and administrative costs
and the Company incurred significant marketing costs associated with the launch
of the new REV products. For the first nine months of 2003, the $6.0 million of
net favorable legal settlements equated to almost 2% as a percentage of sales.

The Company expects to
incur higher than normal marketing costs in the fourth quarter of 2004, similar
to the levels incurred in the third quarter of 2004, to continue promoting the
growth of REV products.

## Bad Debt

For the third quarter of
2004, bad debt expense of $0.2 million increased $0.2 million, compared to a
nominal bad debt credit for the third quarter of 2003. The $0.2 million bad
expense for the third quarter of 2004 resulted primarily from increased agings
in trade receivables.

For the first nine months
of 2004, a bad debt credit of $0.1 million was recorded, compared to a bad debt
credit of $1.7 million for the first nine months of 2003. The $1.7 million bad
debt credit for the first nine months of 2003 resulted primarily from a
significantly large decrease in trade receivable balances during the first
quarter of 2003, partially offset by the establishment during the second quarter
of 2003 of $0.3 million in specific reserves for collection issues with Latin
America customers. At September 26, 2004, the Company had $1.7 million in trade
receivables in excess of 180 days past due compared to $0.9 million at December
31, 2003.

43

---

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

## Research and
Development Expenses

Research and development expenses
of $6.9 million for the third quarter of 2004 were $0.6 million, or 9%, lower
than research and development expenses of $7.5 million during the third quarter
of 2003. The $0.6 million decrease in research and development expenses was
primarily due to lower NSS research and development expenditures. With the
cancellation of the DCT Program, research and development expenses are
anticipated to decrease in the fourth quarter of 2004. Research and development
expenses as a percentage of sales increased to 9% in the third quarter of 2004
as compared to 8% for the third quarter of 2003, primarily from sales decreasing
faster than research and development costs.

Research and development
expenses of $20.1 million for the first nine months of 2004 were $3.7 million,
or 16%, lower than research and development expenses of $23.8 million during the
first nine months of 2003. The $3.7 million decrease in research and development
expenses was primarily due to cost reductions reflecting the benefits of the
2003 restructuring actions, lower NSS and Zip product research and development
expenditures. Research and development expenses as a percentage of sales
remained flat at 8% in the first nine months of both 2004 and 2003.

Even though REV products
began shipping in April of 2004, the Company plans to incur continued
significant development costs for follow-on REV products. Such costs will be
associated with the planned development of SATA interfaces (which the Company
plans to introduce late in the fourth quarter of 2004 or early in the first
quarter of 2005), continued software development costs and development costs on
the second generation REV drive.

## Restructuring
Charges and Reversal

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

`September 26,      December 31,
                                                              2004               2003
                                                          -------------      ------------
                                                                   (In thousands)
Other Current Liabilities:
   2004 Restructuring Actions                                $ 1,712           $     -
   2003 Restructuring Actions                                  1,122             3,564
   2001 Restructuring Actions                                  4,045             4,598
                                                             -------           -------
      Total                                                  $ 6,879           $ 8,162
                                                             =======           =======

Fixed Asset Reserves:
   2004 Restructuring Actions                                $   427           $     -
   2003 Restructuring Actions                                    194               597
   2001 Restructuring Actions                                    201               299
                                                             -------           -------
      Total                                                  $   822           $   896
                                                             =======           =======`

44

---

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

## Restructuring Charges and Reversal (Continued)

During the third quarter of
2004, the Company recorded pre-tax restructuring charges of $2.3 million. These
charges included $2.1 million for the 2004 restructuring actions and $0.2
million for the 2001 restructuring actions. The $0.2 million was related to
lease expenses for facilities vacated in 2001 as part of the restructuring
actions initiated during 2001, which the Company was unable to sublease until
the fourth quarter of 2004.

During the second quarter
of 2004, the Company recorded pre-tax restructuring charges of $0.2 million
related to the ratable recognition of severance for those employees that were on
transition during the second quarter of 2004 under the 2003 restructuring
actions.

During the first quarter of
2004, the Company recorded pre-tax restructuring charges of $0.5 million related
to lease expenses for facilities vacated in 2001 as part of the 2001
restructuring actions, which the Company had been unable to sublease.

During the third quarter of
2003, the Company recorded pre-tax restructuring charges of $12.0 million. Of
the $12.0 million of charges, $11.1 million was for restructuring actions
initiated during the third quarter of 2003 and $0.9 million was associated with
restructuring actions initiated during the third quarter of 2001. The $0.9
million was related to lease expenses for a facility vacated in 2001 and which
the Company had been unable to sublease.

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

2004 Restructuring Actions

The Company recorded $2.1
million of pre-tax charges in the third quarter of 2004 for the 2004
restructuring actions, including $1.7 million of cash charges for severance and
benefits for 114 regular and temporary personnel worldwide (approximately 20% of
the Companys worldwide workforce) who were notified by September 26, 2004
that their positions were being eliminated and $0.4 million of non-cash charges
related to excess furniture. All of the $2.1 million of restructuring charges
recorded in the third quarter of 2004 are being shown as restructuring expenses
as a component of operating expenses. The Company made no cash payments during
the third quarter of 2004 for any of these charges. The restructuring actions
are part of an effort to align the Companys cost structure with its
expected future revenue levels.

45

---

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

## Restructuring Charges and Reversal (Continued)

Of the $1.7 million
severance and benefits charges for the 114 regular and temporary personnel that
were notified by September 26, 2004 that their positions were being eliminated,
$1.5 million was for 100 North American employees and $0.2 million was for 5
European employees. In addition, 9 Asian employees were notified that their
positions were being eliminated. The worldwide workforce reduction was across
all business functions and across all levels of the Company. At September 26,
2004, of the 114 individuals worldwide whose positions were identified and who
were notified that their positions were being eliminated, 53 had been released,
54 are scheduled to work on a transition basis through the fourth quarter of
2004 and 7 are scheduled to work on a transition basis through the first quarter
of 2005. Transition pay is not a part of the restructuring charges but rather is
reported in normal operations as incurred. Separation pay was based on years of
service and job level and included health insurance continuance payments.
Separation payments, for most employees, will be made after the last day of
employment after separation agreements have been signed by the employees except
for those where continuous payments are legally required and for one other
employee. The Company anticipates that the total separation payments or
liability for the 114 employees notified during the third quarter of 2004 will
be $2.5 million. The $1.7 million severance and benefits costs recognized during
the third quarter of 2004 included the costs associated with those employees
whose positions were eliminated during the third quarter of 2004 and the ratable
recognition of the severance and benefits costs to be paid to the 61employees who will remain in transition beyond the minimum retention period
(60 days) as defined by Statement of Financial Accounting Standards ("SFAS")
 No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. The remaining $0.8 million of severance and
benefits costs related to the 61 transition employees will be recognized ratably
over their respective future transition periods. There will be an additional 33
employees who will be notified in the fourth quarter of 2004 that their
positions are being eliminated. This additional reduction in force of 33
employees will bring the total reduction of employees under the 2004
restructuring actions to 147 positions or 26% of the Companys worldwide
workforce.

As part of the 2004
restructuring actions, the Company recorded a $0.4 million non-cash charge
related to excess furniture that is no longer being utilized as a result of the
Companys continuing downsizing. The Company anticipates disposing of this
furniture by the end of 2005.The Company anticipates recording an
additional charge of $0.2 million for excess furniture once certain facilities
have been exited and the furniture is no longer being utilized.

The Company currently
anticipates recording approximately another $2 million to $3 million of
restructuring charges related to the 2004 restructuring actions once the Company
has vacated certain facilities in North America and Asia. These facilities are
anticipated to be vacated during the fourth quarter of 2004 and the first
quarter of 2005.

In summary, the Company
anticipates recording another $0.8 million for severance and benefits, $0.2
million for excess furniture and between $2 million to $3 million for exiting
excess facilities as the 2004 restructuring actions are fully implemented. The
substantial majority of these charges are expected to be recorded in the fourth
quarter of 2004, with the remainder being recorded in the first quarter of 2005.
Once fully implemented, the total charges for the 2004 restructuring actions are
anticipated to be between approximately $5 million to $6 million. None of these
charges will be allocated to any of the business product segments. All but the
$0.6 million of excess furniture charges are expected to be paid in cash.

46

---

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

## Restructuring Charges and Reversal (Continued)

Restructuring reserves in
the amount of $1.7 million are included in the Companys other current
liabilities and $0.4 million are included in the fixed asset reserves as of
September 26, 2004. No reserves were utilized during the three months ended
September 26, 2004. The 2004 restructuring charges are summarized below:

`Foreign
                                              Original      Currency        Balance
       2004 Restructuring Actions              Charge        Changes       09/26/04
       --------------------------             -------       ---------      --------
                                                          (In thousands)

          Severance and benefits              $ 1,708         $   4         $ 1,712
          Furniture                               427             -             427
                                              -------         -----         -------
                                              $ 2,135         $   4         $ 2,139
                                              =======         =====         =======

       Balance Sheet Breakout:
          Other current liabilities           $ 1,708         $   4         $ 1,712
          Fixed asset reserves                    427             -             427
                                              -------         -----         -------
                                              $ 2,135         $   4         $ 2,139
                                              =======         =====         =======`

2003 Restructuring Actions

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

Of the $14.5 million
recorded in 2003 for the 2003 restructuring actions, $5.0 million was charged to
cost of sales with the remaining $9.5 million being shown as restructuring
expenses as a component of operating expenses. The $5.0 million charged to cost
of sales included $2.6 million to reimburse a strategic supplier for its
restructuring expenses and $2.4 million to exit a third-party Zip disk
manufacturing agreement. This $5.0 million was charged to the Zip Products
segment and the remaining $9.5 million was not allocated to any of the business
segments. Of the $14.5 million restructuring charges, all but the $0.6 million
related to excess furniture will be paid in cash. As of September 26, 2004, the
Company has made $12.9million in cash payments related to the 2003
restructuring actions, of which $1.5 million, $0.6 million and $0.5 million was
disbursed during the first, second and third quarters of 2004, respectively.

Of the 198 individuals
worldwide whose positions were identified for elimination in the third quarter
of 2003, 7 employees worked on a transition basis into the first quarter of
2004, 4 additional employees worked on a transition basis into the second
quarter of 2004 and 3 more employees worked on a transition basis into the third
quarter of 2004. The $6.5 million of severance and benefits costs recognized
during 2003 included the costs associated with those employees whose positions
were eliminated during 2003 and the ratable recognition of the severance and
benefits costs to be paid to the employees who remained in transition into 2004.
The total separation payments or liability for the 198 employees notified during
2003 was $6.7 million. During the first and second quarters of 2004, the Company
recorded $0.3 million and $0.2 million, respectively, of expense related to the
ratable recognition of the severance and benefits costs to be paid to the
employees who remained in transition into 2004. There was less than $0.1 million
of expenses recorded in the third quarter of 2004 related to the ratable
recognition of the severance and benefits costs to be paid to the employees who
remained in transition into 2004. However, during the first quarter of 2004, the
Company also released $0.3 million of outplacement reserves as employee usage of
outplacement resources was less than originally estimated. The Company does not
anticipate recording any other expenses related to the 2003 restructuring
actions.

47

---

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

## Restructuring Charges and Reversal (Continued)

Remaining restructuring
reserves in the amount of $1.1 million are included in the Companys other
current liabilities and $0.2 million are included in the fixed asset reserves as
of September 26, 2004. Utilization of and other activity relating to the 2003
restructuring charges during the quarter ended September 26, 2004 are summarized
below:

`Balance           Utilized                                       Balance
                                                  ------------------
                                     06/27/04      Cash     Non-Cash     Additions    (Reversals)     09/26/04
                                     --------     ------    --------     ---------    -----------     --------
                                                                  (In thousands)
2003 Restructuring Actions:
   Severance and benefits            $   351      $ (294)    $    -         $ 11        $     -       $    68
   Lease termination costs             1,249        (195)         -            -              -         1,054
   Furniture                             348           -       (154)           -              -           194
                                     -------      ------     ------         ----        -------       -------
                                     $ 1,948      $ (489)    $ (154)        $ 11        $     -       $ 1,316
                                     =======      ======     ======         ====        =======       =======

Balance Sheet Breakout:
   Other current liabilities         $ 1,600      $ (489)    $    -         $ 11        $     -       $ 1,122
   Fixed asset reserves                  348           -       (154)           -              -           194
                                     -------      ------     ------         ----        -------       -------
                                     $ 1,948      $ (489)    $ (154)        $ 11        $     -       $ 1,316
                                     =======      ======     ======         ====        =======       =======`

Utilization of and other
activity relating to the 2003 restructuring charges during the nine months ended
September 26, 2004 are summarized below:

`Balance          Utilized                                         Balance
                                                 -------------------
                                     12/31/03     Cash      Non-Cash     Additions    (Reversals)     09/26/04
                                     --------    -------    --------     ---------    -----------     --------
                                                               (In thousands)
2003 Restructuring Actions:
   Severance and benefits            $ 1,323     $(1,420)    $    -        $ 452        $ (287)        $    68
   Contract cancellations                500        (500)         -            -             -               -
   Lease termination costs             1,741        (687)         -            -             -           1,054
   Furniture                             597           -       (403)           -             -             194
                                     -------     -------     ------        -----        ------         -------
                                     $ 4,161     $(2,607)    $ (403)       $ 452        $ (287)        $ 1,316
                                     =======     =======     ======        =====        ======         =======

Balance Sheet Breakout:
   Other current liabilities         $ 3,564     $(2,607)    $    -        $ 452        $ (287)        $ 1,122
   Fixed asset reserves                  597           -       (403)           -            -              194
                                     -------     -------     ------        -----        ------         -------
                                     $ 4,161     $(2,607)    $ (403)       $ 452        $ (287)        $ 1,316
                                     =======     =======     ======        =====        ======         =======`

As of September 26, 2004,
the remaining severance and benefits are associated with those employees who are
receiving their severance payments on a continuous payment basis. Lease payments
are being made on a continuous monthly basis, and of these facilities, the last
lease expires at the end of 2006 and the Company is trying to sublease these
facilities. The Company anticipates completing the disposal of the furniture by
the end of the second quarter of 2005.

48

---

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

## Restructuring Charges and Reversal (Continued)

2001 Restructuring Actions

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

During the first quarter of
2003, severance and benefit reserves of $0.1 million were reversed due to the
original estimates being higher than what was utilized. During the first quarter
of 2004, the Company recorded an additional $0.5 million in restructuring
charges for the Ireland facility due to continuing depressed real estate market
conditions in Ireland. During the third quarter of 2004, the Company recorded an
additional $0.2 million for the Ireland facility, which the Company was unable
to sublease until the fourth quarter of 2004.

Remaining restructuring
reserves in the amount of $4.0 million are included in the Companys other
current liabilities and $0.2 million are included in the fixed asset reserves as
of September 26, 2004. Utilization of the 2001 restructuring reserves during the
quarter ended September 26, 2004 is summarized below:

`Balance           Utilized                        Balance
                                                 -------------------
                                     06/27/04      Cash     Non-Cash     Additions     09/26/04
                                     --------    --------   --------     ---------     --------
                                                          (In thousands)
2001 Restructuring Actions:
North America Reorganization:
   Lease cancellations               $ 2,729     $ (182)     $   -         $   -       $ 2,547
   Leasehold improvements and
      furniture                          234          -        (33)            -           201
                                     -------     ------      -----         -----       -------
                                       2,963       (182)       (33)            -         2,748
                                     -------     ------      -----         -----       -------

Europe Reorganization:
   Lease cancellations                 1,466       (115)         -           147         1,498
                                     -------     ------      -----         -----       -------
                                     $ 4,429     $ (297)     $ (33)        $ 147       $ 4,246
                                     =======     ======      =====         =====       =======

Balance Sheet Breakout:
   Other current liabilities         $ 4,195     $ (297)     $   -         $ 147       $ 4,045
   Fixed asset reserves                  234          -        (33)            -           201
                                     -------     ------      -----         -----       -------
                                     $ 4,429     $ (297)     $ (33)        $ 147       $ 4,246
                                     =======     ======      =====         =====       =======`

49

---

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

## Restructuring Charges and Reversal (Continued)

Utilization of and other
activity relating to the 2001 restructuring reserves during the nine months
ended September 26, 2004 are summarized below:

`Balance          Utilized                         Balance
                                                ---------------------
                                     12/31/03     Cash      Non-Cash     Additions     09/26/04
                                     --------   --------    --------     ---------     --------
                                                         (In thousands)
2001 Restructuring Actions:
North America Reorganization:
   Lease cancellations               $ 3,274    $   (727)    $   -         $   -       $ 2,547
   Leasehold improvements and
      furniture                          299           -       (98)            -           201
                                     -------    --------     -----         -----       -------
                                       3,573        (727)      (98)            -         2,748
                                     -------    --------     ------        -----       -------

Europe Reorganization:
   Lease cancellations                 1,324        (517)        -           691         1,498
                                     -------    --------     -----         -----       -------
                                     $ 4,897    $ (1,244)    $ (98)        $ 691       $ 4,246
                                     =======    ========     =====         =====       =======

Balance Sheet Breakout:
   Other current liabilities         $ 4,598    $ (1,244)    $   -         $ 691       $ 4,045
   Fixed asset reserves                  299           -       (98)            -           201
                                     -------    --------     -----         -----       -------
                                     $ 4,897    $ (1,244)    $ (98)        $ 691       $ 4,246
                                     =======    ========     =====         =====       =======`

As of September 26, 2004,
the remaining leasehold improvements are associated with subleased facilities
and cannot be disposed of until the related subleases expire. The last sublease
will expire in March 2006. Lease payments are being made on a continuous monthly
basis and the Company is still trying to sublease one of the facilities, where
the lease expires in 2009. At the beginning of the fourth quarter of 2004, the
Company was able to sublease the Ireland facility which released the Company
completely from further obligations related to this facility.

## DCT
Program Impairment and Other Charges

During the third quarter of
2004, the Company recorded as cost of sales, impairment and other charges of
$4.6 million, related to the wind down of the DCT Program development. The $4.6
million charge was attributable to the New Technologies business segment. As the
Company has previously disclosed, its DCT business plan was dependent upon
significant consumer electronics OEM adoption. Unfortunately, the Company was
not successful in securing OEM commitments. During the second quarter of 2004,
the Company investigated the possibility of bringing the DCT technology to
market as a stand-alone computer peripheral storage device. However, based on
the Companys analysis and objective evaluation of the market environment
in which the DCT technology would compete, the Company concluded that it did not
have sufficient resources to simultaneously pursue the opportunities of the DCT
technology and REV products. Consequently, the Company decided not to launch an
Iomega branded PC peripheral DCT device and began winding down the DCT Program
during the third quarter of 2004. As part of the wind down activities, the
Company determined that fixed assets related solely to the DCT Program were
impaired and thus recorded $4.1 million of impairment charges. The fair value of
the assets was determined based on industry knowledge and from the disposition
of similar assets in the past.

50

---

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

## DCT Program Impairment and Other Charges (Continued)

The $0.5 million of other
charges was comprised primarily of supplier claims, for equipment and parts that
had been committed to by both the Companys suppliers as well as second
tier suppliers. The write-off was for the amount of the canceled commitments.

A breakdown of the DCT Program impairment and other charges is included in the table below:

`Financial
                                                                             Statement
Description of DCT Program Impairment and Other Charges     Amount           Line-Item
-------------------------------------------------------     ------         -------------
                                                        (In thousands)

   Fixed Asset Impairments                                  $ 4,095        Cost of Sales
   Other charges (primarily supplier claims)                    527        Cost of Sales
                                                            -------
                                                            $ 4,622
                                                            =======`

## Interest Income

Interest income of $0.4
million in the third quarter of 2004 decreased $0.8 million, or 71%, from $1.2
million in the third quarter of 2003. Interest income of $1.1 million for the
first nine months of 2004 decreased $3.6 million, or 77%, from $4.7 million in
the first nine months of 2003. The decreases in interest income for the third
quarter and nine month periods resulted primarily from lower cash, cash
equivalents and temporary investment balances resulting from the $257.2 million
one-time cash dividend payment made on October 1, 2003. Interest income was also
impacted by lower interest rates for the first nine months of 2004 compared to
the first nine months of 2003.

## Interest
expense and other income and expense

Interest expense and other
income and expense was a favorable $2.1 million for the third quarter of 2004
and increased $2.8 million from a net expense of $0.7 million in the third
quarter of 2003. The $2.8 million increase resulted primarily from the release
of $1.8 million of various accruals for a European subsidiary for which
operations ceased in 1999 and from higher foreign currency gains of $0.4
million.

Interest expense and other
income and expense was a favorable $1.6 million for the first nine months of
2004 and increased $2.7 million from a net expense of $1.1 million for the first
nine months of 2003. The $2.7 million increase resulted primarily from the
release of $1.8 million of various accruals for a European subsidiary for which
operations ceased in 1999 and from higher foreign currency gains of $0.6
million.

51

---

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

## Income Taxes

For the quarter ended
September 26, 2004, the Company recorded a net tax benefit of $0.8 million, on a
pre-tax loss of $16.7 million. The net tax benefit was comprised of a $6.5
million statutory tax benefit on the quarters pre-tax loss and a $1.2
million benefit primarily from additional state net operating loss carryforwards
(NOLs), partially offset by a $6.9 million tax provision from an
increased valuation allowance primarily from changes in NOLs. The resulting
effective tax benefit rate of 5% on a pre-tax loss for the third quarter of 2004
resulted from the valuation allowance and the additional state NOLs. This
compares to an income tax benefit of $9.0 million on a pre-tax loss of $22.1
million for the third quarter of 2003, reflecting an effective tax benefit rate
of 41%.

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

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

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

`September 26,
                                                              2004          Expiration Dates
                                                          -------------     ----------------
                                                          (In thousands)
U.S. and Foreign Loss Deferred Tax Assets:
   Federal NOLs (1)                                         $  6,139        2022 to 2023
   State NOLs                                                 10,399        2005 to 2023
   Foreign NOLs                                                8,129        2010 to indefinite
   Capital losses                                                430        2006
                                                            --------
                                                            $ 25,097
                                                            ========

Tax Credit Deferred Tax Assets:
    Foreign tax credits                                     $ 23,630        2005 to indefinite
    Research credits                                          10,182        2007 to 2023
    Alternative minimum tax credits                            1,347        Indefinite
                                                            --------
                                                            $ 35,159
                                                            ========

(1) NOLs = Net Operating Loss Carryforwards`

52

---

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

## Income Taxes (Continued)

At September  26,  2004,  the Company had $6.1  million of deferred  tax assets  related to U.S.  federal net NOLs,
which reflect a tax benefit of  approximately  $17.4 million in future U.S.  federal tax  deductions.  At September
26, 2004, the Company had $10.4 million of deferred tax assets  related to state NOLs,  which reflect a tax benefit
of  approximately  $260 million in future state tax deductions.  The difference in the amount of future federal and
state tax  deductions  related to the NOLs is primarily  attributable  to two factors:  1) The  difference  between
federal and state NOL  carryback  rules which have allowed the use of federal  NOLs in  instances  where state NOLs
could not be utilized  and 2) the  difference  in the taxable  portion for federal and state  purposes of dividends
received from the Company's foreign subsidiaries.

Net deferred tax  liabilities  for the Company at September 26, 2004 were $12.5 million.  As of September 26, 2004,
deferred tax liabilities for estimated U.S. federal and state income taxes and foreign  withholding  taxes of $50.3
million  have been accrued on  unremitted  foreign  earnings of $114.8  million.  Taxes have not been  provided for
unremitted  foreign  earnings of $11.1  million as these  earnings are  considered  to be  permanently  invested in
non-U.S. operations.

For the nine months ended  September  26, 2004,  the Company  recorded a net tax  provision of $2.0  million,  on a
pre-tax loss of $38.6  million.  The net tax provision  was comprised of a $20.1 million  increase in the valuation
allowance  resulting  primarily  from new  foreign  tax credits  and loss  carryforwards,  partially  offset by the
statutory  tax benefit of $15.0  million on the pre-tax loss for the nine months ended  September  26, 2004, a $1.9
million  benefit  resulting  primarily  from the release of tax  accruals  associated  with the  Company's  foreign
operations  and a $1.2 million  benefit  resulting  primarily  from  additional  state NOLs.  Included in the $20.1
million increase in the valuation  allowance was a $7.8 million increased  valuation  allowance  resulting from new
foreign tax credits  created by deemed  Swiss  withholding  taxes on foreign  earnings.  The  recording  of the new
foreign tax credits were the result of a change in the Company's  intention to repatriate  foreign cash to the U.S.
in the form of dividends in the future.  The resulting  effective  tax  provision  rate of 5% on a pre-tax loss for
the nine months ended  September 26, 2004,  resulted from the increase in the valuation  allowance,  the release of
tax accruals and from  additional  state NOLs.  This compares to an income tax benefit of $9.8 million on a pre-tax
loss of $13.2 million for the nine months ended  September 28, 2003,  which  included a benefit of $4.6 million for
research  tax  credits.  The  resulting  effective  tax benefit rate of 74% on the pre-tax loss for the nine months
ended September 28, 2003 resulted from the $4.6 million of research tax credits.

## Liquidity and
Capital Resources

At September 26, 2004, the
Company had total cash, cash equivalents and temporary investments of $119.3
million compared to $168.9 million at December 31, 2003, a decrease of $49.6
million, or 29%.

At September 26, 2004, $6.6
million of total cash, cash equivalents and temporary investments were on
deposit in the U.S., for the U.S. entity, compared to $0.7 million at December
31, 2003.

53

---

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

## Liquidity and
Capital Resources (Continued)

At September 26, 2004, the
remaining $112.7 million of non-U.S. entities total cash, cash equivalents
and temporary investments were on deposit in the U.S. and foreign countries
(primarily Western Europe), compared to $168.2 million at December 31, 2003. The
repatriation of any of the $112.7 million of foreign cash to the U.S. will be
taxable income in the U.S. for federal and state tax purposes at a rate of
approximately 37%. However, the amount of cash required for U.S. federal and
state taxes will be less than the Companys 37% rate due to the
availability of the Companys existing federal and state NOLs and tax
credit carryforwards.

On October 22, 2004, the
President signed the American Jobs Creation Act of 2004 (Jobs
Act) A provision of the Jobs Act allows companies to repatriate funds held
by foreign-based subsidiaries at a reduced tax rate under certain circumstances.
The Company is currently evaluating the provisions of the Jobs Act and is
investigating the possible repatriation of foreign-based subsidiaries
funds under the Job Act provisions.

Working capital of $94.1
million at September 26, 2004 decreased by $37.4 million, or 28%, compared to
$131.5 million at December 31, 2003. The decrease in working capital resulted
primarily from lower cash, cash equivalents and temporary investments, lower
current deferred income taxes and lower trade receivables, partially offset by
lower other current liabilities, lower income taxes payable and lower accounts
payable.

For the nine months ended
September 26, 2004, cash used by operating activities amounted to $39.7 million,
a $35.9 million increased use of cash compared to cash used by operating
activities of $3.8 million for the nine months ended September 28, 2003. The
primary uses of cash in the first nine months of 2004 were $17.9 million for the
product loss associated with the completion of development, launch and follow-on
development of REV products, $8.5 million for the development and other related
costs for the DCT Program, $3.9 million for restructuring disbursements, $2.7
million for the payment of annual management bonus plans and changes in current
assets and current liabilities as described below.

Trade receivables decreased
for the nine months ended September 26, 2004 primarily from lower sales. Days
sales outstanding (DSO) in receivables deteriorated from 36 days at
December 31, 2003 to 40 days at September 26, 2004, primarily due to the timing
of sales during the third quarter as compared to the fourth quarter and from
invoicing and collection disruptions in the third quarter of 2004 due to issues
surrounding the Companys information technology system upgrade and the
transition to a new global logistics provider. DSO is calculated by multiplying
the period end trade receivables balance by 90 and dividing that amount by the
sales for the quarter ended of the applicable year. Current deferred income
taxes decreased primarily due to lower inventory reserves and an increased
valuation allowance primarily resulting from changes in NOLs. Other current
liabilities decreased primarily from lower accrued payroll, vacation and bonus
accruals due to the payment of annual management bonus plans in January 2004
that were accrued at December 31, 2003, lower restructuring accruals primarily
due to utilization of the accruals (See the section above entitled,
Restructuring Charges and Reversal for more detail on the accrual
utilization) and lower margin on deferred sales as the estimated amount of
excess channel inventory decreased. Income taxes payable decreased due to the
release of tax accruals associated with the Companys foreign
operations.Accounts payable decreased due to lower purchases reflecting
the lower sales volumes.

54

---

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

## Liquidity and
Capital Resources (Continued)

As discussed in the section
entitled, Overview, the Companys goal is to reverse the
negative cash flows from operations through the cancellation of the DCT Program,
the implementation of the 2004 restructuring actions, further improvement of REV
product sales and margins, profitably grow the NSS business, manage the Zip
products business for cash flow and review and take actions to improve the
financial results of the Sourced Branded business. However, the Company can give
no assurance that it will be successful in this regard.

During the first nine
months of 2004, the Company did not repurchase any shares of the Companys
Common Stock. However the Companys treasury share balance increased by
2,585 shares for restricted Common Stock that was forfeited back to the Company
for no consideration in conjunction with the Companys Management Incentive
Plan. As of September 26, 2004, approximately $122.3 million remained available
for future repurchases under the $150 million stock repurchase plan authorized
by the Companys Board of Directors on September 8, 2000. The repurchase
plan does not have a fixed termination date.

The Company believes that
its balance of unrestricted cash, cash equivalents and temporary investments,
together with cash flows from future operations, will be sufficient to fund
anticipated working capital requirements, funding of restructuring actions,
capital expenditures and cash required for other activities for at least one
more year. However, cash flow from future operations, investing activities and
the precise amount and timing of the Companys future financing needs,
cannot be determined and will depend on a number of factors, including the
market demand for the Companys products, the future sales volume of Zip
and REV products, the effectiveness of the 2004 restructuring actions to reduce
future cash outlays, future restructuring or other charges (including those
restructuring actions already being implemented) which may consume cash, the
Companys ability to slow its sales decline, competitive price pressures,
worldwide economic conditions, the availability of critical components, the
adequate supply of products from the Companys sourcing partners, the
financial stability of the Companys customers, the success of the Company
in managing its inventory, forecasting accuracy, litigation exposures or other
unforeseen liabilities, trade receivables and accounts payable. Should the
Company be unable to meet its cash needs from its current balance of
unrestricted cash, cash equivalents and temporary investments and future cash
flows from operations, the Company would most likely seek financing from other
sources and/or incur additional restructuring charges to adjust the
Companys expenditures to a level that its cash flows could support.

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

55

---

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

## Other Matters

New Accounting Pronouncements

In March of 2004, the
Emerging Issues Task Force (EITF) reached a consensus on issue
03-01, The Meaning of Other-Than-Temporary Impairments and Its Application
to Certain Investments (EITF 03-01). EITF 03-01 provided
guidance on determining when a debt or equity security is impaired and whether
that impairment is other than temporary. Impairment was defined as when the fair
value of a debt or equity security is less than its cost. Per EITF 03-01, the
impairment is other than temporary if the Company does not have the ability to
hold onto the investment for a reasonable period of time to allow for recovery
of fair value up to the cost of the investment and evidence exists that the
investment will probably not recover its fair value within a reasonable period
of time. If an investment is determined to have an other than temporary
impairment, the Company is required to recognize an impairment loss equal to the
difference between the investments cost and fair value. EITF 03-01 also required
additional disclosures for those other than temporary impaired investments. The
recognition and disclosure requirements of EITF 03-01 were originally effective
for reporting periods ending after June 15, 2004. However, in September, the
Financial Accounting Standards Board (FASB) issued FASB Staff
Position 03-01-1, Effective Date of Paragraphs 10-20 of EITF Issue No.
03-01, The Meaning of Other-Than-Temporary Impairments and Its Application to
Certain Investments, which suspends for further discussion the
recognition criteria of EITF 03-01. However, the disclosure guidance of EITF
03-01 remains in effect. At September 26, 2004, the Companys temporary
investments that are in an unrealized loss position represent a nominal and
immaterial amount.

In October of 2004, the
EITF reached a consensus on issue 04-10, Applying Paragraph 19 of FASB
Statement No. 131, Disclosures about Segments of an Enterprise and Related
Information, in Determining Whether to Aggregate Operating Segments That Do
Not Meet the Quantitative Thresholds (EITF 04-10). EITF 04-10
provided additional guidance on when operating segments that are below the 10%
threshold can be aggregated. EITF 04-10 states that segments can only be
aggregated if they have similar economic characteristics and if they are similar
in areas such as similar production processes, types of customers, distribution
channels and the products themselves are similar. The consensus reached by EITF
04-10 is effective for fiscal years ending after October 13, 2004. The Company
is already in compliance with this guidance.

56

---

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

## Factors
Affecting Future Operating Results

Demand for the Company's Products and Operating Efficiencies

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

- Market demand for digital storage products in general;
- Successful marketing,  acceptance, and significant OEM market adoption of the Company's  recently-released
         REV products;
- The Companys REV products may not ramp fast enough to offset the continued
Zip products decline and Sourced Branded margins may not improve, causing the
Company to incur continued significant operating losses;
- Price, performance, quality and other characteristics of the Companys
products and of competing and substitute products rumored, announced or
introduced by other vendors;
- Success of the Company in
meeting targeted availability dates for new and enhanced products;
- Success of the Companys efforts to provide and maintain customer service and
satisfaction;
- Public perception of the Company and its products, including
statements made by industry analysts or consumers
and adverse publicity resulting from such statements or from litigation filed
against the Company;
- Worldwide economic conditions, including overall market demand for personal
computers and other products with which the Companys products can be used;
- Ability of the Company to profitably and efficiently manage its supply of
products and key components, and to avoid disruptions in the supply thereof;
- Ability of the Company to maintain profitable relationships with distributors,
retailers and other resellers of the Companys products;
- The Company's ability to attract and retain competent, motivated employees;
- Ability of the Company to comply with applicable laws, regulations, ordinances
and other legal requirements in the numerous countries in which it does
business;
- Ability of the Company to successfully manage litigation, including enforcing
its rights, protecting its interests and defending itself from claims made
against it and
- Ability of the Company to successfully achieve and maintain an appropriate cost
structure and to minimize unforeseen and extraordinary expenses.

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

57

---

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

## Factors
Affecting Future Operating Results (Continued)

Zip Drives and Disks

From 1996 through the first
quarter of 2004, sales of Zip drives and disks accounted for a significant
majority of the Companys revenues. More importantly, in recent years, the
Companys Zip products have been the Companys only significant source
of positive PPM. However, for the past several years Zip product sales have
declined consistently and significantly on a year-over-year basis, both in terms
of unit volumes and sales dollars (See the Zip product discussion in the section
above entitled, Sales). The Company believes that these trends are
irreversible and will continue at equal if not greater rates through the end of
the Zip product lifecycle, due to the obsolescence of Zip technology and the
emergence of alternate means for storing, sharing and transporting large data
files. In order to remain viable, the Company must replace decreasing Zip sales
and PPM with sales and PPM from other products. The Company can provide no
assurance that it will be able to do so.

As the Companys Zip
drive and disk sales have declined, it has consistently been losing shelf space
for Zip products with its key resellers and retailers because of reduced
volumes. In addition, the Company no longer has the ability to leverage demand
for its Zip products into demand for other products. The Company anticipates
increasing challenges in these areas for the remainder of the Zip product life
cycle and can provide no assurance that it will be able to successfully manage
them.

Historically, the Company
sold a significant percentage of its total volume of Zip drives to a relatively
small number of computer OEMs. The Companys OEM customers are not
obligated to purchase any minimum volume of Zip drives. One key OEM customer has
announced that it will no longer offer the Zip drive as a configure to
order option after January 2005 and other OEMs are likely to do the same.
The resulting impact on the Companys Zip business will be significant.

As the Companys Zip
product volumes continue to decline, suppliers of several critical components of
both Zip drives and disks have indicated that they will stop producing, or
End of Life, such components. In such cases, the Company attempts to
make an End of Life purchase on the required component(s) based on its estimates
of all future requirements. The End of Life of such components raises a number
of ongoing business risks, including risks such as the following:

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

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

58

---

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

## Factors
Affecting Future Operating Results (Continued)

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

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

Sourced Branded Products

The Company ships a variety
of sourced branded products (finished products which contain little or no Iomega
intellectual property and are procured from third-party suppliers, except for
the final assembly on certain products). These include CD-RW drives, DVD
rewritable drives, external hard drives, Iomega Mini and Micro Mini USB drives
and external floppy disk drives. Unlike its Zip business, the Companys
Sourced Branded Products business has never provided a significant source of
PPM. There are a number of material differences between the Sourced Branded and
Zip businesses, including the following: a) the Company does not own any
significant intellectual property relating to its Sourced Branded products; b)
there is intense competition between different manufacturers and providers of
Sourced Branded products; c) there is a need to continually requalify new drives
and products as existing drives and products come into short supply or become
obsolete and d) in the case of CD-RW, DVD rewritable and external floppy disk
drives, these drives use very low-cost, non-proprietary discs available from
many sources, unlike Zip drives. The overall Sourced Branded products business
is characterized by low (and frequently negative) gross margins, continuing end
user price reductions, the frequent introduction of new products and/or
performance upgrades for existing products and intense competition from both
brand name and generic, low-cost competitors. One or more of these factors could
result in the Company having to write-down the value of its inventory with
respect to its Sourced Branded products. In light of these factors, the Company
must accurately forecast demand and closely monitor its inventory levels,
product transitions, sales channel inventory, purchase commitments, advertising
and other marketing expenses in order to compete effectively and profitably.
There is no assurance that the Company can consistently achieve these objectives
and historically it has failed to do so. Since the Company entered the optical
market in 1999 and began sourcing products from other third-party suppliers, the
Company has reported product losses on its Optical and the Sourced Branded
business as a whole every year through 2003.

59

---

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

## Factors
Affecting Future Operating Results (Continued)

In spite of these
challenges, the Company believes it must maintain a presence in the various
sourced branded products markets in order to achieve its overall objective to be
viewed as a full-line supplier of digital Mobile and Desktop Storage Products
for the Companys retail, catalog and online customers. The Companys
Sourced Branded products business activities are focused on reducing product
costs and operating expenses, improving inventory management processes,
receiving more favorable contract terms, enforcing contract rights, improving
product life cycle management and revising channel marketing programs with the
ultimate goal to achieve profitability or to minimize product losses. However,
there is no assurance that the Companys activities in this regard will be
successful. The suppliers, as the original manufacturers, have certain
competitive advantages over the Company in the marketplace, including the
ability at any time to sell substantially identical drives at significantly
lower prices than the Company. Moreover, as the Companys revenues decline,
it becomes increasingly difficult for the Company to obtain favorable contract
terms with product suppliers.

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

NSS

In 2002, the Company
introduced a line of Network Attached Storage (NAS) servers. The NAS
market is dominated by large computer providers (including Dell and
Hewlett-Packard) with resources far in excess of the Companys, is highly
price competitive, primarily relies upon VARs to resell the products and
requires core competencies in server, software, systems integration and
networking technologies. In 2002, the Company incurred startup expenses relating
to NAS product qualification, launch and customer support in excess of its
expectations. During 2003, the Company recorded product losses in excess of
$17.9 million in its NSS operations due to under-absorbed operational overhead
due to lower than planned volumes and from higher sales and marketing and
research and development spending designed to broaden the Companys NSS
product offerings. The Company has not yet demonstrated an ability to
consistently operate profitably in this market; with the exception of the second
quarter of 2004, the Company has recorded NSS product losses in every quarter
since it established this segment.

The Company focuses on the
entry-level and low-end markets, where it attempts to leverage its small- to
medium-sized business customer base and channel customers, including existing
VARs already focused on these customers. However, the Company has not yet
successfully developed, nor can the Company provide any assurance that it will
successfully develop, the necessary core competencies to successfully compete in
this market segment. Consequently, the Company can provide no assurance that its
NAS products will be successful, that the Company will be successful in
implementing its NSS strategy, that the Company will be able to resolve any of
the challenges set forth above or that the Company will ever achieve significant
or consistent profitability on this product line.

60

---

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

## Factors
Affecting Future Operating Results (Continued)

REV Products

In April 2004, the Company
began shipping the first products in its REV products family. The Companys
current REV products consist of a drive (in external USB 2.0, Firewire, SCSI,
and internal ATAPI and SCSI versions) and removable cartridges with a native
capacity of 35GB and up to 90GB compressed. The Company intends to launch
additional REV products in the fourth quarter of 2004, including a REV-based
Autoloader (which will hold ten cartridges and one drive). The Company is also
developing a REV drive with a SATA interface.

The Companys recent
introduction of REV products entails numerous risks, including risks relating to
factors such as the following:

- Lack of market acceptance;
- Failure to achieve any
significant OEM adoption of the products;
- Unforeseen manufacturing and
technical challenges or delays;
- Inability to maintain acceptable agreements
with key suppliers or manufacturers;
- Performance,  quality or other issues that are only  discovered  in the context of usage by large  numbers
         of end users;
- Lack of defensible intellectual property;
- Lack of relevant core competencies or market expertise;
- Intense competition from substitute and strongly entrenched technologies;
- Significant product
launch and sales and marketing expenses which could cause on-going product
losses;
- Risk that third parties may assert intellectual property claims
against new products and
- Risk that unforeseen REV product quality or supply
problems will generate negative publicity and perception of the Company.

In light of the consistent
and significant declines in Zip product sales, it is unlikely that the Company
will be able to operate profitably unless and until the REV product line
generates significant positive PPM. However, a number of risks -- in addition to
those set forth above -- exist with respect to the Companys recent
introduction of REV products. Unforeseen technical, supplier and manufacturing
challenges -- either hardware or software related -- could manifest themselves
at any time. Although the Company has qualified REV internal drives with certain
tier two OEMs, the Company believes that the ultimate commercial success of REV
products is dependent upon significant additional OEM adoption and acceptance.
There can be no assurance that the Company will be able to successfully resolve
any of these challenges, problems or risks.

61

---

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

## Factors
Affecting Future Operating Results (Continued)

Development and Introduction of New Products and New Revenue Streams

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

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

Development of DCT Technology

Over the past several
years, the Company spent significant resources developing technology relating to
a drive with high-capacity, small-form-factor removable disks, known as
DCT technology. The Company previously stated that it intended to
launch the DCT technology in the summer of 2004. However, after conducting
market research and attempting to objectively evaluate the market environment in
which the DCT technology would compete, the Company decided not to launch an
Iomega-branded DCT device, and it has no plans to do so in the foreseeable
future. Rather, the Company has substantially wound down its DCT Program and is
pursuing licensing agreements for the DCT technology with partners whom the
Company believes have the resources to fully capitalize on DCT technology.
However, the Company can offer no assurance that it will be able to enter into
any such license or other arrangement. As a result of the decision to wind down
the DCT Program, the Company has incurred material fixed asset impairment and
other charges.

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

62

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

## Factors
Affecting Future Operating Results (Continued)

General Economic Conditions

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

Collection Risks

Although the Company uses
commercially reasonable steps to manage the credit granted to its customers,
certain trade receivable balances from one or more of its customers may become
uncollectible. This event could adversely affect the Companys financial
results. The Company may be required to increase its allowance for doubtful
accounts in the future. In addition, key resellers, distributors and resellers
who sell the Companys products have begun to require the Company to offer
them increasingly favorable credit and purchase terms and conditions in exchange
for continuing to carry the Companys products. The Company anticipates
continued challenges in this area. This trend could have an adverse effect upon
the Company. The Company has outsourced certain collection functions and is
therefore reliant upon third-party service providers for such collection
activities. Any failure of the third-party service provider to perform
adequately or any dispute between the Company and the service provider could
have an adverse effect upon the Company.

Information Technology System Upgrade

During the third quarter of
2003, the Company began a project to upgrade the Companys information
technology system, re-engineer its business processes and upgrade its Enterprise
Resource Planning (ERP) systems. During the second and third
quarters of 2004, the Company implemented these upgraded systems and work on
these upgrades continues. The ultimate goal of these combined projects is to
reduce costs by simplifying business processes and reducing the number of
systems needed to be maintained. There is no assurance that the Company will
reduce costs or simplify processes as a result of the system upgrade and
business process changes. During the system upgrade implementation process, and
thereafter, the Company has experienced startup issues and product shipment and
collection disruptions. There is a risk that such disruptions and interruptions
may continue.

Company Operations

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

63

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

## Factors
Affecting Future Operating Results (Continued)

Inventory Management

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

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

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

Product Procurement

On November 1, 2002, the
Company sold its Penang Manufacturing Subsidiary to a third party. The Company
entered into a five-year manufacturing services agreement with the third party
for the manufacture and supply of Zip drives and certain other products. As a
result of this transaction, the Company faces the following risks: the Company
no longer has direct control over the manufacturing processes of Zip drives, Zip
disks, and other products (including REV drives and disks); the Companys
ability to quickly increase or decrease production rates may be impaired; the
Companys lack of control over its manufacturing processes may increase the
risk that quality or reliability problems may arise with respect to its products
and the Company has incurred increased product and operational costs, and may
incur additional product and operational costs in the future. For example, Zip
product prices agreed to with the third-party contract manufacturer are
contingent upon the Company purchasing certain volumes. The Company has incurred
significant incremental costs as a result of not meeting the targeted volumes on
Zip drives and the Company may incur additional such costs in the future.

Product Procurement Costs

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

64

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

## Factors
Affecting Future Operating Results (Continued)

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

Distribution and Logistics

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

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

Reporting of Channel Inventory and Product Sales by Channel Partners

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

65

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

## Factors
Affecting Future Operating Results (Continued)

Obsolescence Risks

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

Component Supplies

Although the Company has
sold its Penang Manufacturing Subsidiary, the Company has retained
responsibility for the supply of certain key components. The Company has
experienced difficulty in the past, and may experience difficulty in the future,
in obtaining a sufficient supply of many key components on a timely and cost
effective basis. Many components incorporated or used in the manufacture of the
Companys products are currently available only from single source
suppliers or from a limited number of suppliers and are purchased by the Company
without guaranteed supply arrangements. As Zip product volumes have declined,
multiple suppliers have imposed component price increases and the Company has
incurred End of Life material charges, which increases the overall cost of the
Zip products and this trend is expected to continue. There can be no assurance
that the Company will be able to obtain a sufficient supply of components on a
timely and cost effective basis.

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

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

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

66

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

## Factors
Affecting Future Operating Results (Continued)

The purchase orders under
which the Company buys many of its components and sourced products generally
extend one to three quarters in the future based on the lead times associated
with the specific component or sourced product. The quantities on the purchase
orders are based on estimated future sales requirements. In the case of new
products or products with declining sales, it can be difficult to estimate
future product demand, which could result in excess purchase commitments, where
the Company has made commitments for purchases that the Company does not
anticipate utilizing and therefore are considered excess. The Company has
recorded significant charges in the past relating to excess purchase commitments
and inventory reserves. The Company may be required to take similar charges
attributable to forecasting inaccuracies in the future.

Intellectual Property Risks

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

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

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

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

Legal Risks

The Company has entered
into multiple agreements, including service, supply, resale, distribution,
development and other agreements in multiple jurisdictions throughout the world.
The Company is also subject to an array of regulatory and compliance
requirements. In addition, as of September 30, 2004, the Company employed
approximately 522 people throughout the world, which includes those on
transition from the 2004 restructuring actions. Although the Company attempts to
fulfill all of its obligations and enforce all of its rights under these
agreements and relationships, and to comply with all applicable laws and
regulations, there is no assurance that it will be able to do so. The Company
has been sued and may be sued, under numerous legal theories, including breach
of contract, tort, products liability, intellectual property infringement and
other theories. Complaints have been filed and may be filed, against the Company
by contract partners, third parties, employees and other individuals or
entities. Such litigation, regardless of outcome, may have an adverse effect
upon the Companys profitability or public perception.

67

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

## Factors
Affecting Future Operating Results (Continued)

Restructuring and Other Cost Reduction Activities

During the third quarter of
2004, the Company restructured its operations in an attempt to align its cost
structure with the Companys future business direction and expected revenue
streams. As a result, the Company incurred restructuring charges, and laid off
53 employees worldwide and announced the phasing out of an additional 61
positions worldwide, to be completed by the end of March 2005. There will also
be an additional 33 employees who will be notified in the fourth quarter of 2004
that their positions are being eliminated. This action will bring the total
reduction of employees under the 2004 restructuring actions to 147 positions.
The Company can provide no assurance that these actions will lead to sustainable
cost reductions or will otherwise benefit the Company. In addition, as a result
of the restructuring and the compounded effects of multiple restructurings in
recent years, the Company is at risk that key personnel, experience or knowledge
may be lost. The Company may incur legal liabilities and claims associated with
the restructuring.

Retention of Key Personnel

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

68

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

## Factors
Affecting Future Operating Results (Continued)

Internal Control Reporting Compliance Efforts

Under Section 404 of the
Sarbanes-Oxley Act of 2002 (SOX), the Company is required to include
in its annual report a report on internal controls. This report must state
managements responsibility for establishing and maintaining an adequate
internal control structure and procedures for financial reporting. The report
must also contain an assessment, as of the end of the year, of the effectiveness
of those internal controls. SOX also requires the Companys registered
public accounting firm to test and report on the assessment made by management.
These new rules are effective for the Company for the year ending December 31,
2004. In order to meet these requirements, the Company must document and test
the effectiveness of its internal controls and then allow time for its
registered public accounting firm to audit the Companys internal control
structure. The amount of work required by the Company to prepare, maintain and
test its internal control structure has been extensive. With the other major
projects that the Company has undertaken during 2004, (i.e., implementation of
the information technology systems upgrade with related business process
changes, transition to a new worldwide logistics provider, implementation of
regional assembly process for the Companys Sourced Branded products and
implementation of the 2004 restructuring actions) the Company has found it very
difficult to find the internal resources necessary to complete the documentation
of its internal controls and, as a result, its registered public accounting firm
has not begun to perform their required work. Although the Company is not
currently aware of any material weaknesses with respect to its internal controls
over financial reporting, there are significant risks that the Companys
inability to complete the documentation and testing for such internal controls
could result in a determination otherwise. It is imperative that the Company
complete its documentation and test its internal control structure so that
material weaknesses, if any, can be addressed and corrected before the
registered public accounting firm begins their review. The Company has recently
begun to test its internal control structure and may not have enough time to
adequately address any issues that arise during this testing.

In the event that
management is unable to complete its assessment of the effectiveness of the
Companys internal controls over financial reporting or the Companys
auditors are unable to attest to managements assessment, or if these
internal controls are not effective, the Company might experience an adverse
reaction in the financial marketplace due to a loss of investor confidence in
the reliability of the Companys financial statements, which could
negatively impact the market price of the Companys Common Stock.

Other Risk Factors

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

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

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

69

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# IOMEGA
CORPORATION AND SUBSIDIARIES

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

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

The Company uses forward
contracts to hedge those net assets and liabilities that, when remeasured
according to accounting principles generally accepted in the United States of
America, impact the condensed consolidated statement of operations. All forward
contracts entered into by the Company are components of hedging programs and are
entered into for the sole purpose of hedging an existing or anticipated currency
exposure, not for speculation or trading purposes. Currently, the Company is
using only forward contract instruments to hedge its net balance sheet
exposures. The contracts are primarily in European currencies and the Singapore
dollar. The Company enters into contracts throughout the month as necessary.
These contracts normally have maturities that do not exceed 40 days.

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

The fair value of the
Companys forward contracts is subject to change as a result of potential
changes in market rates and prices. If the U.S. dollar were to strengthen or
weaken against these foreign currencies by 10%, the hypothetical value of the
contracts would have increased or decreased by approximately $2.6 million at
September 26, 2004 and $2.4 million at December 31, 2003. However, these forward
exchange contracts are hedges and consequently any market value gains or losses
arising from these foreign exchange contracts should be offset by foreign
exchange losses or gains on the underlying assets and liabilities. Calculations
of the above effects assume that each rate changed in the same direction at the
same time relative to the U.S. dollar. The calculations reflect only those
differences resulting from mechanically replacing one exchange rate with
another. They do not factor in any potential effects that changes in currency
exchange rates may have on statement of operations translation, sales volume and
prices and on local currency costs of production. As of September 26, 2004 and
December 31, 2003, the Companys analysis indicated that such market
movements, given the offsetting foreign currency gains or losses on the
underlying net assets and liabilities, would not have a material effect on the
Companys consolidated financial position, results of operations or cash
flows. Factors that could impact the effectiveness of the Companys hedging
programs include volatility of the currency and interest rate markets,
availability of hedging instruments and the Companys ability to accurately
project net asset or liability positions. Actual gains and losses in the future
may differ materially from the Companys analysis depending on changes in
the timing and amount of interest rate and foreign exchange rate movements and
the Companys actual exposures and hedges.

70

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# IOMEGA
CORPORATION AND SUBSIDIARIES

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

The Company did not have
any significant debt outstanding at September 26, 2004 and December 31, 2003.
Should the Company need to borrow funds in the future, it would be subject to
credit-based interest rate risks. The Company is also subject to interest rate
risks on its current cash, cash equivalents and temporary investment balances.
For example, if the interest rate on the Companys interest bearing
investments were to change 1% (100 basis points), interest income would have
hypothetically increased or decreased by $0.3 million and $1.1 million during
the third quarter and nine months ended September 26, 2004, respectively. If the
interest rate on the Companys interest bearing investments were to change
1% (100 basis points), interest income would have hypothetically increased or
decreased by $1.1 million and $3.4 million during the third quarter and nine
months ended September 28, 2003, respectively. This hypothetical analysis does
not take into consideration the effects of the economic conditions that would
give rise to such an interest rate change or the Companys response to such
hypothetical conditions.

Investments purchased with
maturities in excess of three months are classified as temporary investments.
Temporary investments at September 26, 2004 consisted primarily of U.S.
treasuries, corporate notes, bonds and paper and U.S. agencies. Temporary
investments at December 31, 2003 consisted primarily of corporate notes, bonds
and paper, U.S. treasuries, certificates of deposit, asset-backed securities and
mortgage-backed securities. None of the Companys temporary investments has
an effective maturity greater than 24 months and at September 26, 2004 the
average duration of the Companys temporary investments was approximately
17 months as compared to an average duration of 14 months at December 31, 2003.
At September 26, 2004, the Company had debt security investments of $3.5 million
that will mature within one year and $14.9 million that will mature in more than
one year but less than two years. The Company seeks to minimize its credit risk
associated with temporary investments by purchasing investment grade, liquid
securities. The Company has classified all of its temporary investments as
available-for-sale securities.

## ITEM 4.
CONTROLS AND PROCEDURES

The Companys
management, with the participation of the Companys chief executive officer
and interim chief financial officer, evaluated the effectiveness of the
Companys disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act) as of September 26, 2004.In
designing and evaluating the Companys disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applied its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Based on this
evaluation, the Companys chief executive officer and interim chief
financial officer concluded that as of September 26, 2004, the Companys
disclosure controls and procedures were (1) designed to ensure that material
information relating to the Company, including its consolidated subsidiaries, is
made known to the Companys chief executive officer and interim chief
financial officer by others within those entities, particularly during the
period in which this report was being prepared and (2) effective, in that they
provide reasonable assurance that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms.

71

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# IOMEGA
CORPORATION AND SUBSIDIARIES

# ITEM 4.  CONTROLS AND PROCEDURES (Continued)

During the third quarter of
2004, the Company experienced material changes in certain of its internal
controls as a result of the implementation of an upgrade to the Companys
information technology system. Also during the third quarter of 2004, the
Company began relying on the systems of its new global logistics provider. The
Company has performed a variety of reconciliations and has put various processes
in place in an attempt to ensure that financial data has been correctly
reflected in the financial statements related to these two changes. The Company
is not currently aware of any material adverse impacts on internal controls as a
result of these two changes.

No other changes in the
Companys internal controls over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the third
quarter ended September 26, 2004, that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial
reporting.

72

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# IOMEGA
CORPORATION AND SUBSIDIARIES
PART II OTHER INFORMATION

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

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

During the third quarter
of 2004, the Company did not repurchase any shares of the Companys Common
Stock. As of September 26, 2004, approximately $122.3 million remained available for
future repurchases under the $150 million stock repurchase plan authorized by
the Companys Board of Directors on September 28, 2000. The repurchase plan
does not have a fixed termination date.

ITEM 6.
EXHIBITS:

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

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# IOMEGA CORPORATION AND SUBSIDIARIES
SIGNATURES

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

|Dated: November 4, 2004
Dated: November 4, 2004 | IOMEGA CORPORATION
        (Registrant)/s/ Werner T. Heid
    Werner T. Heid
      
President and Chief Executive Officer    /s/ Thomas D. Kampfer
Thomas D. Kampfer
      
Vice President, General Counsel and
      
      
Secretary and Interim Chief Financial
      
      
Officer
|----------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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## IOMEGA CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX

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

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

|31.9 | Section 302 certification letter from Werner T. Heid, President and Chief Executive Officer.
|---- | --------------------------------------------------------------------------------------------

|31.10 | Section 302 certification letter from Thomas D. Kampfer, Vice President,
General Counsel and Secretary and Interim Chief Financial Officer.
|----- | -------------------------------------------------------------------------------------------------------------------------------------------

|32.7 | Section 906 certification letter from Werner T. Heid, President and Chief Executive Officer.
|---- | --------------------------------------------------------------------------------------------

|32.8 | Section 906 certification letter from Thomas D. Kampfer, Vice President,
General Counsel and Secretary and Interim Chief Financial Officer.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------

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