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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

or

For the transition period from                                      to                                     

1-12333
(Commission file number)

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

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:
None

    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 ý    No o

    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes o

    The aggregate market value of Common Stock held by non-affiliates of the registrant at March 1, 2002, was $461,034,225 based upon the last reported sales price of the Common Stock as reported by the New York Stock Exchange. The number of shares of the registrant's Common Stock outstanding at March 1, 2002, was 51,226,025.

    Documents incorporated by reference:

•

Specifically identified portions of the Company's Definitive Proxy Statement for its 2002 Annual Meeting of Stockholders into Part III of Form 10-K.

This Annual Report on Form 10-K contains a number of forward-looking statements, including, without limitation, statements referring to: the Company's goals to achieve revenue growth and to continue to reduce operational expenses; expected savings from prior restructuring and non restructuring activities; plans to introduce new and enhanced products, including follow-on hard disk drive products to the Peerless drive system; plans to implement revised product strategies on CD-RW products and NAS products; plans to pursue "Back Office" business opportunities; plans to stabilize and improve the Company's core Zip business; expected increases in sales from newly released products; strategic importance and planned enhancements to the Company's QuikSync software product; plans to offer PocketZip and Jaz disks during 2002; the expectation to continue to lower product costs; the expected sufficiency of unrestricted cash, cash equivalents and temporary investment balances; the impact on gross margins resulting from the sales volumes of disks, sales mix between disks and drives, the mix between OEM sales and sales through other channels and the sales mix between the Company's products; the impact of new accounting pronouncements; realization of net deferred tax assets; the belief that future net income will enable the Company to fully realize its net deferred tax assets; expected sales levels due to seasonal demand; anticipated hedging strategies; the expectation that the Company can obtain sufficient product and components thereof to meet business requirements; and the possible effects if an adverse outcome in legal proceedings described in Note 6 to the Consolidated Financial Statements were to occur. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes", "anticipates", "plans", "expects", "intends" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these words.

There are a number of important factors that could cause actual events or the Company's actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth under the captions "Critical Accounting Policies," "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 7 of Part II of this Annual Report on Form 10-K and those set forth in Items 1 and 3 of Part I of this Annual Report on Form 10-K. 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 Annual 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.

Copyright © 2002 Iomega Corporation. All rights reserved. Iomega, the stylized "i" logo, Zip, Jaz, PocketZip, HipZip, HotBurn, FotoShow, QuikSync, LifeWorks, DataSafe, Active Disk, Predator and Peerless are either registered trademarks or trademarks of Iomega Corporation in the United States and/or other countries.

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. Certain other product names, brand names and company names may be trademarks or designations of their respective owners.

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PART I

ITEM 1. BUSINESS:

Iomega designs, manufactures and markets innovative data management solutions, based on removable-media technology, for home and office computers. The Company's principal data management solutions include magnetic drives and disks marketed under the trademark Zip®, a high performance, portable, external drive device incorporating hard disk technology marketed under the Peerless™ trademark and optical drives marketed under the Iomega® CD-RW and Predator™ trademarks. The Company also markets Iomega® Network Attached Storage ("NAS") servers that organize, share and protect critical business data. The Company's products can be purchased as aftermarket products for personal computers or as built-in features of personal computers and other OEM products.

Iomega Corporation was incorporated in Delaware in 1980. During 2001, the Company relocated its Corporate Headquarters from Roy, Utah to San Diego, California. The Company's executive offices are now located at 4435 Eastgate Mall, San Diego, CA, 92121 and its telephone number is (858) 795-7000. The terms "Iomega" and the "Company" refer to Iomega Corporation and its wholly owned subsidiaries, unless the context otherwise requires.

Iomega Data Management Solutions

The Company believes that its products address key information management and storage needs. Iomega's removable media products are affordable and easy to use, offering expandable storage capacity and portability for capturing, sharing, protecting and securing digital valuables.

Zip, CD-RW and Peerless drives install easily and add a versatile source of additional storage capacity. The Company's Zip drives use reliable, high-capacity removable magnetic disks to protect and secure digital valuables on desktop and laptop computers used in home and office settings. The Company's CD-RW products allow users to capture and share digital valuables using industry-standard CD formats such as CD-Recordable ("CD-R") discs, which can be recorded once and CD-ReWritable ("CD-RW") discs, which can be recorded many times. The Peerless disk, which incorporates hard drive technology in 10GB and 20GB capacities, offers high capacity in a compact, portable form factor.

The Company believes that its data management products provide a combination of price, performance, software and other features that make them attractive data management solutions for their target markets. Zip drives offer users a reliable disk medium with the data access times, transfer rates and storage capacity needed for today's larger files, along with the benefits of removable media, at an attractive price for mass-market customers. CD-RW drives allow users to create, distribute and archive customized data/audio CDs on an industry standard CD format. The Peerless drive system can support a broad range of applications from editing digital video sequences to running consumer software applications to backing up large hard drive partitions.

Company Products

Zip Products

Since their introduction in March 1995, more than 46 million Zip drives and 280 million Zip disks have been shipped. Designed as an affordable portable storage product for personal computer users, Zip drives address multiple needs: data storage, archiving, portable applications (with Active Disk™ technology, which automatically configures and launches applications contained on a Zip disk whenever the disk is inserted into a Zip drive), data transportability, file distribution (including multimedia presentations), data security and backup. The Zip 100MB and 250MB drives provide personal computer users (both PC and Mac®) with the performance and capacity needed for today's larger files and the current models are compatible with leading operating systems for personal computers and workstations, including Microsoft® Windows® XP, 2000, Me, 98, 95, NT 4.0, Apple® Macintosh® OS-X, OS 8.1-9.x, and Linux Kernel 2.2.14.

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Software included with the Zip drives helps users organize, copy, move and back up their data and offers software read/write protection.

External Zip 100MB Drive.    Zip 100MB external drives are available in two interface models: parallel port and USB. The parallel port and USB versions feature a maximum transfer rate of 0.6MB per second and 1.0 to 1.2MBs per second, respectively.

Internal Zip 100MB Drive.    The 3.5-inch form factor Zip 100MB drive is available with an ATAPI interface for original equipment manufacturers ("OEMs"), system integrators and retail channels. The ATAPI version features a maximum transfer rate of 1.2MBs per second.

Zip 250MB Drive.    The Zip 250MB drive was designed to meet demand for higher storage capacity fueled by the prevalence of graphics in many applications, the emergence of audio and video files and the proliferation of Internet downloads. In addition to two and one-half times the capacity of the original Zip 100MB drive, the Zip 250MB drive offers increased speed when used with 250MB disks. It also reads and writes to Zip 100MB disks allowing sharing of files with users of Zip 100MB drives.

External Zip 250MB Drive.    Zip 250MB external drives are available in four interface models: parallel port, SCSI, USB 1.1 and IEEE 1394 ("FireWire®"). FireWire® support is available through an adapter bundled with Zip 250MB USB drives outfitted with an external ATAPI connector. The Zip 250MB USB powered drive uses a single USB cable for both data and power; the USB drive bundled with a FireWire® adapter gives customers a host-powered solution with up to twice the performance of USB 1.1 at an affordable price.

Internal Zip 250MB Drive.    The 3.5-inch form factor Zip 250MB drive is available with an ATAPI interface for OEMs, system integrators and retail channels. The ATAPI version features a maximum sustained transfer rate of 2.3MBs per second.

Notebook Zip 250MB Drive.    The Zip 250MB helps the mobile user to save, store, transport and share critical information safely. It is 12.7mm high and comes as a bare drive configuration or can be customized with a bay tray for the OEM. As of December 31, 2001, Compaq, Dell, IBM and Toshiba were selling the Notebook Zip 250MB drive as an optional product feature for their notebook computers.

Zip Disks.    The original Zip 100MB disks provide personal computer users (both IBM® PC and Mac®) with 70 times the capacity and up to 30 times faster performance than, traditional floppy disks, while the Zip 250MB disks provide 174 times the capacity and 50 times faster performance than traditional floppy disks. Zip disks also facilitate the rapid archive and back up of data, with a 250MB disk having the equivalent write speed of a 16X CD-RW drive.

CD-RW Products

Iomega CD-RW drives are mass-market products that address the growing and varied removable storage demands of customers. CD-RW drives are used for creating customized music CDs, archiving and distributing information. The Company began shipping its first CD-RW drive in August 1999. In 2001, the Company sold both internal and external CD-RW drives. In the first quarter of 2002, the Company is completing the transition of its CD-RW business to focus on the sale of external drives. The three speeds of a CD-RW drive, such as 16x10x40, represent the Record (record once on CD-R media), Write (rewritable speed using CD-RW media) and Read (CD-ROM) speeds, respectively. CD-RW drives use an optical phase change technology and are a dual-function drive, offering both CD-R and CD-RW recording, giving the user a choice of which recordable media to use. During 2001, the Company purchased internal CD-RW drives from optical drive manufacturers and configured them into external drives or internal drive kits under the Iomega CD-RW brand name with added software and interfaces. During the first quarter of 2002, the Company will completely outsource the manufacturing and configuration of CD-RW drives.

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CD-RW Drives.    During 2001, the Company shipped internal drives with the following speeds, 8x4x32, 12x10x32, 16x10x40 and 24x10x40. The external drive offerings were 4x4x6 USB 1.1, Predator 4x4x6 USB 1.1, Predator 8x4x32 Firewire, and 16x10x40 USB 2.0.

16x10x40 External USB 2.0 Drive.    This drive began shipping in October 2001. It represents Iomega's first USB 2.0 product offering. This product is compatible with both USB 1.1 and USB 2.0 interfaces. The USB 1.1 interface limits the performance of the drive to 4x4x6; the USB 2.0 interface supports the full 16x10x40 performance potential of the drive. It is also the first Iomega product utilizing Iomega HotBurn® CD writer software. This software is specifically designed to simplify the process of creating CDs. This drive also incorporates a buffer under-run protection function allowing the user to utilize the computer for other tasks while burning CDs without creating bad discs due to data interruption. The 16x10x40 USB 2.0 drive is compatible with PC and Macintosh® platforms.

Predator 24x10x40 External USB 2.0 Drive.    This product, introduced in January 2002, is the next generation in the Predator product line of CD-RW designs. It incorporates all of the features of the original Predator product such as small size, light-weight and top disc loading. It also includes new features such as buffer under-run protection and faster drive speeds, as well as Iomega HotBurn CD writer software.

Peerless Products

Peerless Drive.    The Peerless drive system, which began shipping during the second quarter of 2001 in 10GB and 20GB configurations, represents a new generation of high performance data management devices designed to deliver versatility and reliability. Peerless drives use industry-standard interfaces for simple integration into new devices. A broad range of applications, from editing digital video sequences to running consumer software applications to backing up large hard drive partitions, is possible with the Peerless drive system. Although encouraged by this product, the current implementation of the Peerless drive faces significant cost challenges in light of continued price reductions in the portable hard disk drive ("HDD") market segment in which the product competes. As a result, in 2002 the Company expects to launch newly designed portable HDD devices with the goal of achieving improved competitiveness in this market segment.

Peerless Disks.    The Peerless disk, which incorporates hard drive technology in 10GB and 20GB capacities, is roughly the size and shape of a personal digital assistant ("PDA"). The Peerless disks slip into a base station only slightly larger than the disk itself—a slim, vertical enclosure about four inches across and five inches tall. The hard disk components used in the Peerless disks are obtained exclusively from IBM.

Jaz Products

Subsequent to the end of 2001, the Company announced that it was discontinuing its Jaz drive products. However, Jaz disks will be available in 2002 to support the installed base of Jaz drives.

Jaz products addressed the high-performance needs of computer users in several areas including graphics and desktop publishing, software development, CAD/CAM, web authoring, audio and video development, corporate backup and personal use. The drives operated with leading operating systems for personal computers and workstations, including Microsoft® Windows® 2000, Me, 98, 95, NT4.0, XP, Apple® Macintosh® OS 8.6-9.x, OS-X and Linux Kernel 2.2.14. The Jaz 2GB drive was available in both external and internal SCSI versions. The removable Jaz 2GB drive utilized an ultra-SCSI interface. Adapters were available for USB 1.1, FireWire®, parallel port, and PC Card ("PCMCIA") connections.

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PocketZip™ Products

Subsequent to the end of 2001, the Company discontinued its PocketZip drive and HipZip™ digital audio player products. However, PocketZip disks will be available in 2002 to support the installed base of PocketZip drives and HipZip digital audio players.

PocketZip Drives.    PocketZip drives were a miniaturized removable-media storage solution designed for use in a variety of handheld consumer electronics devices and notebook computers. During 2001, the Company offered the PocketZip PC Card drive, which fit into most industry standard Type II PC Card slots found on many laptops or notebook computers.

PocketZip Disks.    PocketZip 40MB disks are flexible magnetic disks in a 2" by 2" metal jacket. Each PocketZip disk holds 25 times more than a standard floppy disk, making them ideal for storing information, photos, audio files, presentations, e-mails and more. A 40MB PocketZip disk will hold approximately 60 to 80 JPEG images ("one megapixel") depending on camera settings, or about 80 minutes of digital music using the WMA format (64kbps).

HipZip Digital Audio Player.    Introduced during the third quarter of 2000, the HipZip digital audio player played music stored on Iomega's PocketZip 40MB disks.

Other Products

Iomega® Network Attached Storage.    An Iomega Network Attached Storage ("NAS") server offers an integrated and cost-effective solution to organize, share and protect business critical data. During 2001, the Company offered NAS products under the DataSafe™ brand. Beginning in the second quarter of 2002, the Company will begin shipping products under the Iomega brand name. Users may install 160GB or 320GB servers by connecting one or more of the dual auto-sensing Ethernet ports (for load balancing) and then configuring the Microsoft® Windows®-powered system via a remote web browser. The servers support Windows®, UNIX/Linux, NetWare® and Macintosh® environments.

QuikSync™ Software.    QuikSync software is designed to automatically keep important files safe and accessible. All users have to do is select the folders on their hard drives or network drives that they want QuikSync software to monitor. Every time users save a file to one of these folders, the software automatically copies the file to any storage device selected by the user. Additionally, by setting QuikSync software to store multiple file revisions, users gain the ability to recover earlier versions of their important files even if the current version has been changed or damaged. QuikSync is bundled with many of the Company's various products and can be downloaded from the Iomega Web site.

HotBurn CD Writer Software.    This software is specifically designed to simplify the process of creating CDs. This software is included with drives sold by the Company and has also been licensed to Valusoft, Inc., who is reselling the software under the Burn & Go Gold label.

FotoShow™ Digital Image Center.    Iomega's FotoShow digital image center, with built-in PictureIQ™ software, made it easy to organize, edit and share digital photos with family and friends without the need for a PC. When connected to a computer, it operated as a normal Zip 250MB drive allowing people to easily transfer photos for later viewing on a television. Subsequent to the end of 2001, the Company discontinued its FotoShow digital image center product.

Microdrive™, CompactFlash™ and SmartMedia™.    Beginning in January 2001, Iomega became the first company to brand IBM's 340MB Microdrive. Iomega bundled the drive with a Type II+ PC card adapter and QuikSync 2 software to provide customers with a new solution for removable storage in laptop computers, consumer handheld devices and digital cameras. Beginning in March 2001, Iomega began offering CompactFlash and SmartMedia flash memory cards. Subsequent to the end of 2001, the Company discontinued its Microdrive, CompactFlash and SmartMedia products.

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Marketing

The Company's worldwide marketing efforts focus on the overall positioning and messaging of the Company's products and software solutions to enhance the value of Iomega's brands.

The Company's worldwide marketing objective is to build awareness and generate demand for the Company's products and solutions. Brand and product-specific messages are delivered to a variety of target segments including computer users, enterprise Information Technology ("IT") managers and OEMs via a broad assortment of communication vehicles including advertising, public relations, tradeshows and events, direct mail and the Iomega.com Web site. These awareness-generating activities are enhanced with demand stimulus programs and promotions (direct mail or e-mail blasts to target market segments) for distribution, reseller and retail channel partners.

The Company actively markets the sale of internal Zip drives to personal computer manufacturers. The Company's OEM partners are actively supported by specific OEM marketing programs (see the OEMs, Licensee and Private Label section below for information about our OEM partners).

In addition, the Company actively focuses on marketing to and developing the enterprise customer segment. The Company's enterprise marketing group works closely with the enterprise sales group to develop programs focused on enterprises of all sizes including small and medium businesses, Fortune 1000 businesses, the top 200 educational institutions and major federal and state government agencies. Activities during 2001 included participation in more than 200 industry events targeted at IT management, direct marketing programs and telemarketing. To enhance the Company's ability to serve this important market segment, the Company has engaged the services of a nationwide Value Added Reseller ("VAR") representative firm to help the Company recruit and engage new VARs and resellers.

During 2001, the Company has refocused its marketing and product development initiatives around three core platforms: Front Office Protect and Secure, Front Office Capture and Share, and Back Office Protect and Secure.

"Front Office Protect and Secure" includes the Company's core product platform in removable digital storage solutions—Zip drives and disks, Peerless drives and disks and follow-on portable HDD devices. Product development initiatives for this category are focused on creating higher capacity models to address the expanding amount of digital content being generated today. Marketing initiatives for this category are designed to promote usage and generate incremental disk consumption. Opportunities for promoting Zip drive and disk usage lie in leveraging the read/write capabilities and security and durability of Zip product solutions coupled with applications designed specifically for digital music, digital photography, file protection, organization and back-up. For higher capacity requirements, the Company plans to promote Peerless drives and follow-on high capacity, portable, hard disk technology-based solutions.

In support of this Front Office Protect and Secure initiative, the Company has organized a Software and Media Usage Group focused on creating software, as well as partnering with industry-leading software companies, to provide customers with enhanced solutions for protecting and securing digital valuables. The Company's QuikSync application, which enables transparent, hassle-free, automatic file back ups will be an integral part of every Zip drive. This digital storage application will play an increasingly important role to the Company's "Protect and Secure" platforms in 2002 and beyond as enhancements are incorporated to improve QuikSync functionality.

The Company's Active Disk technology, which enables full applications to be launched and run completely from a Zip disk, will also be a key component of Zip drives. The Company will be expanding the Active Disk technology in 2002 to include an extensive shareware Web site for customers to easily download hundreds of free software applications that can be run entirely from a Zip disk.

"Front Office Capture and Share" is represented by the Company's optical (CD-RW) product offerings. The Company's proprietary HotBurn software creates a point of differentiation in a crowded market

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segment and provides users ease of use. Key product initiatives are centered around delivering enhancements in speed, ease of use and industrial design.

The Company believes that the "Back Office Protect and Secure" category represents a growth opportunity for the Company. This platform extends the Company brand equity into digital storage and network back-up. The Company's next generation of NAS servers and other network attached storage appliances are being developed to meet the growing storage needs of IT managers and small/medium enterprises.

Sales

The Company sells its products primarily through computer product and consumer electronic distributors, retailers and OEMs. The Company's Zip products are targeted primarily to the retail consumer and enterprise markets and personal computer OEMs. The Company's CD-RW products are targeted primarily to the retail consumer and enterprise markets. The Company's Peerless drive system is targeted primarily to the enterprise and retail consumer markets. The Company's Jaz products were targeted primarily to resellers, distributors and retailers throughout the world. The Company's NAS products are targeted primarily to the enterprise market. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of Part II and Note 15 to the Notes to Consolidated Financial Statements for financial information about the Company's business segments.

During the years ended December 31, 2001, 2000 and 1999, sales to Ingram Micro, Inc., a distributor, accounted for 16%, 16% and 15%, respectively, of total sales. No other single customer accounted for more than 10% of the Company's sales in 2001, 2000 or 1999.

Substantial portions of outstanding trade receivables are due from computer product distributors, certain large retailers and OEMs. At December 31, 2001, the customers with the ten highest outstanding trade receivable balances totaled $112.3 million, or 77%, of gross trade receivables, with one customer accounting for $20.6 million, or 14%, of gross trade receivables. If any one or a group of these customers' receivable balances should be deemed uncollectable, it may have a material adverse effect on the Company's results of operations and financial condition.

The Company has agreements with certain of its customers which, in the event of a price decrease, allow those customers (subject to 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 with the corresponding reduction in sales for estimated amounts to be reimbursed to qualifying customers.

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 first quarter and summer months. Accordingly, sales and growth rates for any prior quarter are not necessarily indicative of sales or growth rates to be expected in any future quarter.

Retail Distribution

Retail outlets for the Company's products include computer superstores, consumer electronic superstores, mail order catalogs, office supply superstores, specialty computer stores and other retail outlets. The Company sells its products to retail channels directly as well as indirectly through distributors. In Europe, Asia and Latin America, the Company sells its products in the retail channel indirectly through distributors. The Company's products are sold at a retail level by most of the leading retailers of computer products in the United States. Retailers that the Company sells directly to as of December 31, 2001 in the United States included Best Buy, Circuit City, Costco Warehouse, Datavision, Fred Meyer, Fry's Electronics, J&R Music World, MicroCenter, OfficeDepot, Office Max, PC Warehouse, Quill Corporation, Radio Shack, Sam's Club, Sears, Staples, Viking Office Products and WalMart.

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Distributors

Distributors as of December 31, 2001 included D&H Distributors, Inc., Ingram Micro, Inc., Tech Data, SP Richards and Synnex in the U.S.; Actebis, Computer 2000, CMS Peripherals, Data Media S.A., Tech Data S.A. and Ingram Micro Europe in Europe; Ingram Micro, Marubeni Infotech and Tech Pacific in Asia; and Azerty de Mexico, Darck Technologies, Exel del Norte and Intcomex in Latin America.

Catalog partners as of December 31, 2001 included CDW Computer Centers, Micro Warehouse, Multiple Zones International and PC Connection.

IomegaDirect®

The Company offers its products, including various promotional items, through its Iomega.com Web site.

International

The Company sells its products outside North America primarily through international distributors. The Company has several sales offices in Europe, Asia and Latin America. Beginning in January 2002, the majority of sales to European customers will be denominated in Euro. All sales to Latin American customers are denominated in U.S. dollars. Sales to Asian customers are typically denominated in U.S. dollars with the exception of Japan, where sales are primarily invoiced in the Japanese Yen. In total, sales outside of the United States represented 33%, 34% and 36% for the years ended December 31, 2001, 2000 and 1999, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of Part II and Note 15 of the Notes to Consolidated Financial Statements for more information on international sales.

OEMs, Licensees and Private Label

In addition to sales through retail and distribution channels, the Company has entered into a number of strategic OEM arrangements with a variety of companies within the computer industry. These alliances include OEM arrangements providing for certain of the Company's products to be incorporated in new computer systems. The Company also has licensing or co-development arrangements that grant rights to third parties to manufacture and/or market to OEMs and other third parties. The Company also has private-branding and co-branding arrangements with major vendors of computer products covering the resale of the Company's products.

Zip Drives and Disks.    The Company has arrangements with many of the major PC manufacturers to incorporate Zip drives into their computer systems as optional features. The Company's sales of Zip drives to OEM customers accounted for 51% of total Zip drive units sold in 2001, compared to approximately 43% in 2000 and 51% in 1999.

The Company has non-exclusive license agreements with MCI and NEC under which they manufacture and market Zip 100MB drives to OEMs and other parties.

The Company has private-branding and co-branding arrangements with Fuji and Maxell covering the sale of Zip 100MB and Zip 250MB disks globally in packages that include the Zip brand name in addition to the partner's name.

HotBurn Software.    The Company has licensed HotBurn CD writer software to Valusoft, Inc., who is reselling the software under the Burn & Go Gold label.

Manufacturing

During mid-2001, the Company closed substantially all of its manufacturing operations in Roy, Utah and transferred those manufacturing activities to the Company's Penang, Malaysia facility. The Company's products are also manufactured by independent parties on a contract basis. Manufacturing activity

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generally consists of assembling various components, subcomponents and prefabricated parts manufactured by outside vendors.

Although the Company believes it is positioned to produce or otherwise obtain the majority of its products in the future, there can be no assurance that the Company will not from time to time encounter difficulties in achieving desired levels of manufacturing capacity; that it will be successful in managing relationships with third-party manufacturers; that third-party manufacturers will be able to meet the Company's quality, quantity, pricing and other requirements for manufactured products; or that vendors of components, subcomponents and prefabricated parts will be able to meet quantity, quality, pricing and other requirements of the Company.

Penang Manufacturing Facility

The Company owns a 376,000 square-foot, manufacturing facility in Penang, Malaysia where the Company's Zip drives and disks are manufactured and where the Company's Peerless products and certain models of CD-RW drives are assembled. The Company ceased production of Jaz drives in late 2001, but plans to continue to manufacture Jaz disks in 2002.

Third-Party Product Manufacturing

The Company currently has a third-party manufacturing relationship with Sentinel N.V., located in Belgium, who produces some of the Company's Zip disks. During 2001, the Company terminated its third party manufacturing relationship with Mega Media as part of the Company's third quarter restructuring actions.

Distribution

During 2001, the Company outsourced its product distribution center from the Company's North Carolina facility and closed this facility as part of the Company's third quarter restructuring actions. During 2002, the Company will outsource its European product distribution center and logistics. The Company's Asian product distribution will continue to be at the Company's Penang manufacturing facility.

Components

Certain components incorporated in, or used in, the manufacture of the Company's products are currently available only from single or sole source suppliers. The Company has entered into an agreement with Lite-On Corporation under which Lite-On now supplies substantially all of the Company's CD-RW drives. Hard disk components used in the Peerless disks are obtained exclusively from IBM. Media used in Zip 100MB and 250MB disks is obtained exclusively from Fuji Photo Film, certain integrated circuits used in Zip drives are obtained exclusively from Texas Instruments and head stack assemblies ("HSAs") used in Zip notebook drives are obtained exclusively from SAE Magnetics.

The Company purchases a portion of its single, sole and limited source components pursuant to purchase orders without guaranteed supply arrangements. The Company has experienced difficulty in the past, and may experience difficulty in the future, in obtaining a sufficient supply of key components on a timely basis. The Company continues to seek to develop relationships with qualified manufacturers with the goal of securing high-volume manufacturing capabilities and controlling the cost of current and future models of the Company's products; however, there can be no assurance that the Company will be able to obtain a sufficient supply of components on a timely or cost effective basis. Further, the HSAs used in Zip drives are considered to be mature technologies. A supplier of one of the components used to produce the HSAs has announced its intention to discontinue manufacturing. The Company is in the process of negotiating an "end-of-life" purchase of these components. Other suppliers of components of HSAs or other assemblies may discontinue one or more components. In any such case, the Company would similarly attempt to make an end-of-life purchase on the required component(s) based on its estimates of all future requirements.

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There is no assurance that an end-of-life purchase would be available. Moreover, there can be no assurance that any estimate of future requirements would be accurate or that the components purchased would not be subsequently lost, become defective or be otherwise damaged.

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 the component becomes available from an alternative source), delay product shipments, increase the Company's material or manufacturing costs or cause an imbalance in the inventory levels of certain components. Moreover, difficulties in obtaining sufficient components may cause the Company to modify the design of its products to use a more readily available component; and such design modifications 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.

Backlog

The Company had an order backlog at the end of December 2001 of approximately $18 million, compared to a backlog at the end of December 2000 of approximately $30 million. The purchase agreements or purchase orders pursuant to which orders are made generally allow the customer to cancel orders without penalty, and the Company has experienced some cancellations or rescheduling of orders in backlog. Moreover, it is common in the industry during periods of product shortages or perceived product shortages for customers to engage in practices such as double ordering in order to increase a customer's allowance of available product. Accordingly, the Company's backlog as of any particular date should not be relied upon as an indication of the Company's actual sales for any future period.

Product Development

An important element of the Company's business strategy is the ongoing enhancement of existing products and the development of new products and software. During 2001, the Company's efforts were primarily focused on cost reduction and development projects for the Company's Zip products. These development projects included developing different system interfaces, developing higher capacity and performance versions, and enhancing and expanding compatibility with various computers and operating systems. Development work during 2001 was also focused on the Peerless drive system, which was introduced during the second quarter of 2001. The Company is also continuing its efforts on expanding software applications to be used with the Company's current product offerings to provide additional value to the customer, such as the HotBurn CD writer software and QuikSync suite of products.

During 2001, 2000 and 1999, the Company's research and development expenses were $49.5 million, $58.6 million and $76.5 million, respectively (or 5.9%, 4.5% and 5.0%, respectively, of net sales).

The Company operates in an industry that is subject to both rapid technological change and rapid change in consumer demands. The Company's future success will depend in significant part on its ability to continually develop and introduce, in a timely manner, new storage products with improved features and to develop and manufacture or source those new products within a cost structure that enables the Company to sell such products through effective channels at competitive prices. There can be no assurance that the Company will be successful in developing, manufacturing and marketing new and enhanced products that meet both the performance and price demands of the data storage market.

Competition

The Company believes that its Zip and Peerless products compete with other data storage devices, such as fixed hard drives (for upgrade), magnetic cartridge disk drives (that use either floppy or rigid media),

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magnetic tape drives, magneto optical drives, optical disk drives and "floptical" disk drives. Current competing solutions of removable-media data storage devices include Orb (product developed by Castlewood Systems, Inc.), Memory Stick (product developed by Sony Corporation), Microdrive (product developed by IBM), CompactFlash (product developed by Sandisk), SmartMedia (product developed by Toshiba) and CD-R, CD-RW and DVD drives and discs. Although the Company believes that its Zip and Peerless products offer advantages over the other removable-media storage devices and other storage solutions available today, the Company believes that the price, performance and usability levels of existing removable-media products have improved and will continue to improve and that other companies will introduce new removable-media storage devices and new non-removable storage solutions. Accordingly, the Company believes that its Zip and Peerless products will face increasingly intense competition. For example, the Company believes that broad adoption of CD-RW drives has had a significant adverse impact on the Company's Zip product line and the Company's CD-RW sales have not and are not expected to, offset the sales decline of the Zip product line.

To the extent that Zip drives are used for incremental primary storage capacity, they compete with non-removable media storage devices such as conventional hard disk drives, which are offered by companies such as Seagate Technology, Western Digital Corporation, Quantum Corporation and Maxtor Corporation, as well as integrated computer manufacturers such as NEC, IBM, Fujitsu, Hitachi, Ltd. and Toshiba. In addition, the leading suppliers of conventional hard disk drives could at any time determine to enter the removable-media storage market.

The Company believes that it is currently the only source of technology for the disks used in its Zip and Peerless drives. It is possible that other sources of supply for disks used in Zip and Peerless drives will emerge as a result of another party succeeding in producing disks that are compatible with Zip and Peerless drives without infringing the Company's proprietary rights.

Iomega CD-RW products compete with other CD-RW products as well as most of the magnetic products listed above as competitors for Zip and Peerless drives. CD-RW drives are distributed through traditional channels, which include retail, catalog, distribution, direct and also OEM. The CD-RW drive market has different segments in which drive suppliers compete. Numerous companies manufacture CD-RW drives. These manufacturers include Acer, Aopen, BTC, Cyberdrive, Delta, LG Electronics, Lite-On, Mitsumi, NEC, Panasonic, Philips, Plextor, Ricoh, Samsung, Teac, Toshiba, Ultima and Yamaha. LG Electronics, Lite-On and Philips lead the market in manufacturing capacity for these drives. Many of these manufacturers sell directly to personal computer OEMs as well as into the aftermarket channels under their own brand names. Adoption of internal CD-RW drives by personal computer OEMs is expected to continue to grow as drive prices decline. Drive manufacturers also sell their drive components or finished drives to resellers which use their own engineering expertise to add value to the drive such as interface, external design, software as well as brand name to sell CD-RW drives. Some of these companies which purchase CD-RW drives from manufacturers include Iomega, ACS Innovations International, Actima Technology Corporation, Cendyne Creative Technology Ltd., Freecom, Hewlett-Packard Corporation, Hi-Val, I-O Magic, Memtek Products, Inc., Pacific Digital, Sony, TDK, Traxdata and Waitec. The Company competes with these manufacturers and resellers on several factors such as price, performance, brand recognition, quality, customer support and software/accessories included with the drives. Given that the Company is sourcing substantially complete drives from other manufacturers while also competing with them, it is subject to significant supply risk and the possibility that the manufacturer may under price the Company in the market at anytime.

The Company's NAS products compete with other NAS products as well as traditional methods for increasing storage on network servers. These traditional methods of expanding storage capacity include additional hard drives, tape drives/tapes, General Purpose Servers ("GPS") and JBOD (just a bunch of disks) that are connected to the system. In addition, some companies are choosing to deploy higher end solution like Storage Area Networks ("SAN"). The Company sees NAS and SAN as complementary and will continue to work on communicating the message that a NAS can be deployed with a SAN. Until that

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behavior becomes prevalent, NAS will compete with SAN in storage networking. The Company believes that NAS offers a more compelling product solution than a GPS by being less costly per gigabyte, being fast and easy to deploy and having a lower total cost of ownership because there are no applications running on the device.

NAS is divided into three categories, entry level (prices less than $2,000), mid-range (prices from $2,000 to $25,000) and high end (prices $25,000 and greater). The Company plans to compete in the entry level and mid-range categories. The key competitors in these two categories include Dell, Hewlett Packard, IBM, Maxtor, Procom Technology, Quantum/Snap! and Sony. The Company will compete by providing user relevant features, price, brand recognition, strong relationships in the reseller channel, quality, customer support and strong sourcing relationships. Given that the Company is sourcing substantially complete products from other manufacturers while also competing with them, it is subject to significant supply risk and the possibility that the manufacturer may under price the Company in the market at any time.

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 profitably sell its products and lower its prices in response to competition. During 2001, the Company incurred $39.0 million in restructuring charges with the intent of reducing ongoing operational costs. During the past several years, the Company has implemented a number of programs, including Six Sigma quality initiatives, which have resulted in substantial product and process quality improvements and reduced costs. Through these and other programs, 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; and decreasing defect rates. As new and competing removable-media storage solutions are introduced, it is possible that any such solution that achieves a significant market presence or establishes a number of significant OEM relationships will emerge as an industry standard or achieve a leading market position. If such is the case, there can be no assurance that the Company's products would achieve significant market acceptance.

The Company believes that in order to compete successfully against current and future sources of competition, it will also need to differentiate its products from the competition through effective marketing and advertising portraying the benefits of the Company's products, such as the software embedded in the products that lends to ease of use or the durability of the Company's Zip products.

In the OEM market, the Company competes with the vendors mentioned above, as well as with the manufacturers of personal computers, who may elect to manufacture data storage devices themselves.

The Company faces competition from its licensees and expects to compete in the future with any other licensees of the Company's products. In addition, the Company has granted certain companies the right to purchase disks from the Company (generally at a discount to the price paid by retail channels) and resell such products under private brand names; the Company's products may become subject to increased price competition from such private branded resellers. Price competition from other resellers of the Company's products, whether or not the Company has a manufacturing relationship with any such party, may result in increased pressure on the Company to reduce the prices at which its products are sold to such resellers or others or to offer rebates. The Company continually evaluates its prices and may elect to reduce prices or offer rebates in the future. Reductions in the prices at which the Company sells its products or any rebates offered by the Company would adversely affect gross margins to the extent such reductions or rebates are not offset by reductions in the cost of manufacturing such products.

The Company believes that most consumers distinguish among competitive data storage products on the basis of some or all of the following criteria: price (cost per unit and cost per megabyte of storage capacity), performance (speed and capacity), functionality (reliability, product size, removability and transportability), ease of installation and use, and security of data. Additional competitive considerations, particularly in the OEM market, are the size (form factor) of the drive and the interface type with which

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the drive is compatible. The most common form factor for floppy drives is 3.5-inch. The Company currently offers 3.5-inch Zip drives. The most common system interface for the OEM market is ATAPI. The Company currently offers internal Zip drives in ATAPI, SCSI, USB and FireWire® interface models.

The data storage industry is highly competitive and the Company expects that competition will substantially increase in the future. In addition, the data storage industry is characterized by rapid technological development. The Company competes with a number of companies that have greater financial, manufacturing and marketing resources than the Company. The availability of competitive products with superior performance, functionality, ease of use, security or substantially lower prices could adversely affect the Company's business.

Proprietary Rights

The Company relies on a combination of patent, copyright, trademark, trade secret laws and contractual provisions to protect its technology. While the Company currently intends to carefully manage and, where appropriate, vigorously enforce its intellectual property rights, there can be no assurance that the steps taken by the Company to protect its technology and enforce its rights will be successful. The Company has pending approximately 580 U.S. and foreign patent applications relating to its Zip, Jaz and Peerless drives and disks and CD-RW drives although there can be no assurance that such patents will be issued. The Company holds more than 460 individually or jointly owned U.S. and foreign patents relating to its Zip, Jaz, Peerless and other technologies. Some of these patents and patent applications are subject to license agreements with third parties. The Company is also developing new technologies that are not currently embodied in commercial products. The Company intends to similarly protect, where possible and deemed appropriate, these new technologies. There can be no assurance that any patents or other intellectual property rights obtained or held by the Company will provide substantial value or protection to the Company, that their validity will not be challenged or that affirmative defenses to infringement will not be asserted.

The validity of certain of the Company's patents has been challenged by parties against whom the Company has asserted infringement claims. If another party were to succeed in producing and selling Zip compatible disks in volume, without infringing or violating the Company's intellectual property rights, the Company's sales would be adversely affected and such adverse effects could be material. It is also possible that the price at which the Company sells its proprietary disks could be adversely affected by the availability of such disks from other parties. Moreover, because the Company's Zip disks have higher gross margins than the Zip drives, the Company's net income would be disproportionately affected by any such sales shortfall.

The Company has various different registered trademarks in the United States, several of which are also registered trademarks in other countries.

Due to the rapid technological change that characterizes the Company's industry, the Company believes that the success of its products will also depend on the technical competence and creative skill of its personnel in addition to legal protections afforded its existing drive and disk technology.

As is typical in the data storage industry, from time to time, the Company has been and may in the future be, notified of claims that it may be infringing certain patents, trademarks and other intellectual property rights of third parties. It is not possible to predict the outcome of such claims and there can be no assurance that such claims will be resolved in the Company's favor. If one or more of such claims is resolved unfavorably, there can be no assurance that such outcomes will not have a material adverse effect on the Company's business or financial results. The data storage industry has been characterized by significant litigation relating to infringement of patents and other intellectual property rights. The Company has in the past been engaged in infringement litigation, both as plaintiff and defendant. There can be no assurance that future intellectual property claims will not result in litigation. If infringement were established, the Company could be required to pay substantial damages or be enjoined from

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manufacturing and selling the infringing product(s) in one or more countries, or both. In addition, the costs of engaging in intellectual property litigation may be substantial regardless of outcome and there can be no assurance that the Company will be able to obtain any necessary licenses on satisfactory terms.

Certain technology used in the Company's products is licensed on a royalty-bearing basis from third parties, including certain patent rights relating to Zip products. The termination of a license arrangement could have a material adverse effect on the Company's business and financial results.

Employees

As of December 31, 2001, the Company employed 2,097 individuals worldwide. During 2001, the Company terminated the employment of 1,465 personnel as part of the Company's restructuring plans, 75 of which were still employed by the Company on a transition basis at December 31, 2001, but whose employment will end during the first half of 2002. None of the Company's employees are subject to a collective bargaining agreement.

Government Contracts

No material portion of the Company's business is subject to renegotiation of profits or termination of contracts at the election of the United States government.

Environmental Matters

Compliance with federal, state and local environmental protection laws had no material effect on the Company in 2001 and is not expected to have a material effect in 2002.

ITEM 2. PROPERTIES:

The Company's executive offices are located in leased offices in San Diego, California. A portion of the Company's research and development, operations, facilities and other administrative functions are located in leased offices in the Roy, Utah area. In addition, the Company leases office space in various locations throughout North America for local sales, marketing and technical support personnel, as well as other locations used for research and development activities.

Outside the United States, the Company leases office space in Geneva, Switzerland for use as its European headquarters and in Tiel, the Netherlands for use by its European logistics and distribution personnel. The Company leases space in Singapore, for its Asia Pacific headquarters. The Company also leases office space throughout Europe, Asia and South America for local sales, marketing and technical support personnel. The Company owns a 376,000 square-foot, manufacturing facility in Penang, Malaysia where the Company's Zip products and Jaz disks are manufactured and where the Company's Peerless products and certain models of CD-RW drives are assembled. The Company considers its manufacturing facilities, warehouses and other properties to be in good operating condition and suitable for their intended purposes. The Company's facilities are considered adequate with sufficient capacity to meet the operating requirements of the business; however, the Company further believes that its Penang manufacturing facility has significant excess capacity that will not be utilized in 2002. The Company is evaluating various alternatives to resolve this underutilization, including divestment and outsourcing of its manufacturing operations. The implementation of any of the alternatives being considered could result in additional charges.

The Company owns substantially all equipment used in its facilities through either outright purchases or capital leases.

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ITEM 3. LEGAL PROCEEDINGS:

A discussion of the Company's legal proceedings appears in Part IV, Item 14 of this Annual Report on Form 10-K under Note 6 of the Notes to Consolidated Financial Statements and is incorporated herein by reference.

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

No matters were submitted to a vote of the Company's security holders during the quarter ended December 31, 2001.

EXECUTIVE OFFICERS OF THE COMPANY

The executive officers of the Company as of February 28, 2002 were as follows:

Werner T. Heid has been a Director of the Company since May 2000 and was elected President and Chief Executive Officer in June 2001. From June 2000 to June 2001, Mr. Heid served as Executive Vice President, Worldwide Sales, Marketing, Product Strategy and Service of InFocus Corporation, a designer and manufacturer of digital multimedia projectors and services. In May 1998, Mr. Heid became President of Proxima Corporation ("Proxima") a developer, manufacturer and marketer of multimedia projection products that was acquired by InFocus Corporation in June 2000. Prior to joining Proxima in June 1998, Mr. Heid held a variety of management positions over 12 years at Hewlett Packard Corporation, a global provider of computer and imaging solutions and services. His roles included Worldwide Marketing Manager of HP All-in-One and HP Color Copier products, as well as European Marketing Manager for Hewlet Packard's LaserJet printer and printer supplies business.

Anna L. Aguirre joined the Company in July 2001 as Vice President, Human Resources and Facilities. Prior to joining the Company, Ms. Aguirre spent nine years at Proxima, where she served as Director of Human Resources. As a member of the executive team, she provided strategic guidance and set policy in the areas of change management, organizational development, human resources planning and facilities management.

Thomas D. Kampfer joined the Company in July 2001 as Vice President, General Counsel and Secretary. From February 2001 to July 2001, he served as General Counsel and Secretary and Vice President, Corporate Development of Entropia, Inc., a developer of distributed computing technology. From January 1995 to January 2001, Mr. Kampfer was with Proxima. While at Proxima, he served in several capacities including General Counsel and Secretary and Vice President, Business Development.

Mahmoud E. Mostafa joined the Company in October 2001 as Executive Vice President, Operations and Research and Development. Mr. Mostafa served from January 2001 to September 2001 as Vice President and Chief Operating Officer for Phogenix Imaging, LLC, a joint venture between Hewlett Packard and Kodak. Prior to joining Phogenix, Mr. Mostafa worked for Hewlett Packard for 19 years in a number of senior management positions in both Manufacturing and Research and Development, both in the U.S. and abroad and helped build Hewlett Packard start-up operations in Ireland and Guadalajara, Mexico.

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Barry Zwarenstein joined the Company in November 2001 as Vice President, Finance, Information Technology and Chief Financial Officer. Prior to joining the Company, Mr. Zwarenstein served from January 2001 to June 2001 as Chief Financial Officer for Mellanox Technologies, Ltd., a leading supplier of InfiniBand semiconductors. From November 1998 to January 2001, Mr. Zwarenstein served as Vice President Finance and Chief Financial Officer of Acuson Corporation, a producer of advanced diagnostic medical ultrasound systems, until its acquisition by Siemens A.G. Mr. Zwarenstein served as Chief Financial Officer of Logitech S.A., a leading supplier of interface devices that connect people and computers, from July 1996 through October 1998. Prior to being with Logitech S.A., Mr. Zwarenstein was with FMC Corporation, a diversified global manufacturer of a machinery, chemicals and ordnance, from 1975 through June 1996, most recently as Chief Financial Officer for FMC Europe, based in Brussels, Belgium.

PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS:

Securities

Iomega Common Stock is traded on the New York Stock Exchange under the symbol IOM. As of December 31, 2001, there were 6,124 holders of record of Common Stock. The Company has not paid cash dividends on its Common Stock in the past and has no present intention to do so in the future. The following table reflects the high and low sales prices as reported by the New York Stock Exchange for 2001 and 2000.

Price Range of Common Stock (Adjusted for the one-for-five reverse stock split effected on September 28, 2001)

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ITEM 6. SELECTED FINANCIAL DATA:

The following tables indicate the trends in certain components of the consolidated statements of operations and balance sheets for each of the last five years (adjusted for the one-for-five reverse stock split effected on September 28, 2001). The following selected financial data should be read in conjunction with the Consolidated Financial Statements and the related notes, and with "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this report.

(a)

Includes $70,091, $7,400, $65,976 and $5,900 of non-restructuring charges in 2001, 2000, 1999 and 1998, respectively.

(b)

Includes $14,074 of restructuring charges in 1999.

(c)

Includes $7,028, $1,000 and $9,400 of non-restructuring charges in 2001, 1999 and 1998, respectively.

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ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS:

Critical Accounting Policies

The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting periods. Areas where significant judgments are made include, but are not limited to: revenue recognition, price protection and volume rebate reserves, allowance for doubtful accounts, inventory valuation and deferred income tax asset valuation allowances. Actual results could differ materially from these estimates.

Revenue Recognition

The Company's customers include OEMs, retailers, distributors, value-added manufacturers and end users. 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 estimated 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 and sales in the Consolidated Financial Statements. The reserve for estimated returns totaled $6.2 million and $9.8 million at December 31, 2001 and 2000, respectively. The estimated returns are calculated using historical return rates. To the extent that future return rates are different than the historical rates used in estimating the return reserve, the amount by which trade receivables and sales were reduced could be significantly different.

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In addition to reserves for estimated 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 channel's 30-day requirements are estimated based on inventory and sell-through amounts reported to the Company by the Company's key customers. The Company defers estimated sales and cost of sales associated with excess channel inventory in its Consolidated Financial Statements. The gross margin associated with deferral of revenue for estimated excess channel inventory totaled $12.8 million and $16.8 million at December 31, 2001 and 2000, respectively, and is included in margin on deferred revenue in the Consolidated Balance Sheets.

Price Protection and Volume Rebates

The Company has agreements with certain of its customers which, in the event of a price decrease, allow those customers (subject to 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 with the corresponding reduction in sales for estimated amounts to be reimbursed to qualifying customers. In addition, the Company records reserves at the time of shipment for estimated volume rebates and estimated rebates given to consumers at time of purchase from channel partners for which revenue has been recognized. Estimates for rebates are based on a number of variable factors that depend on the specific program or product. These variables include the anticipated redemption rate of mail-in rebates, anticipated sales volumes in the channel, the perceived consumer value of the rebate and historical experience. Changes in any of these variables would have a direct impact on the amount of the recorded reserves.

Reserves for volume rebates and price protection credits totaled $45.8 million and $39.0 million at December 31, 2001 and 2000, respectively, and are netted against trade receivables in the Consolidated Balance Sheets. The increase in this reserve for 2001 resulted primarily from increased Zip and CD-RW rebate programs implemented to stimulate sales and increased CD-RW price protections driven by rapidly decreasing CD-RW prices. The Company believes that the use of rebates will continue to be a significant part of the Company's business strategy.

Allowance for Doubtful Accounts

The Company establishes an allowance for estimated bad debts by applying specified percentages to the different receivable aging categories. The percentage applied against the aging categories increases as the accounts become further past due. Accounts in excess of 180 days past due are generally fully reserved. In addition, specific reserves are established for specific customer accounts identified as known collection problems occur due to insolvency, disputes or other collection issues. The Company's customer base is quite concentrated and changes in either the customer's financial position or the economy as a whole, could cause actual write-offs to be materially different from the estimated reserve.

Inventories

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 against inventories. In addition,

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the Company generally considers that inventory on hand or committed with suppliers, which is not expected to be sold within the next nine months as excess and thus appropriate reserves are established through a charge to cost of sales. For example, during the second and third quarters of 2001, the Company established inventory reserves on several of the Company's products, including CD-RW, HipZip, FotoShow and Peerless as the sales prices fell below the Company's costs of the respective product and/or the amount of inventory on hand exceeded sales expectations.

Deferred Income Tax Valuation Allowances

The Company evaluates the realizability of its net deferred tax assets on a quarterly basis and valuation allowances are provided, as necessary. During this evaluation, the Company reviews its forecasts of income in conjunction with the positive and negative evidence surrounding the realizability of its deferred tax assets to determine if a valuation allowance is needed. As deferred tax assets or liabilities increase or decrease in the future, or if a portion or all of the valuation allowance is no longer deemed to be necessary, the adjustments to the valuation allowance will increase or decrease future income tax provisions.

For example, during the third quarter of 2001, the Company established a U.S. valuation allowance totaling $28.7 million for a portion of its domestic deferred tax assets. After considering its forecasts of taxable income in conjunction with the positive and negative evidence surrounding the realizability of its deferred tax assets, the Company concluded that a partial valuation allowance should be recorded against the net deferred tax assets in the third quarter. In the future, as business conditions change, the Company's confidence associated with the likelihood of the realizability of the deferred tax assets may change resulting in either an increase or a decrease in the valuation allowance. At December 31, 2001, the Company's net deferred tax assets were $27.6 million. If the Company is unable to support the recovery of these deferred tax assets, it would be required to provide additional valuation reserves for all or a portion of the deferred tax assets.

Business Segment Information

The accounting policies of the segments are the same as those described in Note 1 of Notes to the Consolidated Financial Statements "Operations and Significant Accounting Policies". Intersegment sales, eliminated in consolidation, are not material. The Company evaluates performance based on product profit margin ("PPM") for each segment. PPM 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, PPM is referred to as product loss. The expenses attributable to general corporate activity are not allocated to the operating segments.

The Company has four reportable segments based primarily on the nature of the Company's products and end-user customers: Zip, CD-RW, Jaz and PocketZip. 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 Company's CD-RW segment involves the final assembly (on certain models), distribution and sales of CD-RW drives to retailers, distributors and resellers throughout the world. The Jaz segment involved 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 PocketZip segment (formerly Clik!, until renamed in 2000) involved 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.

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The PocketZip segment also included the development, manufacture, distribution and sales of HipZip digital audio players, which began shipping in the fourth quarter of 2000.

The "Other" category includes: Peerless drive systems, which began shipping in the second quarter of 2001; FotoShow digital image centers (previously shown as a part of the Zip segment), which began shipping in the fourth quarter of 2000; sourced products such as Iomega Microdrive miniature hard drives, Iomega CompactFlash and Iomega SmartMedia memory cards, NAS; Iomega software products such as Lifeworks and Iomega QuikSync; Ditto tape products and other miscellaneous items. During 2001, the Peerless drive system contributed the majority of "Other" sales, while Ditto contributed the majority of "Other" sales during 2000 and 1999.

Subsequent to the end of 2001, the Company has discontinued the Jaz drive and PocketZip product lines, including HipZip, which was being reported in the PocketZip segment. Under the "Other" category, the Company has discontinued FotoShow, Microdrive, CompactFlash and SmartMedia. During 2002, the Company will continue to sell disks for Jaz and PocketZip products to support the installed drive base of these products.

During 2001, the Company recorded non-restructuring charges of $77.1 million, of which $71.5 million was charged to the respective product lines mainly as cost of sales. These charges primarily reflected write-downs of HipZip, FotoShow, CD-RW and other inventory and equipment and other assets and loss accruals for related supplier purchase commitments and other various contractual arrangements. During 2001, the Company recorded restructuring charges of $1.3 million associated with CD-RW.

During 2000, the Company recorded non-restructuring charges of $7.4 million as cost of sales, primarily reflecting write-downs of PocketZip inventory and equipment and loss accruals for related supplier purchase commitments. During 2000, reversals of restructuring charges originally recorded in 1999 that were associated with the Jaz and PocketZip product lines totaled $4.8 million.

During 1999, the Company recorded non-restructuring charges of $67.0 million, mainly as cost of sales. These charges were primarily for writedowns of Clik!, Ditto, Zip and Jaz inventory, excess Clik! and Jaz manufacturing equipment, and loss accruals for Clik! supplier purchase commitments. Non-restructuring charges allocated to the product lines during 1999 totaled $66.0 million. Restructuring charges assigned to the Jaz, PocketZip, CD-RW and Other product lines during 1999 totaled $62.2 million. See the non-restructuring charges and restructuring charges discussions below for more information.

The information in the following tables is derived directly from the segments' internal financial reporting information used for corporate management purposes (all Zip and Other segment amounts have been

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restated to show both the current classification of FotoShow in Other and other items as currently presented to management):

Sales, PPM/(Product Loss), Units and Other Information by Significant Business Segment

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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 CD-RW products are targeted to the retail consumer and enterprise markets. The Company's Jaz products were targeted primarily to the business professional market. The Company's PocketZip products were targeted to the enterprise and retail consumer markets and to various electronics device OEMs. The Company's Peerless drive system is targeted to business professional and enterprise markets. The Company also markets NAS servers to the enterprise market. 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 first quarter and summer months. This historic pattern could, however, be affected by the significant weakness and uncertainty that currently exists in the United States and global economies and consumer confidence levels. Accordingly, sales and growth rates for any prior quarter are not necessarily indicative of the sales or growth rates to be expected in any future quarter.

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 $.03¹/3 per share after the reverse stock split. Consequently, the aggregate par value of the issued Common Stock was reduced by 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 following financial information and related Management's Discussion and Analysis for all periods presented to reflect the reverse stock split.

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Results of Operations

The following table sets forth certain financial data as a percentage of sales for the years ended December 31, 2001, 2000 and 1999:

The Company's net loss for the year ended December 31, 2001 was $93.3 million, or $(1.74) per diluted share. The 2001 results included $77.1 million of pre-tax non-restructuring charges, $39.0 million of pre-tax restructuring charges and a $29.2 million increase in the valuation allowance for net deferred tax assets. This compared with net income of $169.6 million, or $3.07 per diluted share in 2000. The 2000 results included a $72.6 million decrease in the Company's valuation allowance for net deferred tax assets, $7.4 million of pre-tax non-restructuring charges and $4.8 million of pre-tax restructuring reversals related to restructuring accruals recorded in 1999.

Non-Restructuring and Restructuring Charges Discussions

The following discussions of the Company's non-restructuring and restructuring charges are also found in their entirety in the Notes to the Consolidated Financial Statements.

Non-Restructuring Charges

During 2001, the Company recorded non-restructuring charges of $77.1 million, mainly as cost of sales. These charges were recorded in the second and third quarters. During the first quarter of 2000, the Company recorded non-restructuring charges of $7.4 million as cost of sales. During 1999, the Company recorded non-restructuring charges of $67.0 million, mainly as cost of goods sold. These 1999 charges were

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recorded in the second, third and fourth quarters. A breakdown of the charges is included in the table below:

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2001 Non-Restructuring Charges

Second Quarter

During the second quarter of 2001, the Company recorded non-restructuring charges of $46.0 million, primarily reflecting write-downs of HipZip, CD-RW and FotoShow 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 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.

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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 became 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 was 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 recorded for Other products were primarily for sourced products such as Microdrive, Magneto-Optical drives in Europe, and CompactFlash and SmartMedia products 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.

Third Quarter

During the third quarter of 2001, the Company recorded non-restructuring charges of $31.1 million, primarily reflecting write-downs of CD-RW, HipZip, Peerless 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 were expected to be less than the net book value of related manufacturing equipment and other assets as well as $0.6 million for costs associated with moving the Corporate Headquarters from Roy, Utah to San Diego, California.

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 disk 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.

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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 sale 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 disks in both 10GB and 20GB versions. During the third quarter of 2001, the mix of 10GB to 20GB disks sold was significantly lower than expected, resulting in excess components for Peerless 10GB disks. 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 future 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 recorded for Other products were primarily for Microdrive and software. During the third quarter of 2001, the Company lowered future sales 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 charges associated with moving the Corporate Headquarters from Roy, Utah to San Diego, California.

2000 Non-Restructuring Charges

First Quarter

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

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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.

1999 Non-Restructuring Charges

Second Quarter

The $7.0 million of non-restructuring charges recorded in the second quarter of 1999 was comprised of $2.4 million for excess Jaz manufacturing equipment and $4.6 million for a reduction in the estimated net realizable value of Clik! Mobile drive inventory. As a result of its normal quarterly review of manufacturing equipment, a charge of $2.4 million was taken for excess Jaz manufacturing equipment. This excess equipment was created in the second quarter due to a decline in the estimated demand for Jaz products in the second quarter and future quarters, which demonstrated future undiscounted cash flow losses associated with the assets. The $4.6 million in Clik! Mobile drive inventory charges were due to a reduction in the estimated net realizable value of Clik! Mobile drives because expected undiscounted cash flows would not cover material costs, manufacturing costs and direct selling expenses due to a decline in demand. The Clik! platform (renamed to PocketZip in 2000) was relatively new and it did not start shipping in volumes until the first quarter of 1999. At December 31, 1999, the majority of the Clik! Mobile drive units had been scrapped or used as warranty replacement units. These charges were reflected in cost of sales in the financial statements.

Third Quarter

The $12.7 million of non-restructuring charges recorded in the third quarter of 1999 was comprised of $5.2 million for excess Ditto finished drive inventory, $2.8 million for excess and obsolete Zip and Jaz remanufactured drive component inventory, $3.7 million of charges for excess Clik! disk manufacturing equipment and other equipment and a $1.0 bad debt write-off related to a European customer collection issue. The $11.7 million of fixed asset and inventory charges described above were reflected in cost of sales and the $1.0 million bad debt write-off was reflected in selling, general and administrative expenses in the financial statements. The $5.2 million in Ditto finished drive inventory charges was a result of excess Ditto finished drives that the Company was no longer allowed to sell as a result of a contract entered into during the first quarter of 1999 in connection with the sale of the Ditto assets. The buyer who had purchased certain Ditto assets in the first quarter of 1999 was expected to purchase the remaining Ditto finished drive inventory at the Company's carrying value in the third quarter. However, in the third quarter, the buyer informed the Company that it did not have the financial ability to purchase the remaining Ditto finished drives. At December 31, 2000, the Company had disposed of the majority of these remaining Ditto finished drives. The $2.8 million charge for excess and obsolete Zip and Jaz remanufactured drive components was taken as a result of lower demand from customers for remanufactured drives and an increase in the available number of remanufactured drives created by returned drives from retail customers. In addition, the Company changed its process for handling warranty drives during the third quarter of 1999, which created excess and obsolete components. At December 31, 1999, the majority of these components had been scrapped. The $3.7 million of charges for excess Clik! disk manufacturing equipment and other equipment were primarily the result of the Company not achieving its anticipated drive volumes that resulted in a decline in overall disk volumes. As a consequence, future undiscounted cash flows were not expected to cover the net book value of the applicable assets.

Fourth Quarter

The $47.3 million of non-restructuring charges recorded in the fourth quarter of 1999 were all related to the Company's Clik! family of products and was comprised of: $19.0 million for excess inventory on hand;

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$16.1 million for a supplier commitment to purchase additional inventory; and $3.7 million in excess manufacturing equipment (which represented the carrying value of the equipment) associated with the Clik! PC Card drive; $2.5 million associated with a reduction in the estimated net realizable value of Clik! disks; and $6.0 million associated with excess inventory and a reduction in the estimated net realizable value of the Clik! digital camera bundle. The $16.1 million supplier commitment related to Clik! PC Card drive inventory which the supplier had manufactured for the Company and the Company was required to purchase. Since the Company already had Clik! PC Card drive inventory on hand that was considered excess, the $16.1 million was reserved. The Company began shipping the Clik! PC Card drive in limited quantities in June 1999. During the fourth quarter of 1999, the Company determined that it had over-estimated demand for the product in the market, which created inventory recoverability issues and probable losses associated with non-cancelable purchase orders. The lower volume of drives being sold in the market also impacted Clik! disk volume and therefore, created inventory recoverability issues associated with Clik! disks, resulting in a reduction of the net realizable value of Clik! disk inventory. The charges associated with the Clik! digital camera bundle inventory resulted from the fact that during the fourth quarter, the Company had to abandon its plans to sell its remaining Clik! digital camera bundle inventory because a discontinued component by a vendor made it impossible to complete final assembly. At December 31, 2000, the Clik! digital camera bundle inventory described above had been disposed. The Clik! PC Card drive and disk inventory is continuing to be sold near breakeven. These charges were reflected in cost of sales in the Consolidated Financial Statements.

Restructuring Charges/Reversals

During 2001, the Company recorded approximately $39.0 million in net pre-tax restructuring charges. These charges were comprised of approximately $1.1 million related to restructuring actions initiated during the second quarter of 2001, $33.1 million (net of a $0.2 million fourth quarter reversal) related to restructuring actions initiated during the third quarter of 2001 and $4.8 million related to restructuring actions initiated during the fourth quarter of 2001. These restructuring charges consisted of cash and non-cash charges of approximately $28 million and $11 million, respectively. The detail of each of these restructuring actions follows.

2001 Restructuring Actions

Second Quarter 2001

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 is transitioning 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 2001. This workforce reduction resulted in charges of $0.8 million for severance and outplacement costs. The Company anticipated 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 charges of $0.3 million for severance and benefit costs. The cost savings associated with this headcount reduction are not expected to be significant.

Second quarter 2001 restructuring reserves in the amount of $0.1 million are included in the Company's current liabilities as of December 31, 2001. The second quarter 2001 restructuring charges originally

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totaled $1.1 million. Utilization of the second quarter 2001 restructuring reserves during 2001 is summarized below:

(a)

Amounts represent primarily cash charges.

At December 31, 2001, the Company had terminated the employment of all affected employees and paid out all severance payments associated with the second quarter 2001 restructuring actions. The remaining $0.1 million in U.S. manufacturing severance and benefits at December 31, 2001 represents outplacement services, which are anticipated to be paid in the first quarter of 2002.

Third Quarter 2001

During the third quarter of 2001, the Company recorded pre-tax restructuring charges of $33.3 million. In the fourth quarter of 2001, the Company recorded a net reversal of $0.2 million with respect to the third quarter restructuring actions. The restructuring charges in the third quarter included $17.4 million associated with exiting lease facilities, of which $9.8 million related to leasehold improvements, furniture and information technology asset write-downs and $7.6 million was associated with lease termination costs, and $15.9 million related to the reduction of 1,234 regular and temporary personnel worldwide, or approximately 37% of the Company's worldwide workforce. During the fourth quarter, the Company reversed $0.5 million related to lease termination costs and recorded additional charges of $0.3 million related to severance and benefits with respect to employees that were identified as part of the third quarter restructuring actions but who were not notified of their termination until the fourth quarter.

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

The North America activities consisted of outsourcing the Company's distribution center in North Carolina and terminating the related lease, closing several sales offices in the United States and consolidating operations at the Company's North America facilities (primarily Roy, Utah), all of which resulted in a workforce reduction of 760 regular employees and temporary staff across all business functions and across all levels of the organization. At September 30, 2001, of the 760 individuals whose positions were identified for termination in the third quarter, 193 individuals were scheduled to continue to work on a transition basis through various identified dates ending no later than December 31, 2001. Transition pay is not a part of the restructuring charges but rather is reported in normal operations as incurred. In compliance with the

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WARN Act, affected employees were given pay in lieu of 60-day advance notice. Pay in lieu of notice was paid on a continuous basis for a 60-day notice period and separation payments were paid in lump sum at the end of the 60-day period or after the last day of employment for transition employees. Separation pay was based on years of service, job level and transition time, and included health insurance continuance payments. This workforce reduction resulted in charges of $12.7 million for severance and outplacement costs. The North America restructuring actions also resulted in charges of $8.9 million related to asset write-downs (leasehold improvements, furniture and information technology assets) and $6.3 million related to lease termination costs. Lease termination costs are being paid on their regular monthly rent payment schedule.

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

During the fourth quarter, the 12 transition employees in the Asia Pacific region were notified that their positions were being terminated, resulting in additional charges of $0.3 million in the fourth quarter of 2001. These employees were identified for termination at September 30, 2001. However, since the employees had not been notified, the Company did not accrue the severance and benefit costs associated with these individuals in the original third quarter restructuring charges. Additionally, in the fourth quarter, $0.7 million of lease termination accruals were reversed due to the Company unexpectedly locating a tenant for one of the vacated facilities and being released from future rent obligations. In light of prevailing poor economic conditions, the Company had originally assumed it would not be able to sublet the facility.

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

During the fourth quarter of 2001, it was determined that an additional $0.2 million was required for Europe lease termination costs as a result of the Company not being able to locate a new tenant in Ireland in the timeframe originally estimated in the third quarter.

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

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

Third quarter 2001 restructuring reserves in the amount of $8.9 million and $3.6 million are included in the Company's current liabilities and fixed asset reserves, respectively, as of December 31, 2001. The third quarter 2001 restructuring charges originally totaled $33.3 million. Utilization of and other activity relating to the third quarter 2001 restructuring reserves during 2001 are summarized below:

(a)

Amounts represent primarily cash charges.

(b)

Amounts represent primarily non-cash charges.

At December 31, 2001, the Company had terminated the employment of all affected employees, except for those employees offered retention packages into the first quarter of 2002, and vacated all facilities in connection with the third quarter 2001 restructuring actions. However, since some affected employees were offered retention packages that extended into the fourth quarter of 2001 and the first quarter of 2002, not all severance payments were made as of December 31, 2001. In North America, 3 employees had their transition dates extended into 2002 as a result of projects taking longer than expected to complete. These employees were originally scheduled to complete their transition at December 31, 2001. The majority of severance and benefits reserves on the books at December 31, 2001 are expected to be paid in the first quarter of 2002 with the remainder to be paid in the second and third quarters of 2002. The furniture and

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information technology assets are expected to be disposed of in the first quarter of 2002. As previously disclosed, lease payments are being made on a continuous monthly basis.

Fourth Quarter 2001

During the fourth quarter of 2001, the Company recorded net pre-tax restructuring charges of $4.6 million, comprised of $4.8 million in charges for restructuring actions initiated in the fourth quarter and a net reversal of $0.2 million in adjustments to the third quarter restructuring charges (see section above entitled "Third Quarter 2001").

The fourth quarter restructuring charges of $4.8 million included $2.7 million associated with exiting lease facilities, of which $1.7 million was for lease cancellation costs and $1.0 million was for leasehold improvements, furniture and equipment, and $2.1 million for severance and benefit costs associated the reduction of 105 regular and temporary personnel in North America and Europe.

Of the $4.8 million in fourth quarter charges, $1.5 million related to restructuring activities in North America and $3.3 million related to restructuring activities in Europe.

The North America restructuring activities consisted primarily of a workforce reduction of 79 individuals, primarily in the operations, and research and development functions. The majority of the affected employees were located in Roy, Utah. The employees were notified of the termination of their employment on December 18, 2001. Although the Company was not required to give notice under the WARN Act, the terminated employees were given pay in lieu of notice through December 31, 2001. At December 31, 2001, of the 79 individuals whose positions were identified for termination in the fourth quarter, 25 individuals will continue to work on a transition basis through various identified dates ending no later than June 30, 2002. Transition pay is not a part of the restructuring charges but rather is reported in normal operations as incurred. Pay in lieu of notice will be paid on a continuous basis and separation payments will be paid in lump sum after the December 31, 2001 notice date or after the last day of employment for transition employees. Separation pay was based on years of service, job level and transition time, and included health insurance continuance payments. This workforce reduction resulted in charges of $1.5 million for severance and outplacement costs.

The restructuring activities in Europe consisted of outsourcing its distribution and logistics, resulting in severance and benefits costs of $0.6 million, lease cancellation costs of $1.7 million and impaired leasehold improvements, excess furniture and equipment of $1.0 million. The workforce reduction consisted of 26 employees, primarily in operations. The affected employees were primarily located in the Netherlands. The majority of the employees will continue to work on transition until March 31, 2002 when the outsourcing project is scheduled to be completed and transitioned to the third party. Transition pay is not a part of the restructuring charges but rather is reported in normal operations as incurred. The lease is expected to be vacated in the second quarter of 2002. In addition, leasehold improvements, furniture and equipment are anticipated to be disposed of in the second quarter of 2002.

The Company anticipates that when fully implemented, the fourth quarter restructuring actions will result in an annual cost reduction of approximately $9 million. Substantially all of these savings are expected to be realized starting in the second quarter of 2002.

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Fourth quarter 2001 restructuring reserves in the amount of $3.8 million and $1.0 million are included in the Company's current liabilities and fixed asset reserves, respectively, as of December 31, 2001. The fourth quarter 2001 restructuring charges are summarized below: