---

# 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 30, 2001

## OR

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

## COMMISSION FILE NUMBER 1-12333

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

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

4370 La Jolla Village Drive, 5th Floor, San Diego, CA 92122(Address of principal executive offices)

(858) 546-4770(Registrant's telephone number, including area code)

1821 West Iomega Way, Roy, UT 84067(Former address, changed since last report)

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 the number of shares outstanding of each of the issuer's classes of common stock,
as of November 5, 2001.

|Common Stock, par value $.03 1/3(Title of each class) | 52,117,831(Number of shares)
|----------------------------------------------------- | ----------------------------

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# IOMEGA CORPORATION
TABLE OF CONTENTS

`Page

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

                                   PART I - FINANCIAL STATEMENTS

Item 1.  Financial Statements

Condensed consolidated balance sheets at September 30, 2001
             and December 31, 2000.................................................................       3

Condensed consolidated statements of operations for the quarters
             ended September 30, 2001 and September 24, 2000.......................................       5

Condensed consolidated statements of operations for the nine months
             ended September 30, 2001 and September 24, 2000.......................................       6

Condensed consolidated statements of cash flows for the nine months
             ended September 30, 2001 and September 24, 2000.......................................       7

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

Item 2.  Management's Discussion and Analysis of Financial
             Condition and Results of Operations...................................................      38

Item 3.  Quantitative and Qualitative Disclosures About Market Risk................................      72

                                            PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.........................................................................      73

Item 2.  Changes in Securities and Use of Proceeds.................................................      73

Item 4.  Submission of Matters to a Vote of Security Holders.......................................      73

Item 6.  Exhibits and Reports on Form 8-K..........................................................      74

Signatures.........................................................................................      75

Exhibit Index......................................................................................      76`

---

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

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

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

IOMEGA CORPORATION
                                       CONDENSED CONSOLIDATED BALANCE SHEETS
                                                      ASSETS
                                                  (In thousands)

`September 30,            December 31,
                                                                           2001                    2000    
                                                                                     (Unaudited)
Current assets:
   Cash and cash equivalents                                            $  243,121               $  255,572
   Temporary investments                                                    92,925                  122,347
   Trade receivables, less allowance for doubtful accounts of
     $11,364 and $8,858, respectively                                       97,007                  139,461
   Inventories                                                              70,044                  102,497
   Deferred income taxes                                                    42,279                   43,471
   Income taxes receivable                                                   4,589                    3,758
   Other current assets                                                     10,991                   15,301
                                                                        ----------               ----------
      Total current assets                                                 560,956                  682,407
                                                                        ----------               ----------

Property, plant and equipment, at cost                                     310,084                  317,284
   Less: Accumulated depreciation and amortization                        (248,186)                (215,695)
                                                                        ----------               ----------
      Net property, plant and equipment                                     61,898                  101,589
                                                                        ----------               ----------

Intangibles, net                                                            23,797                   29,293
                                                                        ----------               ----------

Other assets                                                                 3,099                    2,150
                                                                        ----------               ----------

                                                                        $  649,750               $  815,439
                                                                        ==========               ==========`

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

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

`September 30,        December 31,
                                                                               2001                 2000    
                                                                                      (Unaudited)
Current liabilities:
   Accounts payable                                                        $   67,778            $ 108,168
   Other current liabilities (Note 1)                                         179,768              181,735
   Capitalized lease obligations                                                1,578                2,311
                                                                            ---------            ---------
      Total current liabilities                                               249,124              292,214
                                                                            ---------            ---------

Long-term liabilities                                                           2,961                4,001
                                                                            ---------            ---------

Deferred income taxes                                                          13,322               30,684
                                                                            ---------            ---------

Commitments and contingencies (Notes 5, 6 and 7)

Stockholders' equity:
   Preferred Stock, $0.01 par value; authorized 4,600,000
      shares, none issued                                                           -                    -
   Series A Junior Participating Preferred Stock; authorized
      400,000 shares, none issued                                                   -                    -
   Common Stock, $0.03 1/3 par value; authorized 400,000,000
      shares; issued 54,566,019 and 54,470,117 shares,
      respectively                                                              1,819                1,815
   Additional paid-in capital                                                 307,372              306,140
   Less: 1,732,288 and 461,528 Common Stock treasury shares,
      respectively, at cost                                                   (21,525)             (13,267)
   Retained earnings                                                           96,677              193,852
                                                                            ---------            ---------

      Total stockholders' equity                                              384,343              488,540
                                                                            ---------            ---------

                                                                            $ 649,750            $ 815,439
                                                                            =========            =========`

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

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

`For the Quarter Ended        
                                                                    September 30,           September 24,
                                                                        2001                     2000    
                                                                                  (Unaudited)
Sales                                                                $   182,137              $  320,501
Cost of sales (Note 5)                                                   149,859                 189,717
                                                                     -----------              ----------
Gross margin                                                              32,278                 130,784
                                                                     -----------              ----------

Operating expenses:
    Selling, general and administrative                                   54,534                  69,798
    Research and development                                              12,476                  15,891
    Restructuring charges (reversals) (Note 6)                            33,266                  (2,317)
    Bad debt expense (credit)                                              5,509                    (953)
                                                                     -----------              ----------
       Total operating expenses                                          105,785                  82,419
                                                                     -----------              ----------

Operating income (loss)                                                  (73,507)                 48,365
Interest income                                                            3,419                   5,709
Interest and other expense                                                  (216)                 (1,047)
                                                                     -----------              ----------

Income (loss) before income taxes                                        (70,304)                 53,027
Benefit (provision) for income taxes                                        (848)                  2,393
                                                                     -----------              ----------

Net income (loss)                                                    $   (71,152)             $   55,420
                                                                     ===========              ==========

Net income (loss) per common share:
    Basic                                                            $     (1.32)             $     1.02
                                                                     ===========              ==========
    Diluted                                                          $     (1.32)             $     1.00
                                                                     ===========              ==========

Weighted average common shares outstanding                                53,848                  54,170
                                                                     ===========              ==========

Weighted average common shares outstanding -
    assuming dilution                                                     53,848                  56,013
                                                                     ===========              ==========`

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

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

`For the Nine Months Ended    
                                                                         September 30,       September 24,
                                                                             2001                2000    
                                                                                    (Unaudited)
Sales                                                                     $  644,363           $ 969,037
Cost of sales (Note 5)                                                       519,082             590,335
                                                                          ----------           ---------
Gross margin                                                                 125,281             378,702
                                                                          ----------           ---------

Operating expenses:
    Selling, general and administrative                                      169,855             205,898
    Research and development                                                  39,793              42,339
    Restructuring charges (reversals) (Note 6)                                34,352              (4,814)
    Bad debt expense (credit)                                                  6,102              (2,553)
                                                                          ----------           ---------
       Total operating expenses                                              250,102             240,870
                                                                          ----------           ---------

Operating income (loss)                                                     (124,821)            137,832
Interest income                                                               13,067              14,619
Interest and other expense                                                      (535)             (5,494)
                                                                          ----------           ---------

Income (loss) before income taxes                                           (112,289)            146,957
Benefit for income taxes                                                      15,114                 659
                                                                          ----------           ---------

Net income (loss)                                                         $  (97,175)          $ 147,616
                                                                          ==========           =========

Net income (loss) per common share:
    Basic                                                                 $    (1.80)          $    2.73
                                                                          ==========           =========
    Diluted                                                               $    (1.80)          $    2.66
                                                                          ==========           =========

Weighted average common shares outstanding                                    53,974              54,129
                                                                          ==========           =========

Weighted average common shares outstanding -
    assuming dilution                                                         53,974              56,296
                                                                          ==========           =========`

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

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

`For the Nine Months Ended     
                                                                          September 30,          September 24,
                                                                              2001                   2000    
                                                                                      (Unaudited)
   Cash flows from operating activities:
       Net income (loss)                                                   $  (97,175)             $ 147,616
       Non-cash revenue and expense adjustments:
          Depreciation and amortization                                        39,336                 54,963
          Deferred income taxes                                               (16,170)                (2,380)
          Non-cash inventory write-offs                                        29,314                  2,829
          Restructuring charges (reversals)                                     9,787                 (1,517)
          Loss on fixed assets and other assets                                14,164                  4,210
          Bad debt expense (credit)                                             6,102                 (2,553)
          Tax benefit from dispositions of employee stock                         202                    918
                                                                           ----------              ---------
                                                                              (14,440)               204,086
   Changes in assets and liabilities:
       Trade receivables                                                       36,352                  8,851
       Inventories                                                              3,139                 16,021
       Other current assets                                                     4,310                  5,785
       Accounts payable                                                       (40,390)               (20,811)
       Other current liabilities                                              (19,459)               (11,309)
       Accrued restructuring                                                   17,492                 (9,015)
       Income taxes                                                              (831)                18,550
                                                                           ----------              ---------
   Net cash provided by (used in) operating activities                        (13,827)               212,158
                                                                           ----------              ---------

   Cash flows from investing activities:
       Purchase of property, plant and equipment                              (15,680)               (18,432)
       Purchase of temporary investments                                     (126,898)              (182,256)
       Sale of temporary investments                                          156,320                106,581
       Net change in other assets/liabilities                                  (4,199)                 4,276
                                                                           ----------              ---------
   Net cash provided by (used in) investing activities                          9,543                (89,831)
                                                                           ----------              ---------

   Cash flows from financing activities:
       Proceeds from sales of Common Stock                                      1,034                  2,187
       Purchases of Common Stock                                               (8,258)                (1,985)
       Payments on capitalized lease obligations                                 (943)                (2,200)
                                                                           ----------              ---------
   Net cash used in financing activities                                       (8,167)                (1,998)
                                                                           ----------              ---------
   Net increase (decrease) in cash and cash equivalents                       (12,451)               120,329
   Cash and cash equivalents at beginning of period                           255,572                172,706
                                                                           ----------              ---------
   Cash and cash equivalents at end of period                              $  243,121              $ 293,035
                                                                           ==========              =========`

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

IOMEGA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

|(1) | SIGNIFICANT ACCOUNTING POLICIES
|--- | -------------------------------

| | In
the opinion of the Companys management, the accompanying unaudited,
condensed, consolidated financial statements reflect all adjustments which are
necessary to present fairly the financial position of the Company as of
September 30, 2001 and December 31, 2000, the results of operations for the
quarters and nine months ended September 30, 2001 and September 24, 2000 and
cash flows for the nine months ended September 30, 2001 and September 24, 2000.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
results of operations for the quarter and nine months ended September 30, 2001
are not necessarily indicative of the results to be expected for the entire year
or for any future period.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

| | Revenue
Recognition -The Companys customers include original equipment
manufacturers (OEMs), retailers, distributors, end users and
value-added manufacturers. Some retail and distribution customer agreements have
provisions that allow the customer to return product under certain conditions
within specified time periods. Revenue, less reserves for returns, is generally
recognized upon shipment to the customer. The Company has established reserves
for estimated returns, which are reflected as a reduction in trade receivables
in the accompanying condensed consolidated balance sheets. The reserve for
estimated returns totaled $7.7 million and $9.8 million at September 30, 2001
and December 31, 2000, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In addition to reserves for returns, the Company defers recognition of revenue on
estimated excess inventory in the distribution and retail channels. For this
purpose, excess inventory is the amount of inventory that exceeds the
channels 30-day requirements as estimated by management. The gross margin
associated with deferral of revenue for estimated excess channel inventory
totaled $12.2 million and $16.8 million at September 30, 2001 and December 31,
2000, respectively, and is included in Other current liabilities in
the accompanying condensed consolidated balance sheets.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | Reserves
for price protection credits and rebates totaled $47.7 million and $39.0 million
at September 30, 2001 and December 31, 2000, respectively, and are netted
against trade receivables in the accompanying condensed consolidated balance
sheets.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | Temporary
Investments - Investments with maturities in excess of three months
are classified as temporary investments. Temporary investments at September 30,
2001 and December 31, 2000 primarily consisted of municipal notes, bonds and
paper; government securities; commercial paper; and corporate notes, bonds and
paper. The Company seeks to minimize its credit risk associated with temporary
investments by using investment grade, highly liquid securities. All of the
Companys temporary investments are classified as available-for-sale
securities.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

`September 30,       December 31,
                                                                           2001                2000    
                                                                                (In thousands)
              Raw materials                                              $ 15,367            $ 25,462
              Work-in-process                                               4,438               4,740
              Finished goods                                               44,686              64,648
              Inventory associated with estimated returns                   5,553               7,647
                                                                         --------            --------
                                                                         $ 70,044            $102,497
                                                                         ========            ========`

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

`September 30,        December 31,
                                                                          2001                 2000    
                                                                                (In thousands)
              Accrued payroll, vacation and bonus                       $  14,836           $  21,020
              Margin on deferred revenue                                   12,197              16,776
              Accrued warranty                                             10,169              13,315
              Accrued marketing                                            40,726              53,557
              Accrued restructuring                                        20,676               4,001
              Purchase commitments                                         23,664               3,378
              Other accrued liabilities                                    57,500              69,688
                                                                         --------            --------
                                                                         $179,768            $181,735
                                                                         ========            ========`

| | Reverse
Stock Split -On September 28, 2001, the Companys shareholders
approved a one-for-five reverse stock split of the Companys outstanding
Common Stock shares. The reverse stock split was effected after the market close
on September 28, 2001, thereby reducing 272.8 million shares of issued Common
Stock (including treasury shares) to 54.6 million shares. The par value of the
Common Stock was not affected by the reverse stock split and remains at $.03 1/3
per share after the reverse stock split. Consequently, the aggregate par value
of the issued Common Stock was reduced affecting the stockholders equity
section of the balance sheet due to reclassifying the par value amount of the
reversed common shares from Common Stock to Additional Paid-in Capital for all
periods presented. All per share amounts and outstanding shares, including all
common stock equivalents (stock options), have been retroactively restated in
the financial statements for all periods presented to reflect the reverse stock
split.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Net
Income (Loss) Per Common Share Basic net income (loss) per common
share (Basic EPS) excludes dilution and is computed by dividing net
income (loss) by the weighted average number of common shares outstanding during
the period. Diluted net income (loss) per common share (Diluted EPS)
reflects the potential dilution that could occur if stock options or other
contracts to issue common stock were exercised or converted into common stock.
Diluted EPS for the quarter and nine months ended September 24, 2000 was
determined under the assumption that the Companys then outstanding 6.75%
convertible subordinated notes, redeemed on October 23, 2000, were converted on
June 26, 2000 and January 1, 2000, respectively. The computation of Diluted EPS
does not assume exercise or conversion of securities that would have an
antidilutive effect on net income (loss) per common share.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Following
is a reconciliation of the numerator and denominator of Basic EPS to the
numerator and denominator of Diluted EPS for all periods presented (All share
amounts and EPS have been restated to reflect the one-for-five reverse stock
split):
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Net
                                                                  Income (Loss)         Shares         Per Share
                                                                   (Numerator)       (Denominator)       Amount
                                                                       (In thousands, except per share data)
         For the Quarter Ended:
         September 30, 2001:
         Basic EPS                                                 $ (71,152)             53,848        $ (1.32)
            Effect of options                                              -                  -               -
                                                                   ---------              ------        -------
         Diluted EPS                                               $ (71,152)             53,848        $ (1.32)
                                                                   =========              ======        =======

         September 24, 2000:
         Basic EPS                                                 $  55,420              54,170        $  1.02
            Effect of convertible subordinated notes                     752               1,843           (.02)
                                                                   ---------              ------        -------
         Diluted EPS                                               $  56,172              56,013        $  1.00
                                                                   =========              ======        =======`

| | For
the quarters ended September 30, 2001 and September 24, 2000, stock options were
not included in the calculation of Diluted EPS as their inclusion would have
been antidilutive. For the quarters ended September 30, 2001 and September 24,
2000, there were outstanding options to purchase 2,293,210 and 486,080 shares,
respectively, that had an exercise price greater than the average market price
of the common shares for the respective quarters.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Net
                                                                 Income (Loss)           Shares       Per Share
                                                                  (Numerator)        (Denominator)      Amount
                                                                      (In thousands, except per share data)
         For the Nine Months Ended:
         September 30, 2001:
         Basic EPS                                                  $(97,175)             53,974        $ (1.80)
            Effect of options                                              -                   -              -
                                                                    --------              ------        -------
         Diluted EPS                                                $(97,175)             53,974        $ (1.80)
                                                                    ========              ======        =======

         September 24, 2000:
         Basic EPS                                                  $147,616              54,129        $  2.73
            Effect of options                                              -                 324              -
            Effect of convertible subordinated notes                   2,257               1,843          (0.07)
                                                                    --------              ------        -------
         Diluted EPS                                                $149,873              56,296        $  2.66
                                                                    ========              ======        =======`

| | For
the nine months ended September 30, 2001, stock options were not included in the
calculation of Diluted EPS as their inclusion would have been antidilutive. For
the nine months ended September 30, 2001 and September 24, 2000, there were
outstanding options to purchase 2,183,374 and 987,062 shares, respectively, that
had an exercise price greater than the average market price of the common shares
for the respective periods.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | In
August 2001, the FASB issued Statement of Financial Accounting Standards No.
143, Accounting for Asset Retirement Obligations (SFAS
143). SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS 143 applies to all entities. It applies
to legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. SFAS
143 requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset. SFAS 143 is
effective for financial statements issued for fiscal years beginning after June
15, 2002. The Company plans on adopting SFAS 143 beginning on January 1, 2003.
The Company believes that SFAS 143 will not have a material effect on the
Companys results of operations, financial position or liquidity.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
August 2001, the FASB issued Statement of Financial Accounting Standards No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS 144). SFAS 144 addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. SFAS 144 establishes a
single accounting model, based on the framework established in SFAS 121, for
long-lived assets to be disposed of by sale. SFAS 121 did not address the
accounting for a segment of a business accounted for as a discontinued operation
under APB Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions
(APB 30) so two accounting models existed for the disposal of
long-lived assets. SFAS 144 replaces both SFAS 121 and APB 30, so that only one
accounting model exists for the disposal of long-lived assets. SFAS 144 also
resolves implementation issues related to SFAS 121. The provisions of SFAS 144
are effective for financial statements issued for fiscal years beginning after
December 15, 2001. The provisions of SFAS 144 are to be applied
prospectively. The Company plans on adopting SFAS 144 beginning on January 1,
2002. The Company believes that SFAS 144 will not have a material effect on the
Companys results of operations, financial position or liquidity.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|(2) | INCOME
TAXES
|--- | ------------

| | For
the quarter ended September 30, 2001, the Company recorded an income tax
provision of $0.8 million on a pre-tax loss of $70.3 million reflecting a $28.7
million increase in the valuation allowance for net deferred tax assets.
Excluding the $28.7 million increase in the valuation allowance, the effective
tax benefit rate for the third quarter of 2001 was approximately 40%. This
compares to an income tax benefit of $2.4 million on pre-tax income of $53.0
million reflecting a $20.9 million decrease in the valuation allowance for net
deferred tax assets during the third quarter of 2000. Excluding the $20.9
million decrease in the valuation allowance, the effective tax provision rate
for the third quarter of 2000 was approximately 35%.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

`September 30,        December 31,
                                                                         2001                 2000    
                                                                               (In thousands)
                 Current deferred tax assets                           $  70,959            $  43,471
                 Non-current deferred tax assets                          56,544               46,939
                                                                       ---------            ---------
                    Total deferred tax assets                            127,503               90,410
                                                                       ---------            ---------

                 Non-current deferred tax liabilities:
                    Tax on unremitted foreign earnings                   (48,407)             (55,393)
                    Nomai goodwill                                        (5,555)              (6,775)
                                                                       ---------            ---------
                                                                         (53,962)             (62,168)
                                                                       ---------            ---------

                 Current valuation allowance                             (28,680)                   -
                 Non-current valuation allowance                         (15,904)             (15,455)
                                                                       ---------            ---------
                    Net deferred tax assets                            $  28,957            $  12,787
                                                                       =========            =========

                 As reported on the balance sheet:
                    Current deferred tax assets                        $  42,279            $  43,471
                                                                       =========            =========
                    Non-current deferred tax liabilities               $ (13,322)           $ (30,684)
                                                                       =========            =========`

| | The
Companys current deferred tax assets reflect temporary differences between
the financial reporting and tax treatment of current assets and liabilities,
mainly reserves for accounts receivable, inventories, accrued expenses and
restructuring reserves. The non-current deferred tax assets reflect temporary
differences between the financial reporting and tax treatment of non-current
assets and liabilities, plus the tax benefit of tax credit carryforwards and net
operating loss carryforwards. At September 30, 2001, the Company has $12.0
million of deferred tax assets related to domestic net operating loss
carryforwards, which reflect the tax benefit of approximately $30.8 million in
future domestic tax deductions. These carryforwards expire at various dates
beginning in 2020 through 2022.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
the third quarter of 2001, the Company established a valuation allowance
totaling $28.7 million for a portion of its domestic deferred tax assets. This
valuation allowance was recorded in accordance with SFAS 109, which requires
that a valuation allowance be established when there is significant uncertainty
as to the realizability of the deferred tax assets. In the future, as business
conditions change, the realizability of the deferred tax assets may change
resulting in either an increase or a decrease in the valuation allowance. The
realizability of the deferred tax assets is evaluated quarterly. In addition,
the Company continues to maintain a full valuation allowance of $15.9 million
for deferred tax assets related to foreign net operating loss carryforwards,
which reflect the tax benefit of approximately $36.3 million in future tax
deductions. These carryforwards expire at various dates beginning in 2004. These
deferred tax assets remain fully reserved because their realization is dependent
on earning future foreign taxable income in the tax jurisdictions to which the
net operating loss carryforwards relate. The largest of these foreign net
operating loss carryforwards relates to the Companys French subsidiary,
Nomai S.A. This subsidiarys operations have been shut down. Therefore, the
foreign net operating loss carryforward related to Nomai S.A. is not likely to
be realized in the future.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Net
deferred tax assets for the Company at September 30, 2001 are $29.0 million. The
future minimum amount of future taxable income that would have to be generated
to realize the net deferrred tax assets is approximately $74 million. Management
believes that the Companys recent restructuring efforts will reduce costs
to be more in line with expected revenues, and will allow the Company to
generate sufficient future taxable income to realize its net deferred tax
assets. As such, management believes that it is more likely than not that the
net deferred tax assets will be realized. However, actual results could differ
from those estimates in the near future and, as such, realization of the net
deferred tax assets is not assured.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Deferred tax  liabilities  for estimated  U.S.  federal and state taxes of $48.4 million and $55.4 million
as of September  30, 2001 and December 31, 2000,  respectively,  have been accrued on  unremitted  foreign
earnings  of  $124.1  million  and  $142.0  million  as of  September  30,  2001 and  December  31,  2000,
respectively.  U.S.  taxes have not been  provided  for  unremitted  foreign  earnings of $112.3  million.
These earnings are  considered to be  permanently  invested in non-U.S.  operations.  The additional  U.S.
tax liability,  if such amounts were  remitted,  would be  approximately  $44 million.  Cash dividends of
unremitted  foreign  earnings to the U.S.  would be  considered  taxable in the U.S. for federal and state
tax purposes at a rate of approximately 39%.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
the nine-month period ended September 30, 2001, the Company recorded an income
tax benefit of $15.1 million on a pre-tax loss of $112.3 million reflecting a
$29.1 million increase in the valuation allowance for net deferred tax assets.
Excluding the $29.1 million increase in the valuation allowance, the effective
tax benefit rate for the nine months ended September 30, 2001 was approximately
39%. This compares to an income tax benefit of $0.7 million on pre-tax income of
$147.0 million reflecting a $58.6 million decrease in the valuation allowance
for net deferred tax assets for the nine-month period ended September 24, 2000.
Excluding the $58.6 million decrease in the valuation allowance, the effective
tax provision rate for first nine months of 2000 was approximately 39%.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cash
paid for income taxes was $1.4 million and $1.7 million for the first nine
months of 2001 and 2000, respectively.
| | ----------------------------------------------------------------------------------------------------------------------

|(3) | DEBT
|--- | ----

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

| | Cash
paid for interest was $0.1 million and $4.3 million, for the first nine months
of 2001 and 2000, respectively.
| | -------------------------------------------------------------------------------------------------------------------

|(4) | BUSINESS
SEGMENT INFORMATION
|--- | ----------------------------

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

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

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

| | During
the third quarter of 2001, the Company recorded non-restructuring charges of
$31.1 million, of which $25.2 million was charged to the respective product
lines as cost of sales. These charges primarily reflect write-downs of CD-RW,
HipZip, FotoShow and other inventory and equipment and other assets and charges
associated with various contractual arrangements. During the second quarter of
2001, the Company also recorded non-restructuring charges of $46.0 million, of
which $44.9 million was charged to the respective product lines as cost of
sales. These charges primarily reflected write-downs of HipZip, FotoShow and
CD-RW inventory and equipment and loss accruals for related supplier purchase
commitments. During the first quarter of 2000, the Company recorded
non-restructuring charges of $7.4 million primarily reflecting write-downs of
PocketZip inventory and equipment and loss accruals for related supplier
purchase commitments (see Note 5).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
information in the following table is derived directly from the segments
internal financial information used for corporate management purposes (All Zip
and Other segment amounts have been restated to show the current classification
of FotoShow in Other).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

`For the Quarter Ended          For the Nine Months Ended 
                                                         Sept. 30,        Sept. 24,      Sept. 30,          Sept. 24,
                                                           2001             2000           2001               2000  
                                                                (In thousands)                  (In thousands)
       Sales:
          Zip                                            $142,845         $247,388      $ 490,290          $ 763,195
          Jaz                                              13,647           34,885         53,483            124,615
          CD-RW                                            17,607           34,383         80,349             69,746
          PocketZip                                         2,063            3,029          5,668              8,292
          Other                                             5,975              816         14,573              3,189
                                                         --------         --------      ---------          ---------
             Total sales                                 $182,137         $320,501      $ 644,363          $ 969,037
                                                         ========         ========      =========          =========

       Product profit margin (loss) before
          charges/reversals:
          Zip                                            $ 35,489         $ 87,753      $ 127,694          $ 246,104
          Jaz                                               3,490            9,824         15,655             34,090
          CD-RW                                            (9,556)           2,079        (26,466)             2,631
          PocketZip                                        (1,692)          (4,913)       (14,843)           (17,039)
          Other                                           (12,467)          (1,994)       (29,013)            (7,558)
                                                         --------         --------      ---------          ---------
             Total product profit margin                   15,264           92,749         73,027            258,228

       Common operating expenses without
          (charges) reversals allocated to
          product profit margin (loss):
          General corporate expenses                      (24,372)         (46,701)       (86,377)          (117,810)
          Restructuring (charges) reversals               (33,266)           2,317        (34,352)             4,814
          Non-restructuring charges                       (31,133)               -        (77,119)            (7,400)
          Interest and other income, net                    3,203            4,662         12,532              9,125
                                                         --------         --------      ---------          ---------
             Income (loss) before income taxes           $(70,304)        $ 53,027      $(112,289)         $ 146,957
                                                         ========         ========      =========          =========`

`For the Quarter Ended           For the Nine Months Ended 
                                                         Sept. 30,        Sept. 24,       Sept. 30,          Sept. 24,
                                                           2001             2000            2001               2000  
                                                                (In thousands)                  (In thousands)
       (Charges)/reversals:
          Restructuring:
             Jaz                                         $      -         $     800       $       -          $   2,397
             CD-RW                                         (1,347)                -          (1,347)                 -
             PocketZip                                          -             1,517               -              2,417
             Common                                       (31,919)                -         (33,005)                 -
                                                         --------         ---------       ---------          ---------
                                                         $(33,266)        $   2,317       $ (34,352)         $   4,814
                                                         ========         =========       =========          =========

          Non-restructuring:
             Zip                                         $ (7,553)        $       -       $ (12,021)         $       -
             CD-RW                                         (7,466)                -         (17,443)                 -
             PocketZip                                     (3,643)                -         (21,569)            (7,400)
             Other                                         (7,853)                -         (20,418)                 -
             Common                                        (4,618)                -          (5,668)                 -
                                                         --------         ---------       ---------          ---------
                                                         $(31,133)        $       -       $ (77,119)         $  (7,400)
                                                         ========         =========       =========          =========

       Product profit margin (loss) after
          charges/reversals:
          Zip                                            $ 27,936         $  87,753       $ 115,673          $ 246,104
          Jaz                                               3,490            10,624          15,655             36,487
          CD-RW                                           (18,369)            2,079         (45,256)             2,631
          PocketZip                                        (5,335)           (3,396)        (36,412)           (22,022)
          Other                                           (20,320)           (1,994)        (49,431)            (7,558)
                                                         --------         ---------       ---------          ---------
             Total product profit (loss) margin           (12,598)           95,066             229            255,642

       Common operating expenses with (charges)
          reversals allocated to product profit
          margin (loss):
          General corporate expenses                      (24,372)          (46,701)        (86,377)          (117,810)
          Restructuring charges                           (31,919)                -         (33,005)                 -
          Non-restructuring charges                        (4,618)                -          (5,668)                 -
          Interest and other income, net                    3,203             4,662          12,532              9,125
                                                         --------         ---------       ---------          ---------
             Income (loss) before income taxes           $(70,304)        $  53,027       $(112,289)         $ 146,957
                                                         ========         =========       =========          =========`

|(5) | NON-RESTRUCTURING CHARGES
|--- | -------------------------

| | During the third quarter of
2001, the Company recorded non-restructuring charges of $31.1 million, primarily
reflecting write-downs of CD-RW, HipZip, FotoShow and other inventory and
equipment and other assets and charges associated with various contractual
arrangements and supplier commitments. During the second quarter of 2001, the
Company recorded non-restructuring charges of $46.0 million, primarily
reflecting write-downs of HipZip, FotoShow and CD-RW inventory and equipment and
loss accruals for related supplier purchase commitments. During the first
quarter of 2000, the Company recorded non-restructuring charges of $7.4 million
primarily reflecting write-downs of PocketZip inventory and equipment and loss
accruals for related supplier purchase commitments. A breakdown of the charges
is included in the table below:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Financial
                                                                                          Statement
           Description of Non-Restructuring Charges                     Amount            Category   
                                                                     (In millions)
         Q3 2001
         Products:
            Zip                                                       $       7.5       Cost of sales
            CD-RW                                                             7.5       Cost of sales
            HipZip (included in PocketZip segment)                            1.9       Cost of sales
            PocketZip                                                         1.7       Cost of sales
            Peerless (included in Other segment)                              2.4       Cost of sales
            FotoShow (included in Other segment)                              1.8       Cost of sales
            Other (software and sourced products)                             2.4       Cost of sales
                                                                      -----------
                                                                             25.2
         Sales and Marketing assets and commitments                           4.0           SG and A
         Excess information technology assets                                 1.3           SG and A
         Other charges                                                        0.6           SG and A
                                                                      -----------
                                                                      $      31.1
                                                                      ===========

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

         Q1 2000
         Excess PocketZip disk manufacturing capacity                 $       3.7       Cost of sales
         PocketZip PC Card drive inventory NRV                                2.8       Cost of sales
         Excess PocketZip PC Card drive manufacturing equip.                  0.6       Cost of sales
         PocketZip PC Card drive purchase commitments                         0.3       Cost of sales
                                                                      -----------
                                                                      $       7.4
                                                                      ===========
         SG and A = Selling, general and administrative expenses
         NRV = Net realizable value`

| | The Company evaluates the
carrying value of inventory on a quarterly basis to determine if the carrying
value is recoverable at estimated selling prices. The Company includes material
costs, manufacturing costs and direct selling expenses in its analysis of
inventory realization. To the extent that estimated selling prices do not exceed
such costs and expenses, valuation reserves are established. The Company
generally considers that inventory on hand or with suppliers which is not
expected to be sold within the next nine months as excess and thus appropriate
reserves are established.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Third Quarter 2001 Non-Restructuring Charges.
| | ---------------------------------------------

| | During the third quarter of
2001, the Company recorded non-restructuring charges of $31.1 million, primarily
reflecting write-downs of CD-RW, HipZip and FotoShow inventory and equipment and
other assets and charges associated with various contractual arrangements and
supplier commitments.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Inventory reserves recorded
in the third quarter of 2001 totaled $15.1 million. Contract cancellation costs
totaled $9.1 million. The non-restructuring charges also included $6.3 million
primarily reflecting the extent to which undiscounted future cash flows are
expected to be less than the net book value of related manufacturing equipment
and other assets as well as $0.6 million for other costs associated with moving
the Corporate Headquarters from Roy, Utah to San Diego, California. The
non-restructuring charges are detailed below by product line.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the third quarter of
2001, due to decreasing sales volumes, the Company entered into a settlement
agreement to terminate a third party manufacturer of Zip media products and
consolidate this production into the Companys manufacturing facility in
Penang, Malaysia. As a result, during the third quarter of 2001, the Company
recorded contract cancellation costs of $4.8 million. In addition, due to
declining volumes, the Company recorded write-downs of related manufacturing
equipment and miscellaneous supplier commitments amounting to $2.7 million.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the third quarter of
2001, sales prices for CD-RW products fell short of the Companys
expectations for the quarter, causing the Company to further lower future
revenue expectations and sales prices. Also, higher per unit overhead costs
associated with the lower volumes, as well as supplier claims being higher than
projected in the second quarter necessitated additional inventory reserves. As a
result, during the third quarter of 2001, the Company recorded additional
inventory reserves of $7.2 million to cover inventory in the channel as well as
inventory on hand and loss accruals of $0.3 million for contract cancellation
costs.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the third quarter of
2001, sales volumes for the HipZip digital audio player fell short of the
Companys expectations for the quarter, causing the Company to further
lower future revenue expectations and sales prices. As a result, during the
third quarter of 2001, the Company recorded additional inventory reserves of
$1.9 million to cover primarily inventory in the channel.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the third quarter of
2001, due to decreasing sales volumes for PocketZip products, the Company
recorded $0.5 million of inventory reserves and loss accruals of $1.2 million
for contract cancellation costs.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Late in the second quarter
of 2001, the Company began shipping Peerless drives and cartridges in both 10GB
and 20GB versions. During the third quarter of 2001, the mix of 10GB to 20GB
cartridges sold was significantly lower than expected, resulting in excess
components for Peerless 10GB cartridges. As a result, during the third quarter
of 2001, the Company recorded inventory reserves of $2.4 million for the excess
components.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the third quarter of
2001, sales volumes for the FotoShow digital viewer fell short of the
Companys expectations for the quarter, causing the Company to further
lower volume and sales price expectations. As a result, during the third quarter
of 2001, the Company recorded additional inventory reserves of $1.8 million
primarily for inventory on hand.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Charges taken for Other
products were primarily for Microdrive and Software. During the third quarter of
2001, the Company lowered future revenue expectations for Microdrive. As a
result, during the third quarter of 2001, the Company recorded additional
inventory reserves of $1.3 million primarily for inventory on hand. Charges
taken for Other products also included write-downs of intangible software assets
of $1.1 million.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the third quarter of
2001, the Company recorded charges of $2.8 million for canceling various
marketing programs as well as write-downs of excess marketing assets of $1.2
million that will no longer be utilized.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the third quarter of
2001, as a result of the Companys streamlining efforts, the Company
wrote-down $1.3 million of impaired information technology software and incurred
$0.6 million of other charges associated with moving the Corporate Headquarters
from Roy, Utah to San Diego, California.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Second Quarter 2001 Non-Restructuring Charges.
| | ----------------------------------------------

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

| | Inventory reserves recorded
in the second quarter of 2001 amounted to $16.8 million. Loss accruals for
related supplier purchase commitments amounted to $18.3 million. Additional
accruals of $2.2 million were recorded to reflect valuation reserves for
inventory in the channel. Also included in the second quarter 2001
non-restructuring charge was $7.6 million reflecting the extent to which
undiscounted future cash flows were estimated to be less than the net book value
of related manufacturing equipment. The non-restructuring charges are detailed
below by product line.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company began shipping
a USB Zip 100MB drive in the fourth quarter of 2000. This product was scheduled
for replacement by two new lower cost drives in the third quarter of 2001. As a
result of sales of the USB Zip 100MB drive not meeting prior Company forecasts,
which caused the Company to change future expectations, and the transition to
the new lower cost drives, the Company recorded inventory reserves of $1.4
million; loss accruals of $1.3 million for supplier purchase commitments and
write-downs of related manufacturing equipment amounting to $1.8 million.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

| | During the second quarter
of 2001, an accrual of $1.1 million was recorded reflecting the separation
agreement with Mr. Bruce Albertson, the Companys former President and
Chief Executive Officer.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | First Quarter 2000 Non-Restructuring Charges.
| | ---------------------------------------------

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

|(6) | RESTRUCTURING CHARGES
|--- | ---------------------

| | Third Quarter 2001 Restructuring Actions.
| | -----------------------------------------

| | During
the third quarter of 2001, the Company recorded pre-tax restructuring charges of
$33.3 million. These restructuring charges 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Of
the $33.3 million in restructuring charges, $27.9 million related to
restructuring activities within North America, $2.6 million for restructuring
activities within the Asia Pacific region, $2.3 million for restructuring
activities within Europe and $0.5 million for restructuring activities within
Malaysia.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

| | The
Malaysia activities consisted of a workforce reduction of 295 regular employees
across almost all business functions (the majority of which were direct labor
employees) at almost all levels of the organization. At September 30, 2001, all
of the 295 individuals whose positions were identified for termination had been
dismissed. This workforce reduction resulted in an accrual of $0.5 million for
severance and outplacement costs, all of which was paid out during the third
quarter of 2001.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company anticipates that these restructuring actions, when fully implemented
over the remainder of 2001, will result in an annual cost reduction of
approximately $60 million, beginning in fiscal year 2002. The Company also
anticipates that the non-restructuring charges (discussed in Note 5) taken
during the third quarter of 2001 will result in a net annual cost reduction of
approximately $5 million, beginning in fiscal year 2002.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Third
quarter 2001 restructuring reserves in the amount of $17.2 million and $9.6
million are included in the Companys other current liabilities and
property, plant and equipment, respectively, as of September 30, 2001. The third
quarter 2001 restructuring charges originally totaled $33.3 million. Utilization
of the third quarter 2001 restructuring reserves during the third quarter is
summarized below:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Third Quarter 2001                                 Original               Utilized             Balance
         Restructuring Actions                               Charge         Cash           Non-Cash     09/30/01
                                                                               (in thousands)

         North America Reorganization:
              Severance and benefits (a)                    $ 12,697      $ (3,996)      $     -        $  8,701
              Lease cancellations (a)                          6,251           (11)            -           6,240
              Leasehold improvements and
                 furniture (b)                                 7,227             -             -           7,227
              Information technology assets (b)                1,693             -             -           1,693
                                                            --------      --------       -------        --------
                                                              27,868        (4,007)            -          23,861
                                                            --------      --------       -------        --------

         Asia Pacific Reorganization:
              Severance and benefits (a)                         850          (761)            -              89
              Lease cancellations (a)                          1,106           (84)            -           1,022
              Leasehold improvements and
                 furniture (b)                                   636             -          (249)            387
              Other (a)                                           38           (21)            -              17
                                                            --------      --------       -------        --------
                                                               2,630          (866)         (249)          1,515
                                                            --------      --------       -------        --------

         Europe Reorganization:
              Severance and benefits (a)                       1,849          (834)            -           1,015
              Lease cancellations (a)                            182             -             -             182
              Leasehold improvements and
                 furniture (b)                                   239              -            -             239
              Information technology assets (a)                   28             -             -              28
                                                            --------      --------       -------        --------
                                                               2,298          (834)            -           1,464
                                                            --------      --------       -------        --------

         Malaysia Workforce Reduction:
              Severance and benefits (a)                         470          (470)            -               -
                                                            --------      --------       -------        --------
                                                                 470          (470)            -               -
                                                            --------      --------       -------        --------
                                                            $ 33,266      $ (6,177)      $  (249)       $ 26,840
                                                            ========      ========       =======        ========

         Balance Sheet Breakout:
             Other current liabilities                      $ 23,443      $ (6,177)      $     -        $ 17,266
             Property, plant and equipment                     9,823             -          (249)          9,574
                                                            --------      --------       -------        --------
                                                            $ 33,266      $ (6,177)      $  (249)       $ 26,840
                                                            ========      ========       =======        ========

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

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

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

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

| | Second  quarter 2001  restructuring  reserves in the amount of $0.2 million are included in the  Company's
         other  current  liabilities  as of September  30, 2001.  The second  quarter  2001  restructuring  charges
         originally  totaled $1.1 million.  There was no utilization  of these  reserves  during the second quarter
         of 2001.  Utilization  of the second  quarter  2001  restructuring  reserves  during the third  quarter is
         summarized below:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Second Quarter 2001                               Balance               Utilized              Balance
        Restructuring Actions                             07/01/01        Cash       Non-Cash         09/30/01
                                                                             (in thousands)

        U.S. Manufacturing:
             Severance and benefits (a)                    $   834       $ (631)     $       -         $   203
                                                           -------       ------      ---------         -------

        Singapore Reorganization:
             Severance and benefits (a)                        252         (229)             -              23
                                                           -------       ------      ---------         -------
                                                           $ 1,086       $ (860)     $       -         $   226
                                                           =======       ======      =========         =======

        Balance Sheet Breakout:
            Other current liabilities                      $ 1,086       $ (860)     $       -         $   226
                                                           =======       ======      =========         =======

       (a)  Amounts represent primarily cash charges.`

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

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

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

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

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

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

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

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

| | During
the third quarter of 2000, the Company reversed $0.8 million of restructuring
reserves associated with the closure of facilities in Milpitas, California. The
excess restructuring reserves were a result of the Company being able to
terminate a lease earlier than originally anticipated and the Company being able
to sublease certain of the facilities at higher rates than had been anticipated.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

| | During
the third quarter of 2000, the Company reversed $1.5 million of restructuring
reserves associated with the Clik! product streamlining. Due to the development
during the third quarter of 2000 of the Companys HipZip digital audio
player, it was determined that certain Clik! manufacturing equipment, previously
reserved in the third quarter of 1999 as part of the second half restructuring
reserves, could be utilized in the Companys Penang facility.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Remaining
1999 restructuring reserves in the amount of $3.2 million are included in the
Companys balance sheet as of September 30, 2001 in other current
liabilities. There was $49,000 of the 1999 restructuring reserves reserves
related to severance and benefits utilized during the quarter ended September
30, 2001. Utilization of the 1999 restructuring reserves during the nine months
ended September 30, 2001 is summarized below:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Balance               Utilized             Balance
             1999 Restructuring Actions                       12/31/00        Cash         Non-Cash      09/30/01
                                                                                    (in thousands)
             France/Scotland Consolidation:
                Contract obligations (b)(c)                   $  1,414     $      -        $     -       $   1,414
                                                              --------     ---------       --------      ---------

             Manufacturing Cessation -
                Avranches, France:
                Trade receivables (a)                               47            -            (47)              -
                Other commitments (b)                              511         (356)           (62)             93
                Contract obligations (b)                         1,581            -              -           1,581
                Severance and benefits (b)                         495         (399)             -              96
                                                              --------     --------        -------       ---------
                                                                 2,634         (755)          (109)          1,770
                                                              --------     --------        -------       ---------
                                                              $  4,048     $   (755)       $  (109)      $   3,184
                                                              ========     ========        =======       =========

             Balance Sheet Breakout:
                Other current liabilities (b)                 $  4,001     $   (755)       $   (62)      $   3,184
                Trade receivables (a)                               47            -            (47)              -
                                                              --------     --------        -------       ---------
                                                              $  4,048     $   (755)       $  (109)      $   3,184
                                                              ========     ========        =======       =========

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

|(7) | COMMITMENTS AND CONTINGENCIES
|--- | -----------------------------

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

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

| | As
previously disclosed in the Companys Annual Report on Form 10-K for the
year ended December 31, 2000, and in the Companys Quarterly Report on Form
10-Q for the quarter ended July 1, 2001, on September 10, 1998, a purported
class action lawsuit, Rinaldi, et al. v. Iomega Corporation, was filed
against the Company in the Superior Court of Delaware, New Castle County. The
suit alleged that a defect in the Companys Zip drives causes an abnormal
clicking noise that may indicate damage to the Zip drive or disks. The
plaintiffs sought relief pursuant to claims of breach of warranty, violation of
the Delaware Consumer Fraud Act, negligent design and manufacture, and failure
to warn. On September 3, 1999, the Court dismissed the claims of breach of
warranty and violation of the Consumer Fraud Act, granting the plaintiffs the
opportunity to amend the latter claim. On January 31, 2000, the plaintiffs filed
an amended complaint, reasserting their claim under the Delaware Consumer Fraud
Act and, on February 28, 2000, the Company moved to dismiss this amended claim.
In connection with the same matter, on February 28, 2000, two of the plaintiffs
served the Company with a Notice of Claim under Section 17.46(b) of
the Texas Deceptive Trade Practices Act, asserting allegations similar to those
made in connection with the plaintiffs Delaware Consumer Fraud Act claim
(the Texas Claim). The Texas Claim purports to be on behalf of the
two plaintiffs and a class of other consumers similarly situated in the State of
Texas. It demands relief of $150 for each Zip drive purchased by a class member,
$100 for mental anguish damages to each class member and attorneys fees
and costs. Formal litigation in connection with the Texas Claim has not been
commenced. On March 19, 2001, the parties in the Rinaldi matter submitted to the
Delaware Court a request for certification of the class and approval of a
settlement of the class action. Following notice to the class members, the Court
held a hearing on June 8, 2001 to consider final approval of the settlement and
the objections raised against such approval. On June 29, 2001, the Court issued
an order approving the settlement, which will become final after all appeals of
the order are resolved. On July 23, 2001, an objector to the settlement filed a
notice of appeal from the Courts order, and subsequently filed an
appellants brief in the Supreme Court of the State of Delaware on
September 12, 2001. The appellant asserts that the trial court erred in a)
certifying the class, b) approving the settlement, and c) approving the
attorneys fees. Lead plaintiffs counsel for the class is defending
against the appeal and, on October 12, 2001, Iomega has also filed its own
briefon the issues of class certification, and approval and adequacy of the
settlement.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
proposed settlement, the material terms of which are described in this
paragraph, will not be implemented unless and until all appeals are fully
resolved. Under the settlement, class members who have not opted out of the
settlement will release the Company from all claims that were or which could
have been raised in the litigation. For its part, the Company will issue rebates
ranging between $5 and $40 to class members who submit a proof of claim. The
rebates will remain available for six months and will be valid for the purchase
of certain Zip drive products and/or disks. The level of the rebate will depend
on whether the class members Zip drive manifested a clicking problem. In
addition, the Company will offer a secondary rebate of $4 to $15 on Zip disks to
those class members who make a qualified purchase under the initial rebate
program. The Company will also provide dedicated technical assistance personnel
for addressing, free of charge, customer inquiries regarding clicking Zip
drives. It will also make a charitable donation of Zip drives and related
software, disks and service, with a total retail value of $1 million. Finally,
counsel for the class applied to the Court for an award of attorneys fees
and costs in the amount of $4.7 million. As part of the Courts June 29,
2001 order, it issued an award of $4.1 million for these attorneys fees.
The accompanying financial statements reflect accruals for the charitable
donations and for plaintiffs attorneys fees and costs less estimated
insurance coverage. The settlement will not be construed as a finding of any
liability on the Companys part. Although the Company does not expect this
settlement or, if the settlement is overturned on appeal, the suit or the Texas
Claim to have a material adverse effect on the Companys ongoing business,
results of operations or financial condition, the settlement or an adverse
judgment could have a material adverse effect on the operating results reported
by the Company for the period in which the settlement occurs (or is implemented)
or such adverse judgment occurs.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
previously disclosed in the Companys Annual Report on Form 10-K for the
year ended December 31, 2000, and in the Companys Quarterly Report on Form
10-Q for the quarter ended July 1, 2001, on June 15, 1999, a patent infringement
lawsuit, Valitek, Inc. v. Iomega Corporation, was filed against the
Company in the United States District Court for the Eastern District of
Pennsylvania. The complaint requests injunctive relief against the Company, as
well as monetary damages. On October 26, 1999, the Court granted the
plaintiffs motion to consolidate the action against Iomega, for discovery
purposes only, with a second, similar lawsuit filed by Valitek against
Hewlett-Packard and Imation. Valitek has now settled its lawsuit against
Hewlett-Packard and Imation. On July 27, 2001, the U.S. District Court for the
Eastern District of Pennsylvania granted Iomegas motion to transfer the
case and ordered the matter transferred to the U.S. District Court for the
District of Utah, Northern Division. The Company intends to vigorously defend
against this suit. Although the Company does not expect the Valitek matter to
have a material adverse effect on the Companys ongoing business, results
of operations or financial condition, an adverse judgment could have a material
adverse effect on the operating results reported by the Company for the period
in which the settlement occurs (or is implemented) or such adverse judgment
occurs.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
previously disclosed in the Companys Annual Report on Form 10-K for the
year ended December 31, 2000, and in the Companys Quarterly Report on Form
10-Q for the quarter ended July 1, 2001, on July 6, 1999, the Company initiated
litigation against Castlewood Systems, Inc. (Castlewood), Iomega Corporation v. Castlewood Systems, Inc., in the United States
District Court for the District of Utah, for infringing the Companys U.S.
Patent No. 4,458,273 and U.S. Patent No. 5,854,719 and for infringing and
diluting the Companys registered trademarks Iomega,
Zip and Jaz. The complaint further alleges that
Castlewood has engaged in federal unfair competition, common law unfair
competition and common law unjust enrichment. Through the complaint, the Company
requests monetary damages and injunctive relief enjoining Castlewood from
further infringement. On August 18, 1999, Castlewood filed an answer and
counterclaims, denying the Companys claims and requesting a declaratory
judgment that the Companys patents are invalid. On September 9, 1999, the
Company filed a reply to the counterclaims, denying that the patents are
invalid. On April 11, 2000, the Company also initiated litigation against
Castlewood in the United States District Court for the District of Utah for
infringement of the Companys U.S. Patent No. 6,049,444. The Companys
complaint requests monetary damages and injunctive relief enjoining Castlewood
from further infringement. Castlewood responded to the complaint on September
15, 2000. The two complaints filed by Iomega in the United States District Court
for the District of Utah have been consolidated. On April 13, 2001, the parties
agreed to stay all proceedings for 60 days to determine whether or not the
dispute can be resolved through mediation. That stay was then further extended
to August 20, 2001 to continue the mediation process. The parties were unable to
reach a settlement acceptable to the Company, and the Company intends to
vigorously prosecute this case.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | As
previously disclosed in the Companys Annual Report on Form 10-K for the
year ended December 31, 2000, and in the Companys Quarterly Report on Form
10-Q for the quarter ended July 1, 2001, on March 23, 2001, the Company
initiated litigation against Advanced Mass Memories, formerly named Albi Media
Manufacturing, SARL (AMM) in the Tribunal de Grande Instance de
Paris for infringing certain Iomega patents and patent applications in
connection with AMMs production and sale of the Swap 100MB disk, a
cartridge that AMM claims can be used with certain of the Companys Zip
drives. The complaint requests monetary damages and other relief against further
infringement by AMM. On May 10, 2001, the Company filed a motion for a
preliminary injunction against AMM before the Tribunal de Grande Instance de
Paris. The motion sought injunctive relief against the continued manufacture,
marketing and sale by AMM of the Swap 100MB disk or other disks, which infringe
the Companys patent rights. On June 22, 2001, the Court held a hearing
regarding the Companys preliminary injunction motion. On July 24, 2001,
the Court granted the preliminary injunction against AMMs
commercialization of the Swap 100MB disk. In August 2001, AMM appealed against
the injunction and moved to stay enforcement of the injunction. On September 17,
2001, AMM filed for bankruptcy protection, however, it continued its appeal. The
Paris Appeals Court denied the motion to stay on September 21, 2001, and held
hearings on the appeal on September 26, 2001 and October 9, 2001. On October 31,
2001, the Paris Appeals Court denied AMMs appeal and ruled that the
injunction shall remain in effect while the underlying infringement case
continues on the merits. The Company intends to vigorously pursue these claims
and to continue its protection of Iomega intellectual property.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | On
July 12, 2001, Corner Stone Services, Inc. (CSS) filed a complaint
against Iomega, CSS, dba Corner Stone Services v. Iomega Corporation, et al., in
the California Superior Court for the County of Orange. CSS seeks damages
related to merchandizing services it allegedly rendered to the Company in late
2000 and early 2001. Iomega removed the matter to federal court on August 10,
2001 and, subsequently, filed its answer on September 25, 2001. The Company
intends to vigorously defend against this lawsuit.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | On
February 18, 2000, Maître Jean Jacques Savenier, the Commissaire à
lexecution du Plan (bankruptcy trustee) for RPS Media, S.A., filed a
complaint against Nomai. Savenier claimed that Nomai has not complied with the
alleged investment and employment related commitments made by Nomais
former management before the Commercial Court of Albi, France in connection with
Nomais acquisition during 1997 of certain assets of RPS Media in
bankruptcy. The action sought a daily penalty against Nomai of FF 100,000
(approximately $13,500) until Nomai invests FF 48 million (approximately $6.5
million) and hires 100 people. An initial hearing before the Commercial Court
was held on April 4, 2000. On April 18, 2000, the Commercial Court declined, on
jurisdictional grounds, to issue a summary judgment ruling in favor of Savenier.
On February 16, 2001, Savenier filed a new complaint with the Commercial Court,
again asking that the Court order AMM and Nomai to comply with the alleged
employment and investment commitments set forth in the bankruptcy plan or to
fine AMM and Nomai FF 100,000 (approximately $13,500) for each day of
noncompliance. On October 8, 2001, Savenier served pleadings on Nomai seeking a
ruling on October 12, 2001, that in light of AMMs bankruptcy, Nomai should
be ordered to pay a daily fine of FF 100,000 (approximately $13,500) for its
alleged non-compliance with the plan. Nomai intends to vigorously defend against
these allegations.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | On
January 3, 2001, Nomai was served with a notice of arbitration from Computer
Memories Storage, SARL (CMS), the holding company organized by Alain
Bouttier to own AMM. On February 26, 2001, CMS and AMM filed their complete
request for arbitration. Their action is based on alleged breaches by Nomai of
the agreement whereby Nomai divested its ownership of AMM to Mr. Bouttier. In
particular, CMS and AMM claim that AMM suffered damages as a result of (i)
Nomais treatment of AMM assets prior to the sale to Mr. Bouttier and (ii)
alleged breaches by Nomai of certain post-disposition obligations to AMM. CMS
and AMM seek the nullification of non-competition obligations between AMM and
Nomai and claim damages of approximately FF 142 million (approximately $19.5
million). These claims overlap with those asserted in the Savenier and Magic
matters described above. The arbitration will be heard before a three-member
arbitration panel in Paris. The arbitration panel has been appointed and has
commenced the proceeding. On April 20, 2001, Nomai filed a statement of defenses
and certain counterclaims against CMS and AMM. On May 28, 2001, the parties
approved the arbitrators terms of reference, which set the schedule for
pleadings and hearings. Due to CMS non-payment of the arbitrators fees and
AMMs bankruptcy filing on September 17, 2001, the arbitrators have
suspended the proceeding. Nomai intends to vigorously defend against these
allegations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | On
May 28, 2001 and July 4, 2001, the French Direction Générale de la
Concurrence, de la Consommation et de la Répression des Fraudes
(DGCCRF) held hearings in Albi regarding a competition law complaint
brought by AMM against Iomega International, S.A. and Iomega Corporation. DGCCRF
is a French consumer protection and competition agency. The complaint alleges
that the two Iomega companies have violated competition laws through the
following acts: (1) abusive patent application filings; (2) applying legal and
financial pressures on AMM; (3) initiating commercial nuisances against AMM; and
(4) unlawfully controlling product pricing. To date, the Company has not been
contacted by the DGCCRF regarding this investigation. A DGCCRF official appeared
before the Conseil de la Concurrence (Competition Council) hearing on August 29,
2001 (as further described below) recommending further investigation whether
Iomega has a dominant position in the market. The Competition Council (as
further described below) ruled in Iomegas favor on similar claims. Iomega
International, S.A. and Iomega Corporation intend to vigorously defend if the
DGCCRF proceeding should continue.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | On
June 28, 2001, AMM filed competition law complaint with the French Conseil de la
Concurrence (Competition Council). AMM alleged that Iomega Corporation and
Iomega International, S.A. have a dominant position in the Zip media
market and that the Iomega companies have abused this position through
anti-competitive practices. The Competition Council held an initial meeting with
AMM on July 10, 2001. The Competition Council held a similar meeting with Iomega
representatives on July 31, 2001. A hearing before the Competition Council was
held on August 29, 2001. The Competition Council ruled in favor of Iomega on
September 21, 2001 dismissing AMMs complaint and request for interim
measures.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(8) | OTHER
MATTERS
|--- | -------------

| | Significant
Customers -During the quarter ended September 30, 2001, sales to Ingram
Micro, Inc. and Dell Computer Corporation, accounted for 17.0% and 11.1% of
consolidated sales, respectively. Ingram Micro, Inc. accounted for 19.2% of
sales for the quarter ended September 24, 2000. No other single customer
accounted for more than 10% of consolidated sales for these periods.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the nine months ended  September  30, 2001,  sales to Ingram  Micro,  Inc.,  accounted for 15.3% of
consolidated  sales.  Ingram Micro, Inc.  accounted for 16.1% of sales for the nine months ended September
24, 2000.  No other single customer accounted for more than 10% of consolidated sales for these periods.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | At
September 30, 2001, outstanding forward exchange purchase (sales) contracts,
which all mature in December 2001, were as follows (Rates are quoted as United
States dollar per other currency unit):
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Contracted
                                                                            Forward            Spot
                                                        Amount               Rate              Rate  

                European Currency Unit               (11,600,000)              1.08              1.09
                Japanese Yen                         (70,000,000)            117.11            119.58
                Australian Dollar                         50,000               2.04              2.05
                Singapore Dollar                       1,300,000               1.76              1.76
                Swiss Franc                           (1,900,000)              1.59              1.61
                British Pound                         (3,300,000)               .68               .68`

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

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

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

All share and per share
amounts discussed in this Quarterly Report have been adjusted to reflect the
one-for-five reverse stock split effected on September 28, 2001. See Other
Matters  Reverse Stock Split.

## BUSINESS
SEGMENT INFORMATION

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

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

The Other
category includes: PeerlessTM drive systems, which began shipping
during the second quarter of 2001; FotoShowTM digital image centers
(previously shown as a part of the Zip segment); branded products such as Iomega
MicrodriveTM miniature hard drives, Iomega CompactFlashTMand Iomega SmartMediaTM memory cards, DataSafeTMnetwork attached storage servers; LifeworksTM software and
Iomega QuikSyncTM software; Ditto® tape products and other
miscellaneous items.

During the third quarter of
2001, the Company recorded non-restructuring charges of $31.1 million, of which
$25.2 million was charged to the respective product lines as cost of sales.
These charges primarily reflect write-downs of CD-RW, HipZip, FotoShow and other
inventory and equipment and other assets and charges associated with various
contractual arrangements. During the second quarter of 2001, the Company also
recorded non-restructuring charges of $46.0 million, of which $44.9 million was
charged to the respective product lines as cost of sales. These charges
primarily reflected write-downs of HipZip, FotoShow and CD-RW inventory and
equipment and loss accruals for related supplier purchase commitments. During
the first quarter of 2000, the Company recorded non-restructuring charges of
$7.4 million primarily reflecting write-downs of PocketZip inventory and
equipment and loss accruals for related supplier purchase commitments. See the
non-restructuring charges discussion below for more information.

The information in the
following table is derived directly from the segments internal financial
information used for corporate management purposes (All Zip and Other segment
amounts have been restated to show the current classification of FotoShow in
Other).

## Reportable
Operating Segment Information:

`For the Quarter Ended          For the Nine Months Ended 
                                                         Sept. 30,        Sept. 24,      Sept. 30,          Sept. 24,
                                                           2001             2000           2001               2000  
                                                                (In thousands)                  (In thousands)
       Sales:
          Zip                                            $142,845         $247,388      $ 490,290          $ 763,195
          Jaz                                              13,647           34,885         53,483            124,615
          CD-RW                                            17,607           34,383         80,349             69,746
          PocketZip                                         2,063            3,029          5,668              8,292
          Other                                             5,975              816         14,573              3,189
                                                         --------         --------      ---------          ---------
             Total sales                                 $182,137         $320,501      $ 644,363          $ 969,037
                                                         ========         ========      =========          =========

       Product profit margin (loss) before
          charges/reversals:
          Zip                                            $ 35,489         $ 87,753      $ 127,694          $ 246,104
          Jaz                                               3,490            9,824         15,655             34,090
          CD-RW                                            (9,556)           2,079        (26,466)             2,631
          PocketZip                                        (1,692)          (4,913)       (14,843)           (17,039)
          Other                                           (12,467)          (1,994)       (29,013)            (7,558)
                                                         --------         --------      ---------          ---------
             Total product profit margin                   15,264           92,749         73,027            258,228

       Common operating expenses without
          (charges) reversals allocated to
          product profit margin (loss):
          General corporate expenses                      (24,372)         (46,701)       (86,377)          (117,810)
          Restructuring (charges) reversals               (33,266)           2,317        (34,352)             4,814
          Non-restructuring charges                       (31,133)               -        (77,119)            (7,400)
          Interest and other income, net                    3,203            4,662         12,532              9,125
                                                         --------         --------      ---------          ---------
             Income (loss) before income taxes           $(70,304)        $ 53,027      $(112,289)         $ 146,957
                                                         ========         ========      =========          =========`

`For the Quarter Ended           For the Nine Months Ended 
                                                         Sept. 30,        Sept. 24,       Sept. 30,          Sept. 24,
                                                           2001             2000            2001               2000  
                                                                (In thousands)                  (In thousands)
       (Charges)/reversals:
          Restructuring:
             Jaz                                         $      -         $     800       $       -          $   2,397
             CD-RW                                         (1,347)                -          (1,347)                 -
             PocketZip                                          -             1,517               -              2,417
             Common                                       (31,919)                -         (33,005)                 -
                                                         --------         ---------       ---------          ---------
                                                         $(33,266)        $   2,317       $ (34,352)         $   4,814
                                                         ========         =========       =========          =========

          Non-restructuring:
             Zip                                         $ (7,553)        $       -       $ (12,021)         $       -
             CD-RW                                         (7,466)                -         (17,443)                 -
             PocketZip                                     (3,643)                -         (21,569)            (7,400)
             Other                                         (7,853)                -         (20,418)                 -
             Common                                        (4,618)                -          (5,668)                 -
                                                         --------         ---------       ---------          ---------
                                                         $(31,133)        $       -       $ (77,119)         $  (7,400)
                                                         ========         =========       =========          =========

       Product profit margin (loss) after
          charges/reversals:
          Zip                                            $ 27,936         $  87,753       $ 115,673          $ 246,104
          Jaz                                               3,490            10,624          15,655             36,487
          CD-RW                                           (18,369)            2,079         (45,256)             2,631
          PocketZip                                        (5,335)           (3,396)        (36,412)           (22,022)
          Other                                           (20,320)           (1,994)        (49,431)            (7,558)
                                                         --------         ---------       ---------          ---------
             Total product profit (loss) margin           (12,598)           95,066             229            255,642

       Common operating expenses with (charges)
          reversals allocated to product profit
          margin (loss):
          General corporate expenses                      (24,372)          (46,701)        (86,377)          (117,810)
          Restructuring charges                           (31,919)                -         (33,005)                 -
          Non-restructuring charges                        (4,618)                -          (5,668)                 -
          Interest and other income, net                    3,203             4,662          12,532              9,125
                                                         --------         ---------       ---------          ---------
             Income (loss) before income taxes           $(70,304)        $  53,027       $(112,289)         $ 146,957
                                                         ========         =========       =========          =========`

## NON-RESTRUCTURING
CHARGES

During the third quarter of
2001, the Company recorded non-restructuring charges of $31.1 million, primarily
reflecting write-downs of CD-RW, HipZip, FotoShow and other inventory and
equipment and other assets and charges associated with various contractual
arrangements and supplier commitments. During the second quarter of 2001, the
Company recorded non-restructuring charges of $46.0 million, primarily
reflecting write-downs of HipZip, FotoShow and CD-RW inventory and equipment and
loss accruals for related supplier purchase commitments. During the first
quarter of 2000, the Company recorded non-restructuring charges of $7.4 million
primarily reflecting write-downs of PocketZip inventory and equipment and loss
accruals for related supplier purchase commitments. A breakdown of the charges
is included in the table below:

`Financial
                                                                                          Statement
           Description of Non-Restructuring Charges                     Amount            Category   
                                                                     (In millions)
         Q3 2001
         Products:
            Zip                                                       $       7.5       Cost of sales
            CD-RW                                                             7.5       Cost of sales
            HipZip (included in PocketZip segment)                            1.9       Cost of sales
            PocketZip                                                         1.7       Cost of sales
            Peerless (included in Other segment)                              2.4       Cost of sales
            FotoShow (included in Other segment)                              1.8       Cost of sales
            Other (software and sourced products)                             2.4       Cost of sales
                                                                      -----------
                                                                             25.2
         Sales and Marketing assets and commitments                           4.0           SG and A
         Excess information technology assets                                 1.3           SG and A
         Other charges                                                        0.6           SG and A
                                                                      -----------
                                                                      $      31.1
                                                                      ===========

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

         Q1 2000
         Excess PocketZip disk manufacturing capacity                 $       3.7       Cost of sales
         PocketZip PC Card drive inventory NRV                                2.8       Cost of sales
         Excess PocketZip PC Card drive manufacturing equip.                  0.6       Cost of sales
         PocketZip PC Card drive purchase commitments                         0.3       Cost of sales
                                                                      -----------
                                                                      $       7.4
                                                                      ===========
         SG and A = Selling, general and administrative expenses
         NRV = Net realizable value`

The Company evaluates the
carrying value of inventory on a quarterly basis to determine if the carrying
value is recoverable at estimated selling prices. The Company includes material
costs, manufacturing costs and direct selling expenses in its analysis of
inventory realization. To the extent that estimated selling prices do not exceed
such costs and expenses, valuation reserves are established. The Company
generally considers that inventory on hand or with suppliers which is not
expected to be sold within the next nine months as excess and thus appropriate
reserves are established.

Third Quarter 2001 Non-Restructuring Charges.

During the third quarter of
2001, the Company recorded non-restructuring charges of $31.1 million, primarily
reflecting write-downs of CD-RW, HipZip and FotoShow inventory and equipment and
other assets and charges associated with various contractual arrangements and
supplier commitments.

Inventory reserves recorded
in the third quarter of 2001 totaled $15.1 million. Contract cancellation costs
totaled $9.1 million. The non-restructuring charges also included $6.3 million
primarily reflecting the extent to which undiscounted future cash flows are
expected to be less than the net book value of related manufacturing equipment
and other assets as well as $0.6 million for other costs associated with moving
the Corporate Headquarters from Roy, Utah to San Diego, California. The
non-restructuring charges are detailed below by product line.

During the third quarter of
2001, due to decreasing sales volumes, the Company entered into a settlement
agreement to terminate a third party manufacturer of Zip media products and
consolidate this production into the Companys manufacturing facility in
Penang, Malaysia. As a result, during the third quarter of 2001, the Company
recorded contract cancellation costs of $4.8 million. In addition, due to
declining volumes, the Company recorded write-downs of related manufacturing
equipment and miscellaneous supplier commitments amounting to $2.7 million.

During the third quarter of
2001, sales prices for CD-RW products fell short of the Companys
expectations for the quarter, causing the Company to further lower future
revenue expectations and sales prices. Also, higher per unit overhead costs
associated with the lower volumes, as well as supplier claims being higher than
projected in the second quarter necessitated additional inventory reserves. As a
result, during the third quarter of 2001, the Company recorded additional
inventory reserves of $7.2 million to cover inventory in the channel as well as
inventory on hand and loss accruals of $0.3 million for contract cancellation
costs.

During the third quarter of
2001, sales volumes for the HipZip digital audio player fell short of the
Companys expectations for the quarter, causing the Company to further
lower future revenue expectations and sales prices. As a result, during the
third quarter of 2001, the Company recorded additional inventory reserves of
$1.9 million to cover primarily inventory in the channel.

During the third quarter of
2001, due to decreasing sales volumes for PocketZip products, the Company
recorded $0.5 million of inventory reserves and loss accruals of $1.2 million
for contract cancellation costs.

Late in the second quarter
of 2001, the Company began shipping Peerless drives and cartridges in both 10GB
and 20GB versions. During the third quarter of 2001, the mix of 10GB to 20GB
cartridges sold was significantly lower than expected, resulting in excess
components for Peerless 10GB cartridges. As a result, during the third quarter
of 2001, the Company recorded inventory reserves of $2.4 million for the excess
components.

During the third quarter of
2001, sales volumes for the FotoShow digital viewer fell short of the
Companys expectations for the quarter, causing the Company to further
lower volume and price expectations. As a result, during the third quarter of
2001, the Company recorded additional inventory reserves of $1.8 million
primarily for inventory on hand.

Charges taken for Other
products were primarily for Microdrive and Software. During the third quarter of
2001, the Company lowered future revenue expectations for Microdrive. As a
result, during the third quarter of 2001, the Company recorded additional
inventory reserves of $1.3 million primarily for inventory on hand. Charges
taken for Other products also included write-downs of intangible software assets
of $1.1 million.

During the third quarter of
2001, the Company recorded charges of $2.8 million for canceling various
marketing programs as well as write-downs of excess marketing assets of $1.2
million that will no longer be utilized.

During the third quarter of
2001, as a result of the Companys streamlining efforts, the Company
wrote-down $1.3 million of impaired information technology software and incurred
$0.6 million of other charges associated with moving the Corporate Headquarters
from Roy, Utah to San Diego, California.

Second Quarter 2001 Non-Restructuring Charges.

During the second quarter
of 2001, the Company recorded non-restructuring charges of $46.0 million,
primarily reflecting write-downs of HipZip, FotoShow and CD-RW inventory and
equipment and loss accruals for related supplier purchase commitments.

Inventory reserves recorded
in the second quarter of 2001 amounted to $16.8 million. Loss accruals for
related supplier purchase commitments amounted to $18.3 million. Additional
accruals of $2.2 million were recorded to reflect valuation reserves for
inventory in the channel. Also included in the second quarter 2001
non-restructuring charge was $7.6 million reflecting the extent to which
undiscounted future cash flows were estimated to be less than the net book value
of related manufacturing equipment. The non-restructuring charges are detailed
below by product line.

The Company began shipping
a USB Zip 100MB drive in the fourth quarter of 2000. This product was scheduled
for replacement by two new lower cost drives in the third quarter of 2001. As a
result of sales of the USB Zip 100MB drive not meeting prior Company forecasts,
which caused the Company to change future expectations, and the transition to
the new lower cost drives, the Company recorded inventory reserves of $1.4
million; loss accruals of $1.3 million for supplier purchase commitments and
write-downs of related manufacturing equipment amounting to $1.8 million.

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

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

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

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

During the second quarter
of 2001, an accrual of $1.1 million was recorded reflecting the separation
agreement with Mr. Bruce Albertson, the Companys former President and
Chief Executive Officer.

First Quarter 2000 Non-Restructuring Charges.

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

## RESTRUCTURING
CHARGES

Third Quarter 2001 Restructuring Actions.

During the third quarter of
2001, the Company recorded pre-tax restructuring charges of $33.3 million. These
restructuring charges 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.

Of the $33.3 million in
restructuring charges, $27.9 million related to restructuring activities within
North America, $2.6 million for restructuring activities within the Asia Pacific
region, $2.3 million for restructuring activities within Europe and $0.5 million
for restructuring activities within Malaysia.

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

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

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

The Malaysia activities
consisted of a workforce reduction of 295 regular employees across almost all
business functions (the majority of which were direct labor employees) at almost
all levels of the organization. At September 30, 2001, all of the 295
individuals whose positions were identified for termination had been dismissed.
This workforce reduction resulted in an accrual of $0.5 million for severance
and outplacement costs, all of which was paid out during the third quarter of
2001.

The Company anticipates
that these restructuring actions, when fully implemented over the remainder of
2001, will result in an annual cost reduction of approximately $60 million,
beginning in fiscal year 2002. The Company also anticipates that the
non-restructuring charges (discussed above in the section entitled
Non-Restructuring Charges) taken during the third quarter of 2001 will result in
a net annual cost reduction of approximately $5 million, beginning in fiscal
year 2002.

Third quarter 2001
restructuring reserves in the amount of $17.2 million and $9.6 million are
included in the Companys other current liabilities and property, plant and
equipment, respectively, as of September 30, 2001. The third quarter 2001
restructuring charges originally totaled $33.3 million. Utilization of the third
quarter 2001 restructuring reserves during the third quarter is summarized
below:

`Third Quarter 2001                                 Original               Utilized             Balance
         Restructuring Actions                               Charge         Cash           Non-Cash     09/30/01
                                                                               (in thousands)

         North America Reorganization:
              Severance and benefits (a)                    $ 12,697      $ (3,996)      $     -        $  8,701
              Lease cancellations (a)                          6,251           (11)            -           6,240
              Leasehold improvements and
                 furniture (b)                                 7,227             -             -           7,227
              Information technology assets (b)                1,693             -             -           1,693
                                                            --------      --------       -------        --------
                                                              27,868        (4,007)            -          23,861
                                                            --------      --------       -------        --------

         Asia Pacific Reorganization:
              Severance and benefits (a)                         850          (761)            -              89
              Lease cancellations (a)                          1,106           (84)            -           1,022
              Leasehold improvements and
                 furniture (b)                                   636             -          (249)            387
              Other (a)                                           38           (21)            -              17
                                                            --------      --------       -------        --------
                                                               2,630          (866)         (249)          1,515
                                                            --------      --------       -------        --------

         Europe Reorganization:
              Severance and benefits (a)                       1,849          (834)            -           1,015
              Lease cancellations (a)                            182             -             -             182
              Leasehold improvements and
                 furniture (b)                                   239              -            -             239
              Information technology assets (a)                   28             -             -              28
                                                            --------      --------       -------        --------
                                                               2,298          (834)            -           1,464
                                                            --------      --------       -------        --------

         Malaysia Workforce Reduction:
              Severance and benefits (a)                         470          (470)            -               -
                                                            --------      --------       -------        --------
                                                                 470          (470)            -               -
                                                            --------      --------       -------        --------
                                                            $ 33,266      $ (6,177)      $  (249)       $ 26,840
                                                            ========      ========       =======        ========

         Balance Sheet Breakout:
             Other current liabilities                      $ 23,443      $ (6,177)      $     -        $ 17,266
             Property, plant and equipment                     9,823             -          (249)          9,574
                                                            --------      --------       -------        --------
                                                            $ 33,266      $ (6,177)      $  (249)       $ 26,840
                                                            ========      ========       =======        ========

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

Second Quarter 2001 Restructuring Actions.

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

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

Second  quarter  2001  restructuring  reserves in the amount of $0.2 million are  included in the  Company's  other
current  liabilities as of September 30, 2001. The second quarter 2001  restructuring  charges  originally  totaled
$1.1 million.  There was no  utilization of these  reserves  during the second quarter of 2001.  Utilization of the
second quarter 2001 restructuring reserves during the third quarter is summarized below:

`Second Quarter 2001                               Balance               Utilized              Balance
        Restructuring Actions                             07/01/01        Cash       Non-Cash         09/30/01
                                                                             (in thousands)

        U.S. Manufacturing:
             Severance and benefits (a)                    $   834       $ (631)     $       -         $   203
                                                           -------       ------      ---------         -------

        Singapore Reorganization:
             Severance and benefits (a)                        252         (229)             -              23
                                                           -------       ------      ---------         -------
                                                           $ 1,086       $ (860)     $       -         $   226
                                                           =======       ======      =========         =======

        Balance Sheet Breakout:
            Other current liabilities                      $ 1,086       $ (860)     $       -         $   226
                                                           =======       ======      =========         =======

       (a)  Amounts represent primarily cash charges.`

1999 Restructuring Actions.

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

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

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

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

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

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

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

During the third quarter of 2000, the Company reversed $0.8 million of restructuring  reserves  associated with the
closure of  facilities  in Milpitas,  California.  The excess  restructuring  reserves were a result of the Company
being able to  terminate  a lease  earlier  than  originally  anticipated  and the  Company  being able to sublease
certain of the facilities at higher rates than had been anticipated.

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

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

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

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

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

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

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

During the third quarter of 2000, the Company reversed $1.5 million of restructuring  reserves  associated with the
Clik!  product  streamlining.  Due to the  development  during the third  quarter of 2000 of the  Company's  HipZip
digital audio player,  it was determined that certain Clik!  manufacturing  equipment,  previously  reserved in the
third  quarter of 1999 as part of the second  half  restructuring  reserves,  could be  utilized  in the  Company's
Penang facility.

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

Remaining  1999  restructuring  reserves in the amount of $3.2 million are included in the Company's  balance sheet
as of  September  30,  2001 in other  current  liabilities.  There was $49,000 of the 1999  restructuring  reserves
reserves  related to severance and benefits  utilized during the quarter ended  September 30, 2001.  Utilization of
the 1999 restructuring reserves during the nine months ended September 30, 2001 is summarized below:

`Balance               Utilized             Balance
             1999 Restructuring Actions                       12/31/00        Cash         Non-Cash      09/30/01
                                                                                    (in thousands)
             France/Scotland Consolidation:
                Contract obligations (b)(c)                   $  1,414     $      -        $     -       $   1,414
                                                              --------     ---------       --------      ---------

             Manufacturing Cessation -
                Avranches, France:
                Trade receivables (a)                               47            -            (47)              -
                Other commitments (b)                              511         (356)           (62)             93
                Contract obligations (b)                         1,581            -              -           1,581
                Severance and benefits (b)                         495         (399)             -              96
                                                              --------     --------        -------       ---------
                                                                 2,634         (755)          (109)          1,770
                                                              --------     --------        -------       ---------
                                                              $  4,048     $   (755)       $  (109)      $   3,184
                                                              ========     ========        =======       =========

             Balance Sheet Breakout:
                Other current liabilities (b)                 $  4,001     $   (755)       $   (62)      $   3,184
                Trade receivables (a)                               47            -            (47)              -
                                                              --------     --------        -------       ---------
                                                              $  4,048     $   (755)       $  (109)      $   3,184
                                                              ========     ========        =======       =========

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

## SEASONALITY

The Companys Zip
products are targeted primarily to the personal computer, consumer digital
electronic, OEM, enterprise and business professional markets. The
Companys Jaz products are targeted primarily to the business professional
market. The Companys CD-RW products are targeted to the retail consumer
and enterprise markets. The Companys PocketZip products are targeted to
the enterprise market, to various electronics device OEMs and to the retail
consumer markets. The Companys Peerless products are targeted to business
professional and enterprise markets. Management believes the markets for the
Companys products are generally seasonal, with a higher proportional share
of total sales typically occurring in the fourth quarter and sales slowdowns
commonly occurring during the second quarter and summer months. This historic
pattern could, however, be affected by the significant weakness and uncertainty
that currently exists in the U.S. and global economies and consumer confidence
levels. Accordingly, revenues and growth rates for any prior quarter are not
necessarily indicative of the revenues or growth rates to be expected in any
future quarter.

## RESULTS OF
OPERATIONS

The Company reported sales
of $182.1 million and a net loss of $71.2 million, or ($1.32) per diluted share,
for the third quarter of 2001. Results for the third quarter of 2001 included
pre-tax restructuring charges of $33.3 million, pre-tax non-restructuring
charges of $31.1 million and an income tax charge of $28.7 million relating to
an increase in the valuation allowance for net deferred tax assets. The 2001
third quarter results compared to third quarter 2000 sales of $320.5 million and
net income of $55.4 million, or $1.00 per diluted share, which included $20.9
million attributable to a decrease in the valuation allowance for net deferred
tax assets and also included a pre-tax $2.3 million reversal of restructuring
reserves previously recorded in 1999.

For the nine months ended
September 30, 2001, the Company reported sales of $644.4 million and a net loss
of $97.2 million, or ($1.80) per diluted share. Results for the first nine
months of 2001 included pre-tax non-restructuring charges totaling $77.1
million, pre-tax restructuring charges of $34.4 million and income tax charges
of $29.1 million relating to increases in the valuation allowance for net
deferred tax assets. Results for the nine months ended September 30, 2001
compared to the nine months ended September 24, 2000, with sales of $969.0
million and net income of $147.6 million, or $2.66 per diluted share, which
included $58.6 million attributable to decreases in the Companys valuation
allowance for net deferred tax assets, pre-tax reversals of $4.8 million related
to restructuring reserves previously recorded in 1999 and pre-tax
non-restructuring charges totaling $7.4 million.

## SALES

Sales for the quarter ended
September 30, 2001 of $182.1 million decreased $138.4 million, or 43.2%, when
compared to sales of $320.5 million for the third quarter of 2000. This decrease
was primarily a result of lower Zip drive and disk sales, lower Jaz drive and
disk sales and lower CD-RW sales. Total drive sales of $118.9 million decreased
by 37.1%, while total drive units shipped declined by 23.2% when compared to the
third quarter of 2000. Total disk sales of $61.2 million decreased by 52.6%,
while total disk units shipped declined by 54.8% when compared to the third
quarter of 2000. In addition to the lower drive and disk shipments, the decrease
in revenue was impacted by price reductions (primarily drives) reflecting
overall market pricing pressures and the pricing of competitive product
offerings.

Zip product sales for the
third quarter of 2001 totaled $142.8 million, representing a decrease of $104.5
million, or 42.3%, compared to sales of $247.4 million for the third quarter of
2000. Sales of Zip products represented 78.4% of total sales for the third
quarter of 2001, compared to 77.2% for the third quarter of 2000. Zip drive
sales of $92.2 million for the third quarter of 2001 decreased by $46.0 million,
or 33.3%, while Zip drive units shipped decreased by 23.5% from the third
quarter of 2000. Zip drive sales decreased more than Zip drive units shipped
primarily due to lower prices and a higher mix of OEM shipments for the third
quarter of 2001 compared to the third quarter of 2000. Shipments of Zip OEM
drives accounted for approximately 56% of total Zip drive shipments in the third
quarter of 2001, compared to approximately 46% in the third quarter of 2000. Zip
disk revenue of $50.6 million for the third quarter of 2001 decreased by $58.9
million, or 53.8%, while Zip disk units shipped decreased by 54.9% from the
third quarter of 2000. When compared to the third quarter of 2000, lower drive
and disk units shipped, net of favorable product mix, accounted for $94.5
million of the decrease in Zip product revenue and pricing actions (primarily
Zip drives) accounted for $10.0 million of the decrease in Zip product revenue.

Jaz product sales for the
third quarter of 2001 totaled $13.6 million, representing a decrease of $21.3
million, or 60.9%, compared to sales of $34.9 million for the third quarter of
2000. Sales of Jaz products represented 7.5% of total sales for the third
quarter of 2001, compared to 10.9% for the third quarter of 2000. Jaz drive and
disk units shipped decreased by 64.2% and 61.8%, respectively, when compared to
the third quarter of 2000. When compared to the third quarter of 2000, lower
units shipped of $23.7 million was partially offset by $2.4 million of positive
pricing actions resulting primarily from lower rebates in the third quarter of
2001.

CD-RW product sales for the
third quarter of 2001 totaled $17.6 million, representing a decrease of $16.8
million, or 48.8%, compared to sales of $34.4 million for the third quarter of
2000. Sales of CD-RW products represented 9.7% of total sales for the third
quarter of 2001 compared to 10.7% for the third quarter of 2000. CD-RW units
shipped decreased 23.8% compared to the third quarter of 2000. When compared to
the third quarter of 2000, lower revenue from lower units shipped of $11.8
million and $5.0 million from pricing actions taken to meet competitive
pressures accounted for the decrease in CD-RW product revenue.

PocketZip product sales for
the third quarter of 2001 totaled $2.1 million, representing a decrease of $0.9
million, or 31.9%, compared to sales of $3.0 million for the third quarter of
2000. Sales of PocketZip products represented 1.1% of total sales in the third
quarter of 2001, compared to 0.9% for the third quarter of 2000. PocketZip drive
units shipped increased 20.6% while PocketZip drive revenues decreased by 40%
due to pricing actions compared to the third quarter of 2000. PocketZip disks
units shipped decreased by 32.9% compared to the third quarter of 2000. Pricing
actions accounted for $2.8 million of the lower revenue and was partially offset
by $1.9 million from higher drive units shipped, resulting in the lower
PocketZip revenue when compared to the third quarter of 2000.

Other product sales for the
third quarter of 2001 totaled $6.0 million, representing an increase of $5.2
million, compared to sales of $0.8 million for the third quarter of 2000. The
increased other sales resulted primarily from the addition of Peerless, which
began shipping late in the second quarter of 2001.

Geographically, sales in
the Americas totaled $132.6 million, or 72.8% of total sales, in the third
quarter of 2001, compared to $227.9 million, or 71.1% of total sales, in the
third quarter of 2000. This decrease was primarily due to lower Zip, Jaz and
CD-RW sales. Sales in Europe totaled $38.0 million, or 20.9% of total sales, in
the third quarter of 2001, compared to $66.0 million, or 20.6% of total sales,
in the third quarter of 2000. This decrease was primarily due to lower Zip and
Jaz sales. Sales in Asia totaled $11.5 million, or 6.3% of total sales, in the
third quarter of 2001, compared to $26.6 million, or 8.3% of total sales, in the
third quarter of 2000. This decrease was primarily due to lower Zip sales.

Sales for the nine months
ended September 30, 2001 of $644.4 million decreased by $324.6 million, or
33.5%, compared to sales of $969.0 million for the nine months ended September
24, 2000. This decrease was primarily a result of lower Zip drive and disk sales
and lower Jaz drive and disk sales, offset in part by higher CD-RW drive sales
and other new product sales. Total drive sales of $408.3 million decreased by
25.9%, while total drive units shipped decreased by 18.9% when compared to the
first nine months of 2000. Total disk sales of $226.6 million decreased by
44.4%, while total disk units shipped decreased by 39.3% when compared to the
first nine months of 2000. In addition to lower drive and disk shipments, the
decrease in revenue was impacted by price reductions and rebates, the majority
associated with Zip products, which reflected the Companys strategy to
gain increased market penetration for its Zip products.

Zip product sales for the
first nine months of 2001 totaled $490.3 million, representing a decrease of
$272.9 million, or 35.8%, compared to sales of $763.2 million for the first nine
months of 2000. Sales of Zip products represented 76.1% of total sales for the
first nine months of 2001, compared to 78.8% for the first nine months of 2000.
Zip drive sales of $298.6 million for the first nine months of 2001 decreased by
$127.5 million, or 29.9%, while Zip drive units shipped decreased by 23.7% from
the first nine months of 2000. Shipments of Zip OEM drives accounted for
approximately 51% of total Zip drive shipments in the first nine months of 2001,
compared to approximately 44% in the first nine months of 2000. Zip disk revenue
of $190.8 million for the nine months ended September 30, 2001 decreased by
$144.3 million, or 43.1%, while Zip disk units shipped decreased by 39.1% from
the first nine months of 2000. When compared to the first nine months of 2000,
lower units shipped, net of favorable product mix, accounted for $196.1 million
of the decrease in Zip product revenue and pricing actions accounted for $76.8
million of the decrease in Zip product revenue.

Jaz product sales for the
nine months ended September 30, 2001 totaled $53.5 million, representing a
decrease of $71.1 million, or 57.1%, compared to sales of $124.6 million for the
nine months ended September 24, 2000. Sales of Jaz products represented 8.3% of
total sales for the first nine months of 2001, compared to 12.9% for the first
nine months of 2000. Jaz drive and disk units shipped decreased by 55.5% and
53.7%, respectively, when compared to the first nine months of 2000. Lower units
shipped and pricing actions accounted for $70.6 million and $0.5 million,
respectively, of the decrease in Jaz revenue when compared to the first nine
months of 2000.

CD-RW product sales for the
nine months ended September 30, 2001 totaled $80.3 million, representing an
increase of $10.6 million, or 15.2%, compared to sales of $69.7 million for the
nine months ended September 24, 2000. Sales of CD-RW products represented 12.5%
of total sales for the first nine months of 2001 compared to 7.2% for the first
nine months of 2000. CD-RW units shipped increased 53.7% compared to the first
nine months of 2000. Higher units shipped accounted for $32.3 million of the
increased sales and was partially offset by pricing actions of $21.7 million
resulting from pricing actions taken to meet competitive pressures when compared
to the first nine months of 2000.

PocketZip product sales for
the nine months ended September 30, 2001 totaled $5.7 million, representing a
decrease of $2.6 million, or 31.6%, compared to sales of $8.3 million for the
nine months ended September 24, 2000. Sales of PocketZip products represented
0.9% of total sales for both the first nine months of 2001 and 2000. PocketZip
drive units shipped increased 18.9% compared to the first nine months of 2000,
while PocketZip disks units shipped decreased by 31.5%. Pricing actions
accounted for $5.0 million of the lower revenue and was partially offset by $2.4
million from higher units shipped, primarily drives, resulting in the lower
PocketZip revenue when compared to the first nine months of 2000.

Other product sales for the
nine months ended September 30, 2001 totaled $14.6 million, representing an
increase of $11.4 million, compared to sales of $3.2 million for the third
quarter of 2000. The increased sales resulted primarily from the addition of new
products partially offset by lower Ditto revenues. These new products included
Peerless, which began shipping late in the second quarter of 2001, FotoShow,
which began shipping in the fourth quarter of 2000, branded products such as
Iomega MicrodriveTM miniature hard drives, Iomega CompactFlashTM and
Iomega SmartMediaTM memory cards and DataSafeTM network
attached storage servers which also began shipping in 2001 and software.

Geographically, sales in
the Americas totaled $448.4 million, or 69.6% of total sales, in the nine months
ended September 30, 2001, compared to $640.8 million, or 66.1% of total sales,
in the nine months ended September 24, 2000. This decrease was primarily due to
lower Zip and Jaz sales. Sales in Europe totaled $149.5 million, or 23.2% of
total sales, in the nine months ended September 30, 2001, compared to $239.5
million, or 24.7% of total sales, in the nine months ended September 24, 2000.
This decrease was primarily due to lower Zip and Jaz sales. Sales in Asia
totaled $46.5 million, or 7.2% of total sales, in the nine months ended
September 30, 2001, compared to $88.7 million, or 9.2% of total sales, in the
nine months ended September 24, 2000. This decrease was primarily due to lower
Zip sales.

## GROSS MARGIN

The Companys overall
gross margin was $32.3 million, or 17.7%, in the third quarter of 2001, compared
to $130.8 million, or 40.8%, in the third quarter of 2000. This decrease in
gross margin of $98.5 million was due primarily to lower Zip and Jaz revenue,
lower CD-RW gross margins and non-restructuring charges of $25.2 million,
primarily reflecting writedowns of CD-RW, HipZip, FotoShow and other inventory
and equipment and other assets and charges associated with various contractual
arrangements and supplier commitments. Excluding the non-restructuring charges,
gross margin for the third quarter of 2001 was 31.6%. The gross margin
percentage decreased from 40.8% for the third quarter of 2000 resulted primarily
from significantly lower CD-RW gross margins caused by intense pricing pressures
and from lower Zip margins, which declined from 46% in the third quarter of 2000
to approximately 41% (excluding non-restructuring charges) in the third quarter
of 2001. This decrease in gross margin was largely a reflection of lower volumes
and a lower mix of disk to drive sales.

The Companys overall
gross margin was $125.3 million, or 19.4%, in the nine months ended September
30, 2001, compared to $378.7 million, or 39.1%, in the nine months ended
September 24, 2000. The decrease in gross margin of $253.4 million was due
primarily to lower Zip and Jaz revenue, lower CD-RW gross margins and
non-restructuring charges of $70.1 million in 2001 offset in part by
non-restructuring charges in 2000 of $7.4 million. Excluding the
non-restructuring charges in both years, the gross margin for the first nine
months of 2001 was 30.3% compared to 39.8% for the first nine months of 2000.
This gross margin percentage decrease resulted primarily from lower CD-RW gross
margins caused by intense pricing pressures and from lower Zip margins which
declined from approximately 44% in the first nine months of 2000 to
approximately 40% (excluding non-restructuring charges) in the first nine months
of 2001, largely a reflection of lower volumes, pricing actions and a lower mix
of disk to drive sales.

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

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

Zip segment product profit
margin for the third quarter of 2001 of $35.5 million decreased by $52.3
million, or 59.6%, compared to Zip segment product profit margin of $87.8
million for the third quarter of 2000, primarily from lower units shipped,
pricing actions and a lower mix of disk to drive sales partially offset by a
higher mix of 250MB products. Product profit margin as a percentage of Zip sales
decreased to 24.8% for the third quarter of 2001, compared to 35.5% for the
third quarter of 2000, primarily due to lower volumes and prices, fixed costs
decreasing at a slower rate than revenue declined and a lower mix of disk to
drive sales partially offset by a higher mix of 250MB products.

Jaz segment product profit
margin for the third quarter of 2001 of $3.5 million decreased by $6.3 million,
or 64.5%, compared to Jaz segment product profit margin of $9.8 million for the
third quarter of 2000, primarily from lower units shipped. Product profit margin
as a percentage of Jaz sales decreased to 25.6% for the third quarter of 2001,
compared to 28.2% for the third quarter of 2000, primarily from fixed costs
decreasing at a slower rate than revenue declined.

CD-RW segment product loss
for the third quarter of 2001 of $9.6 million represented an $11.6 million
reduction in profitability compared to a CD-RW segment product profit margin of
$2.1 million for the third quarter of 2000, primarily due to pricing actions as
a result of pricing pressures which were not offset by cost reductions.

PocketZip segment product
loss of $1.7 million was reduced by $3.2 million in the third quarter of 2001,
compared to a PocketZip segment product loss of $4.9 million in the third
quarter of 2000, primarily due to product launch costs in the third quarter of
2000 associated with HipZip, which was introduced in the third quarter of 2000
and from lower depreciation expenses.

Other product losses of
$12.5 million increased $10.5 million in the third quarter of 2001, compared to
Other product losses of $1.3 million in the third quarter of 2000, primarily due
to product launch costs associated with Peerless and product losses associated
with FotoShow and software.

Zip segment product profit
margin for the first nine months of 2001 of $127.7 million decreased by $118.4
million, or 48.1%, compared to Zip segment product profit margin of $246.1
million for the first nine months of 2000, primarily due to lower units shipped
and pricing actions. Product profit margin as a percentage of Zip sales
decreased to 26.0% for the first nine months of 2001, compared to 32.2% for the
first nine months of 2000, primarily due to lower units shipped, pricing actions
and a lower mix of disk to drive sales partially offset by a higher mix of 250MB
products.

Jaz segment product profit
margin for the first nine months of 2001 of $15.7 million decreased by $18.4
million, or 54.1%, compared to Jaz segment product profit margin of $34.1
million for the first nine months of 2000, primarily due to lower units shipped.
Product profit margin as a percentage of Jaz sales increased to 29.3% for the
first nine months of 2001, compared to 27.4% for the first nine months of 2000,
primarily due to lower warranty and repair costs and lower depreciation
expenses.

CD-RW segment product loss
for the first nine months of 2001 of $26.5 million represented a $29.1 million
reduction in profitability compared to a CD-RW segment product profit margin of
$2.6 million for the first nine months of 2000, primarily due to price
reductions and rebates as a result of pricing pressure and costs not decreasing
at the same rate as revenue.

PocketZip segment product
loss for the first nine months of 2001 of $14.8 million improved $2.2 million,
compared to PocketZip segment product loss of $17.0 million for the first nine
months of 2000, primarily due to product launch costs in the third quarter of
2000 associated with HipZip, which was introduced in the third quarter of 2000
and from lower depreciation expenses, partially offset by lower revenues
resulting primarily from pricing actions.

Other product loss of $29.0
million increased $21.5 million for the first nine months of 2001, compared to
Other product loss of $7.6 million for the first nine months of 2000, primarily
due to development and launch costs associated with Peerless which began
shipping late in the second quarter of 2001 and to product losses associated
with software and FotoShow.

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

Selling, general and
administrative expenses (including bad debt) of $60.0 million for the third
quarter of 2001 decreased by $8.8 million, or 12.8%, compared to $68.8 million
for the third quarter of 2000. The $8.8 million decrease in selling, general and
administrative expenses resulted primarily from a $7.0 million decrease in
professional fees, a $6.4 million decrease in marketing expenditures due
primarily from a television advertising campaign in the prior year, a $5.0
million reduction in salaries due to headcount reductions, a $1.7 million
decrease in bonus accruals and a $0.9 million decrease in general and
administrative expenses due primarily to lower system upgrade costs and other
cost cutting efforts. These decreases were partially offset by $5.9 million in
non-restructuring charges taken during the third quarter of 2001 related to the
cancellation of various sales and marketing commitments and impairment of
marketing fixed assets. See the non-restructuring charges discussion above for
more information.

The decreases in selling,
general and administrative expenses (including bad debt) during the third
quarter of 2001 were also partially offset by a $6.5 million increase in bad
debt expense due to general deteriorating accounts receivable agings and
collection issues with a U.S. customer. The Company recorded a specific $2.0
million bad debt provision in the third quarter of 2001 for this U.S. customer
because the Company believes this customers financial position continues
to seriously deteriorate. At September 30, 2001, the Company had $11.4 million
in trade receivables in excess of 180 days past due compared to $8.3 million at
July 1, 2001.

Selling, general and
administrative expenses (including bad debt) increased as a percentage of sales
to 33.0% (29.7% excluding non-restructuring charges) for the third quarter of
2001, from 21.5% in the corresponding quarter of 2000, as a result of lower
sales in the third quarter of 2001.

Selling, general and
administrative expenses (including bad debt) of $176.0 million for the first
nine months of 2001 decreased by $27.3 million, or 13.5%, compared to $203.3
million for the first nine months of 2000. The $27.3 million decrease in
selling, general and administrative expenses resulted primarily from a $12.3
million decrease in marketing expenditures, a $10.3 million decrease in
professional fees, an $8.1 million decrease in bonus accruals, a $3.6 million
decrease in system upgrade costs, a $3.5 million decrease in product management
expenses, $2.9 million decrease due to cost efficiencies in the customer
satisfaction function and $2.1 million related to other cost reduction efforts.
These decreases were partially offset by $7.0 million in non-restructuring
charges taken during the second and third quarters of 2001 related to the
cancellation of various sales and marketing commitments, other agreements and
impairment of marketing fixed assets. See the non-restructuring charges
discussion above for more information.

The decreases in selling,
general and administrative expenses (including bad debt) during the first nine
months of 2001 were partially offset by an $8.7 million increase in bad debt
expense due to general deteriorating accounts receivable agings and collection
issues with a U.S. customer. The Company recorded a specific $2.0 million bad
debt provision in the third quarter of 2001 and a $1.5 million bad debt
provision in the second quarter for this U.S. customer because the Company
believes this customers financial position is seriously deteriorating. At
September 30, 2001, the Company had $11.4 million in trade receivables in excess
of 180 days past due compared to $7.4 million at December 31, 2000.

Selling, general and
administrative expenses (including bad debt) increased as a percentage of sales
to 27.3% (26.2% excluding non-restructuring charges) for the first nine months
of 2001, from 21.0% in the corresponding period of 2000, primarily as a result
of lower sales during the first nine months of 2001.

## RESEARCH AND
DEVELOPMENT EXPENSES

Research and development expenses
of $12.5 million for the third quarter of 2001 decreased by $3.4 million, or
21.5%, when compared to $15.9 million for the third quarter of 2000. The lower
research and development expenses for the third quarter of 2001 resulted
primarily from the development of FotoShow and HipZip during the third quarter
of 2000 and for software development projects. Research and development expenses
increased as a percentage of sales to 6.8% in the third quarter of 2001, from
5.0% in the third quarter of 2000 as a result of lower revenue.

Research and development
expenses of $39.8 million for the first nine months of 2001 decreased by $2.5
million, or 6.0%, when compared to $42.3 million for the first nine months of
2000. The decrease in research and development expenses for the first nine
months of 2001 was due primarily to the development of FotoShow in HipZip during
the first nine months of 2000 partially offset by increased spending for the
development of the new Peerless drive system during the first nine months of
2001. Research and development expenses increased as a percentage of sales to
6.2% in the first nine months of 2001, from 4.4% in the corresponding period of
2000 primarily as a result of lower revenue.

## INTEREST AND
OTHER INCOME AND EXPENSE

Interest income of $3.4
million in the third quarter of 2001 decreased $2.3 million from $5.7 million in
the third quarter of 2000 due to lower interest rates and lower average cash and
investment balances. Interest income of $13.1 million for the first nine months
of 2001 decreased $1.5 million from $14.6 million for the first nine months of
2000. Lower interest rates were partially offset by higher average cash and
investment balances during the first nine months of 2001.

Interest expense of $0.1
million and $0.2 million during the third quarter and first nine months of 2001,
respectively, decreased from $0.9 million and $3.8 million during the third
quarter and first nine months of 2000, respectively. The lower interest expense
resulted from no debt balances in 2001 other than capital lease obligations of
$1.6 million compared to the third quarter of 2000, when the Company had $45.5
million in convertible subordinated notes outstanding and capital lease
obligations of $4.7 million. The convertible subordinated notes were paid off in
October 2000.

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

## INCOME TAXES

For the quarter ended
September 30, 2001, the Company recorded an income tax provision of $0.8 million
on a pre-tax loss of $70.3 million reflecting a $28.7 million increase in the
valuation allowance for net deferred tax assets. Excluding the $28.7 million
increase in the valuation allowance, the effective tax benefit rate for the
third quarter of 2001 was approximately 40%. This compares to an income tax
benefit of $2.4 million on pre-tax income of $53.0 million reflecting a $20.9
million decrease in the valuation allowance for net deferred tax assets during
the third quarter of 2000. Excluding the $20.9 million decrease in the valuation
allowance, the effective tax provision rate for the third quarter of 2000 was
approximately 35%.

The Companys current
deferred tax assets reflect temporary differences between the financial
reporting and tax treatment of current assets and liabilities, mainly reserves
for accounts receivable, inventories, accrued expenses and restructuring
reserves. The non-current deferred tax assets reflect temporary differences
between the financial reporting and tax treatment of non-current assets and
liabilities, plus the tax benefit of tax credit carryforwards and net operating
loss carryforwards. At September 30, 2001, the Company has $12.0 million of
deferred tax assets related to domestic net operating loss carryforwards, which
reflect the tax benefit of approximately $30.8 million in future domestic tax
deductions. These carryforwards expire at various dates beginning in 2020
through 2022.

During the third quarter of
2001, the Company established a valuation allowance totaling $28.7 million for a
portion of its domestic deferred tax assets. This valuation allowance was
recorded in accordance with SFAS 109, which requires that a valuation allowance
be established when there is significant uncertainty as to the realizability of
the deferred tax assets. In the future, as business conditions change, the
realizability of the deferred tax assets may change resulting in either an
increase or a decrease in the valuation allowance. The realizability of the
deferred tax assets is evaluated quarterly. In addition, the Company continues
to maintain a full valuation allowance of $15.9 million for deferred tax assets
related to foreign net operating loss carryforwards, which reflect the tax
benefit of approximately $36.3 million in future tax deductions. These
carryforwards expire at various dates beginning in 2004. These deferred tax
assets remain fully reserved because their realization is dependent on earning
future foreign taxable income in the tax jurisdictions to which the net
operating loss carryforwards relate. The largest of these foreign net operating
loss carryforwards relates to the Companys French subsidiary, Nomai S.A.
This subsidiarys operations have been shut down. Therefore, the foreign
net operating loss carryforward related to Nomai S.A. is not likely to be
realized in the future.

Net deferred tax assets for
the Company at September 30, 2001 are $29.0 million. The future minimum amount
of future taxable income that would have to be generated to realize the net
deferrred tax assets is approximately $74 million. Management believes that the
Companys recent restructuring efforts will reduce costs to be more in line
with expected revenues, and will allow the Company to generate sufficient future
taxable income to realize its net deferred tax assets. As such, management
believes that it is more likely than not that the net deferred tax assets will
be realized. However, actual results could differ from those estimates in the
near future and, as such, realization of the net deferred tax assets is not
assured.

Deferred tax  liabilities  for  estimated  U.S.  federal and state taxes of $48.4  million and $55.4  million as of
September  30, 2001 and December 31,  2000,  respectively,  have been  accrued on  unremitted  foreign  earnings of
$124.1  million and $142.0  million as of September 30, 2001 and December 31, 2000,  respectively.  U.S. taxes have
not been  provided  for  unremitted  foreign  earnings of $112.3  million.  These  earnings  are  considered  to be
permanently  invested in non-U.S.  operations.  The additional  U.S. tax liability,  if such amounts were remitted,
would be approximately $44 million.  Cash dividends of unremitted  foreign earnings to the U.S. would be considered
taxable in the U.S. for federal and state tax purposes at a rate of approximately 39%.

For the nine-month period
ended September 30, 2001, the Company recorded an income tax benefit of $15.1
million on a pre-tax loss of $112.3 million reflecting a $29.1 million increase
in the valuation allowance for net deferred tax assets. Excluding the $29.1
million increase in the valuation allowance, the effective tax benefit rate for
the nine months ended September 30, 2001 was approximately 39%. This compares to
an income tax benefit of $0.7 million on pre-tax income of $147.0 million
reflecting a $58.6 million decrease in the valuation allowance for net deferred
tax assets for the nine-month period ended September 24, 2000. Excluding the
$58.6 million decrease in the valuation allowance, the effective tax provision
rate for first nine months of 2000 was approximately 39%.

Cash paid for income taxes
was $1.4 million and $1.7 million for the first nine months of 2001 and 2000,
respectively.

## LIQUIDITY AND
CAPITAL RESOURCES

At September 30, 2001, the
Company had cash, cash equivalents and temporary investments of $336.0 million,
compared to $377.9 million at December 31, 2000, a decrease of $41.9 million or
11.1%.

At September 30, 2001,
$165.4 million of cash, cash equivalents and temporary investments were on
deposit in the U.S. compared to $199.2 million at December 31, 2000.

At September 30, 2001,
$170.6 million of cash, cash equivalents and temporary investments were on
deposit in foreign countries (primarily Western Europe) compared to $178.7
million at December 31, 2000. Unremitted earnings of foreign subsidiaries
amounted to $236.4 million as of September 30, 2001. Cash dividends of
unremitted foreign earnings to the U.S. would be considered taxable in the U.S.
for federal and state tax purposes at a rate of approximately 39% (See
Income Taxes above for more detail).

Working capital of $311.8
million decreased by $78.4 million compared to $390.2 million at December 31,
2000. The Companys ratio of current assets to current liabilities remained
unchanged at 2.3 to 1 at September 30, 2001 compared to December 31, 2000.

During the nine months
ended September 30, 2001, cash used by operating activities amounted to $13.8
million, a decrease of $226.0 million compared to cash provided from operating
activities of $212.2 million for the first nine months of 2000. The lower cash
provided from operating activities resulted primarily from lower operating
results and from changes in current assets and current liabilities as described
below.

Accounts receivable
decreased in the first nine months of 2001 primarily from lower sales. Inventory
decreased in the first nine months of 2001 primarily due to inventory
write-downs of CD-RW, HipZip and FotoShow inventory. Accounts payable decreased
primarily from lower levels of purchasing that has resulted from lower sales
volumes and cost reductions.

During the nine months
ended September 30, 2001, the Company repurchased 1,270,760 shares of the
Companys Common Stock for $8.3 million. For the nine months ended
September 24, 2000, the Company purchased 80,000 shares for approximately $2.0
million As of September 30, 2001, spproximately $134.6 million remained
available for future repurchases under the stock repurchase plan authorized by
the Companys Board of Directors on September 8, 2000. Any repurchase of
shares is expected to be funded using the Companys available working
capital.

For the nine months ended
September 30, 2001, the Company made $7.0 million in cash payments related to
the second and third quarter restructuring plans. The Company estimates
remaining future cash payments related to the 2001 restructuring plans to be
approximately $18 million.

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

## OTHER MATTERS

Reverse Stock
Split. On September 28, 2001, the Companys shareholders
approved a one-for-five reverse stock split of the Companys outstanding
Common Stock shares. The reverse stock split was effected after the market close
on September 28, 2001, thereby reducing 272.8 million shares of issued Common
Stock (including treasury shares) to 54.6 million shares. The par value of the
Common Stock was not affected by the reverse stock split and remains at $.03 1/3
per share after the reverse stock split. Consequently, the aggregate par value
of the issued Common Stock was reduced affecting the stockholders equity
section of the balance sheet due to reclassifying the par value amount of the
reversed common shares from Common Stock to Additional Paid-in Capital for all
periods presented. All per share amounts and outstanding shares, including all
common stock equivalents (stock options), have been retroactively restated in
the financial statements for all periods presented to reflect the reverse stock
split.

SEC Review. As
previously disclosed in the Companys Annual Report on Form 10-K for the
year ended December 31, 2000, and Form 10-Qs for the quarters ended April
1, 2001, and July 2, 2001, in connection with a review of the Companys
periodic SEC reports, the Company has received comments from the staff of the
SEC requesting various supplemental information and certain additional
disclosures. The staff has also questioned aspects of the Companys
accounting for its 1998 acquisition of Nomai, the subsequent evaluation of
impairment of goodwill relating to the Nomai acquisition and the restructuring
charges recorded by the Company in 1999.

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

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

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

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

In August 2001, the FASB
issued Statement of Financial Accounting Standards No. 143, Accounting for
Asset Retirement Obligations (SFAS 143). SFAS 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS 143 applies to all entities. It applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and (or) the normal operation of a
long-lived asset, except for certain obligations of lessees. SFAS 143 requires
that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. SFAS 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002. The
Company plans on adopting SFAS 143 beginning on January 1, 2003. The Company
believes that SFAS 143 will not have a material effect on the Companys
results of operations, financial position or liquidity.

In August 2001, the FASB
issued Statement of Financial Accounting Standards No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets (SFAS 144).
SFAS 144 addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. SFAS 144 establishes a single accounting model,
based on the framework established in SFAS 121, for long-lived assets to be
disposed of by sale. SFAS 121 did not address the accounting for a segment of a
business accounted for as a discontinued operation under APB
Opinion No. 30, Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions (APB 30) so
two accounting models existed for the disposal of long-lived assets. SFAS 144
replaces both SFAS 121 and APB 30, so that only one accounting model exists for
the disposal of long-lived assets. SFAS 144 also resolves implementation issues
related to SFAS 121. The provisions of SFAS 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001. The
provisions of SFAS 144 are to be applied prospectively. The Company plans on
adopting SFAS 144 beginning on January 1, 2002. The Company believes that SFAS
144 will not have a material effect on the Companys results of operations,
financial position or liquidity.

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

Corporate Headquarters
Change. The Company has relocated its Corporate Headquarters
from Roy, Utah, to San Diego, California. The move to San Diego is in process
and is expected to be completed during the next six months. Approximately 100
employees, 12 of whom will be relocated from Utah, will be based in the San
Diego area. Among the functions to be located to San Diego are corporate
marketing, product marketing, Internet marketing, strategic product sourcing,
software applications and customer advocacy, as well as certain executive staff
members and personnel in human resources, legal, finance and information
technology. Iomega will continue to have engineering, research and development,
and various operations offices in Roy, Utah.

## FACTORS
AFFECTING FUTURE OPERATING RESULTS

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

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

Sales of Zip products have
accounted for a significant majority of the Companys revenue since 1996.
However, these sales may not be indicative of the long-term demand for Zip
products and, in the third quarter of 2001, Zip revenue decreased approximately
42% from third quarter of 2000. The level of future sales of Zip drives to end
user customers will depend in great part on the Companys ability to
effectively position the Zip product line features versus CD-RW drives, increase
the capacity of its Zip products, and to further reduce costs to compete against
other substitute technologies. The level of future shipments of Zip drives to
OEM customers will depend in great part on the Companys ability to further
reduce the cost of Zip drives and on the extent to which the incorporation of
CD-RW or DVD-Recordable drives into OEM products results in a reduction in the
demand for OEM products also incorporating a built-in Zip drive. During the
second quarter of 2001, on its Zip product line (excluding FotoShow), the
Company recorded inventory reserves of $1.4 million; loss accruals of $1.3
million for supplier purchase commitments; and write-downs of related
manufacturing equipment amounting to $1.8 million. During the third quarter of
2001, on its Zip product line, the Company recorded contract cancellation costs
of $4.8 million and write-downs of related manufacturing equipment amounting to
$2.7 million. There is no assurance that the Company will not be required to
take additional charges associated with the Zip platform in the future. The
Companys future operating results are dependent upon its ability to
stabilize the Zip products business and to stop the Zip revenue decline. There
is no assurance that the Company will be successful in achieving this business
objective.

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

The Companys business
strategy for CD-RW is different from its strategy for its Zip and Jaz products
because most of the drives are purchased from suppliers and marketed under the
Iomega name without any significant manufacturing activity by the Company. The
CD-RW drive does not use proprietary media and has lower overall margins. Given
the low margins and frequency of new product introductions, the Company must
closely monitor its inventory levels, product transitions, sales channels,
advertising and other marketing expenses in order to sell the product
profitably. There is no assurance that the Company can achieve these objectives.
The CD-RW drive market is very competitive and includes several established
participants. Since the Companys introduction of its CD-RW products in
1999, the Company has reported product losses on CD-RW each year. In the second
quarter of 2001, the Company recorded inventory reserves of $4.4 million; loss
accruals of $2.9 million for supplier purchase commitments; $1.8 million of
reserves for channel inventory exposures and write-downs of related
manufacturing equipment amounting to $0.9 million. In the third quarter of 2001
the Company recorded additional inventory reserves of $7.2 million and loss
accruals of $0.3 million for contract cancellation costs. There is no assurance
that the Company will not be required to take additional charges associated with
the CD-RW platform in the future. The Company is currently developing a new
business strategy around its CD-RW products including the selection of a new
supplier, significantly reduced overhead associated with this segment, improved
inventory management processes and revised channel marketing programs. There is
no assurance that this strategy or the CD-RW products will be successful or
achieve profitability.

Since the introduction of
the PocketZip segment in 1998, the Company has incurred product losses including
non-restructuring charges totaling $21.5 million, $7.4 million and $55.6 million
in 2001, 2000 and 1999, respectively, related to the net realizable value of
inventory, equipment and supplier purchase commitments associated with the
PocketZip segment. There is no assurance that there will not be additional
charges. Market acceptance of PocketZip products as a storage solution for
digital audio players, digital cameras and other electronic devices is dependent
upon obtaining a significant market presence and developing OEM relationships
with manufacturers, who produce digital devices incorporating built-in PocketZip
drives. This product line has not been profitable and, in light of the
competitive marketplace for this product and the lower margins, the Company does
not expect to be able to sell this product line profitably. As of September 30, 2001,
the net assets related to the PocketZip platform was less than $0.5 million.

The Company has entered
into various arrangements under which the Company purchases products from other
businesses and markets those products under the Iomega name. In addition to
CD-RW, examples of this strategy include Microdrive, CompactFlash, SmartMedia
and DataSafe products all announced since the beginning of the fourth quarter of
2000. Since these products are manufactured by other parties, the Company does
not have control of the manufacturing process and has to closely monitor its
sales channels to control inventory levels. During the second quarter of 2001,
the Company recorded inventory reserves of $2.7 million and reserves of $0.4
million for channel inventory exposures relating to these products. The Company
also wrote-down other excess miscellaneous manufacturing equipment amounting to
$0.5 million. During the third quarter of 2001, the Company recorded additional
inventory reserves of $1.3 million, primarily related to Microdrive. There is no
assurance that the Company will not be required to take additional charges
associated with these products in the future. The Company also has to closely
monitor its advertising and other marketing expenses in the Companys
efforts to differentiate these products from those of the manufacturer. In light
of the competitive marketplace for this product and the lower margins, the
Company does not expect to be able to sell the Microdrive, CompactFlash and
SmartMedia product lines profitably. As of September 30, 2001, the net inventory
value remaining in these products was less than $0.1 million.  The Company is
currently developing a new
business strategy around its DataSafe products. There is no assurance that this
strategy or the DataSafe products will be successful or achieve profitability.

With the introduction of
several new products such as HipZip (part of the PocketZip segment), FotoShow
(part of Other) and various software products, the Company attempted to expand
into new markets and channels such as digital audio players, digital photo
storage/display and packaged software in which the Company did not have
significant prior experience. During the second quarter of 2001, in connection
with HipZip, the Company recorded inventory reserves of $4.6 million; loss
accruals of $9.1 million for supplier purchase commitments and write-downs of
related manufacturing equipment amounting to $4.2 million. During the third
quarter of 2001, also in connection with HipZip, the Company recorded additional
inventory reserves of $1.9 million. In the second quarter of 2001, in connection
with FotoShow, the Company recorded inventory reserves of $3.7 million; loss
accruals of $5.0 million for supplier purchase commitments and write-downs of
related manufacturing equipment amounting to $0.2 million. In the third quarter
of 2001, also in connection with FotoShow, the Company recorded additional
inventory reserves of $1.8 million. There is no assurance that the Company will
not be required to take additional charges associated with these products or
other recently introduced products in the future. The HipZip and FotoShow
products have not been profitable and, in light of the competitive marketplace
for these products and the lower margins, the Company does not expect that it
will be able sell this product line profitably. As of September 30, 2001, the net
inventory value remaining in these products was less than $0.5 million.

During the second quarter
of 2001, the Company began selling the new Peerless drive system. In addition to
the other risks described herein which relate to all of the Companys
products, additional risks relating to Peerless include the Companys
dependency upon a third party for some of the key technology used in the product
and the fact that a number of the potential market applications for Peerless are
new. In addition to stabilization of the Zip business, as discussed above, the
Company believes that future operating results are further dependent upon the
success of Peerless and other new high capacity storage product offerings. The
Company expects this sector to continue to be highly price competitive, and the
Companys success will depend on its ability to meet aggressive product
price and performance targets. There is no assurance that the Company will meet
its targets or that Peerless or other new products will achieve significant
market presence or otherwise be successful. In the third quarter of 2001, the
Company recorded inventory reserves of $2.4 million on 10GB Peerless cartridge
components. There is no assurance that the Company will not be required to take
additional reserves in the future.

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.

The Companys future
operating results are subject to risks associated with general economic
conditions and consumer confidence. A decrease in consumer spending could have a
direct impact on the Companys revenue. Any disruption in general economic
conditions including those caused by acts of war, terrorism or other factors
could have an adverse impact on the Companys results. For example, the
Company experienced a slowdown in sales following the tragic events of September
11, 2001.

The
Company believes that economic conditions in the personal computer industry have
deteriorated and this downturn has affected the computer resellers, distributors
and retailers who sell the Companys products. Although the Company uses
commercially reasonable steps to manage the credit granted to its customers,
certain receivable balances from one or more of its customers may become
uncollectible. This event could adversely affect the Companys financial
results. For example, during the third quarter of 2001, the Company saw a
deterioration in its accounts receivable agings contributing to the decision to
increase its allowance for doubtful accounts. There is no assurance that the
Company wont be required to further increase its allowance for doubtful
accounts in the future.

Management of the
Companys inventory levels is very complex. The Companys customers
frequently adjust their ordering patterns in response to various factors
including: perceptions of the Companys ability to meet demand; the
Companys and competitors inventory supply in the retail and
distribution channel; timing of new product introductions; seasonal
fluctuations; Company and customer promotions; the consolidation of customer
distribution centers; pricing considerations; and the attractiveness of the
Companys products compared with competing products. Customers may increase
orders during times of shortages, cancel orders if the channel is filled with
currently available products, or delay orders in anticipation of new products.
Any excess supply could result in price reductions and inventory write-downs,
which in turn could adversely affect the Companys results of operations.
For example, during the second quarter of 2001, the Company recorded inventory
reserves of $16.8 million, loss accruals for related supplier purchase
commitments of $18.3 million and accruals of $2.2 million were recorded to
reflect valuation reserves for inventory in the channel. During the third
quarter of 2001, the Company recorded additional inventory reserves of $15.1
million and contract cancellation costs of $9.1 million.

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

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

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

The Company has experienced
problems and may experience problems in the future, relating to the quality,
reliability and/or availability of certain of its products. For example, the
Company has in the past recalled certain products and experienced manufacturing
interruptions due to quality problems. Further, during the month of September
2001, various shipments of the Companys products to customers and receipt
of products from suppliers were temporarily delayed following September 11,
2001. The Company is in the process of closing its North Carolina product
distribution center and outsourcing this function. Any product availability,
delays, disruption, shipping, quality or reliability problems experienced by the
Company, or claims filed against the Company as a result of these problems,
could have an adverse effect on the Companys sales and net income, result
in damage to the Companys reputation in the marketplace and subject the
Company to damage claims from its customers. In addition, component problems,
shortages, quality issues or other factors affecting the supply of the
Companys products could provide an opportunity for competing products to
increase their market share.

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

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

The purchase orders under
which the Company buys many of its components generally extend at most one to
two quarters in the future based on the lead times associated with the specific
component. The quantities on the purchase order are based on estimated sales
requirements. In the case of new products or products with declining sales, it
is difficult to forecast product demand. Any misestimate of demand can result in
either insufficient or excess capacity and/or purchase commitments. During the
second quarter of 2001, the Company recorded charges of $18.3 million for
supplier purchase commitments. During the third quarter of 2001, the Company
recorded charges of $15.1 million for inventory reserves and $9.1 million for
the termination of various contractual agreements. There is no assurance that
the Company will not be required to take future charges attributable to
forecasting inaccuracies.

The Company recorded
restructuring and other charges during the second and third quarters of 2001 of
$47.1 million and $64.4 million, respectively, in connection with the following
restructuring and other actions: adjust the Companys operating structure
in accordance with revenue expectations, reducing the Companys break-even
point and improve operating cash flow; reducing the Companys global
workforce in all functional areas during the second half of 2001 by 1,234
persons or approximately 37%; streamlining the Companys supply chain and
logistics strategy, including the closure of the Companys distribution
facility in North Carolina; consolidating labor-intensive tasks into Malaysia;
consolidating the Companys operations and facilities, including the
relocation of Corporate Headquarters to San Diego, California; and revising the
Companys product strategy. There is no assurance that additional
restructuring and other actions will not be necessary in the fourth quarter of
2001 or subsequent quarters. There is no assurance that the Company will be
successful in undertaking these cost reduction actions, or be able to do so
without incurring significant legal or other costs. Management expects that
these restructuring and other actions will reduce future operational and
manufacturing expenses. Management further expects the need to implement
additional operational cost reductions. However, there is no assurance that the
Company will be successful in its efforts to reduce expenses in future periods.
In carrying out these actions, the Company is at risk that key personnel and
experience may be lost. There may be high employee turnover in relocating the
Companys headquarters to San Diego, California. The Company may experience
short-term disruptions of Information Technology systems and other business
operations. The Company may incur legal liability and claims associated with the
restructuring and mass layoff. In consolidating facilities, including
outsourcing of functions previously performed at the Companys North
Carolina distribution center, the Company may experience disruptions in product
shipments. Any disruption could adversely affect the Companys financial
results.

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

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

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

At September 30, 2001, the
Company had net deferred tax assets of $29.0 million. During the third quarter
of 2001, the Company partially reserved its domestic deferred tax assets and
maintained a valuation allowance for certain foreign net operating loss
carryforwards for which the associated operations have been shut down. These
valuation allowances were recorded in accordance with SFAS 109, which requires
that a valuation allowance be established when there is significant uncertainty
as to the realizability of the deferred tax assets. The minimum amount of future
taxable income that would have to be generated to realize the net unreserved
deferred tax assets is approximately $74 million. As such, as business
conditions change, there is the risk that the Company may not be able to realize
its remaining unreserved net deferred tax assets and may have to increase the
valuation allowance for these assets in the future.

The Company has issued
stock options that are subject to variable plan accounting in accordance with
FASB Interpretation No. 44 Accounting for Certain Transactions Involving
Stock Compensation (Interpretation 44). Under variable plan
accounting, the Company is required to recognize compensation expense in its
statement of operations for any increase in the market price of the
Companys Common Stock above $20.00 (the market price at July 1, 2000,
which was the effective date of Interpretation 44, adjusted for the one-for-five
reverse stock split on September 28, 2001). This compensation expense must be
recorded on a quarterly basis until the option is exercised, forfeited or
expires unexercised. The impact of the new options granted under the Exchange
Program on the Companys financial statements will depend on quarterly
fluctuations in the Companys Common Stock price and the dates of
exercises, forfeitures or cancellations of the new options by employees.
Depending on these factors, the Company could be required to record significant
compensation expense during the life of the options, which expire in April 2010.
Moreover, because the precise amount of compensation expense will depend on the
market price of the Common Stock at the end of each quarterly period, the
Company will not be able to forecast in advance the amount of compensation
expense that it will incur in any future period.

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

## IOMEGA
CORPORATION

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

The Company is exposed to
various interest rate risks. The Company did not have any significant debt
outstanding at September 30, 2001. Should the Company need to borrow funds in
the future, it would be subject to interest rate risks. The Company is also
subject to interest rate risks on its current cash balances.

The Company is exposed to
various foreign currency exchange rate risks that arise in the normal course of
business. The Companys functional currency is the U.S. dollar. The Company
has international operations resulting in receipts and payments in currencies
that differ from the functional currency of the Company. The Company attempts to
reduce foreign currency exchange rate risks by utilizing financial instruments,
including derivative transactions pursuant to Company policies. The Company uses
forward contracts to hedge those net assets and liabilities that, when
remeasured according to generally accepted accounting principles, impact the
consolidated statement of operations. All forward contracts entered into by the
Company are components of hedging programs and are entered into for the sole
purpose of hedging an existing or anticipated currency exposure, not for
speculation or trading purposes. Currently, the Company is using forward
contracts only to hedge balance sheet exposure. The contracts are primarily in
European currencies, the Singapore dollar and the Japanese yen. The contracts
normally have maturities that do not exceed three months. The Company has a
substantial presence in Malaysia. In September 1998, the ruling party in
Malaysia fixed the Malaysian Ringgit to the U.S. dollar. The Company has
material amounts of accounts payable denominated in Ringgit. Currently, the
foreign currency markets are closed to hedging alternatives in Ringgit. When the
foreign currency markets re-open for the Ringgit, the Company plans to
re-evaluate its hedging strategy for Ringgit exposure.

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

The fair value of the
Corporations forward contracts is subject to change as a result of
potential changes in market rates and prices. The Company has performed a
sensitivity analysis assuming a hypothetical 10% adverse movement in foreign
exchange rates and interest rates applied to the forward contracts and
underlying exposures described above. As of September 30, 2001, the analysis
indicated that such market movements would not have a material effect on the
Companys consolidated financial position, results of operations or cash
flows. Factors that could impact the effectiveness of the Companys hedging
programs include volatility of the currency and interest rate markets,
availability of hedging instruments and the Companys ability to accurately
project net asset or liability positions. Actual gains and losses in the future
may differ materially from the Companys analysis depending on changes in
the timing and amount of interest rate and foreign exchange rate movements and
the Companys actual exposure and hedges.

## IOMEGA
CORPORATION

## PART II -
OTHER INFORMATION

## ITEM 1. LEGAL
PROCEEDINGS

A discussion of the
Companys legal proceedings appears in Part I, Item 1 of this Form 10-Q
under Note 7 of the Notes to Condensed Consolidated Financial Statements, and is
incorporated herein by reference.

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

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

On September 28, 2001, the
Companys shareholders approved a one-for-five reverse stock split of the
Companys outstanding Common Stock shares. The reverse stock split was
effected after the market close on September 28, 2001, thereby reducing 272.8
million shares of issued Common Stock (including treasury shares) to 54.6
million shares. The par value of the Common Stock was not affected by the
reverse stock split and remains at $.03 1/3 per share after the reverse stock
split. Consequently, the aggregate par value of the issued Common Stock was
reduced affecting the stockholders equity section of the balance sheet due
to reclassifying the par value amount of the reversed common shares from Common
Stock to Additional Paid-in Capital for all periods presented. All per share
amounts and outstanding shares, including all common stock equivalents (stock
options), have been retroactively restated in the financial statements for all
periods presented to reflect the reverse stock split.

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

On September 28, 2001, a
Special Meeting of Stockholders of Iomega Corporation was held, at which time
the Companys stockholders approved an amendment to Iomegas
Certificate of Incorporation effecting a one-for-five reverse split of
Iomegas Common Stock.

The following table indicates the votes received for the proposal.

`Against/
                              Proposal                               For            Withheld          Abstain 

     1.     Approval of amendment to Iomega's
                Certificate of Incorporation effecting
                A one-for-five reverse split of Iomega's
                Common Stock.                                    214,041,006        26,696,080        1,123,933`

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

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

|(b) | Reports on Form 8-K.  No reports on Form 8-K were filed  during the  quarter for which this report on Form
 10-Q is filed.
|--- | --------------------------------------------------------------------------------------------------------------------------

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: 11/13/01
Dated: 11/13/01 | IOMEGA CORPORATION
        (Registrant)/s/ Werner T. Heid
    Werner T. Heid
    President and Chief Executive Officer    /s/ Barry Zwarenstein
Barry Zwarenstein
    Vice President, Finance and
    Chief Financial Officer
|------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## EXHIBIT INDEX

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

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

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

|10.26 | Separation agreement and General Release, dated July 16, 2001, between the
Company and Herbert K. Scales.
|----- | ---------------------------------------------------------------------------------------------------------