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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

1-12333

(Commission file number)

Iomega Corporation

(Exact name of registrant as specified in its charter)

10955 Vista Sorrento Parkway, San Diego, CA 92130

(Address of principal executive offices)

(858) 314-7000

(Registrant’s telephone number)

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  x    No  ¨

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.    x

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

The aggregate market value of Common Stock held by non-affiliates of the registrant at June 27, 2004 was $296,012,375 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 4, 2005 was 51,611,423.

Documents incorporated by reference:

Table of Contents

IOMEGA CORPORATION AND SUBSIDIARIES

FORM 10-K

For The Fiscal Year Ended December 31, 2004

INDEX

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IOMEGA CORPORATION AND SUBSIDIARIES

NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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IOMEGA CORPORATION AND SUBSIDIARIES

NOTE REGARDING FORWARD-LOOKING STATEMENTS (Continued)

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

There are a number of important factors that could cause actual events or the Company’s actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth under the captions “Application of Critical Accounting Policies,” “Liquidity and Capital Resources,” “Factors Affecting Future Operating Results” and “Quantitative and Qualitative Disclosures About Market Risk” included in Items 7 and 7A of Part II 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 the Company specifically disclaims any obligation to update forward looking statements, even if its estimates change.

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IOMEGA CORPORATION AND SUBSIDIARIES

PART I

ITEM 1. BUSINESS:

Iomega designs and markets products that help customers protect, secure, capture and share their valuable digital information. The Company has organized its products into three business categories: a) Mobile and Desktop Storage Products, b) Professional Storage Products and c) New Technologies.

Iomega Corporation was incorporated in Delaware in 1980. The Company’s executive offices are located at 10955 Vista Sorrento Parkway, San Diego, CA 92130 and its telephone number is (858) 314-7000. The terms “Iomega” and “the Company” refer to Iomega Corporation and its wholly owned subsidiaries, unless the context otherwise specifies. The Company provides its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, free of charge, in the Investor Relations section of the Company’s website at www.iomega.com as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission.

Product Categories

The Company’s Mobile and Desktop Storage Products include the following:

The Company’s Professional Storage Products include the following:

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IOMEGA CORPORATION AND SUBSIDIARIES

BUSINESS (Continued)

Product Categories (Continued)

The Company’s New Technologies included the following:

Regarding all capacity references contained in this filing, one megabyte (or “MB”) equals 1 million bytes, one gigabyte (or “GB”) equals 1 billion bytes and one terabyte (or “TB”) equals 1 trillion bytes.

Availability

Iomega’s Mobile and Desktop Storage Products are generally available worldwide from retailers, catalogs, distributors, OEMs and online vendors. Iomega Professional Storage Products are available worldwide from catalogs, distributors, OEMs, online vendors, value-added resellers (“VARs”) and system integrators. The Company also sells its products through its www.iomega.com website.

Mobile and Desktop Storage Products

Zip Products

Zip Drives. The Company introduced the Zip drive in March 1995. The Zip drive is an affordable portable storage product for personal computer users, and allows users to easily store, transport and secure data. Zip drives are available in 100MB, 250MB and 750MB capacities and are available in internal and external configurations with various interfaces. Zip drives are compatible with leading operating systems for personal computers and workstations (both PC and Mac^®). Software included with Zip drives helps users organize, copy, move and back up their data and offers software read/write protection. Zip drives use Iomega proprietary Zip disks.

Zip Disks. Zip disks are available in 100MB, 250MB and 750MB capacities.

Sourced Branded Products

Optical Drives

Iomega CD-RW Drives. Iomega CD-RW drives are used for creating customized music CDs and archiving and distributing photos, graphics and other digital data files. At December 31, 2004, the Company shipped external CD-RW drives, CD-RW/DVD combination drives as well as a CD-RW/DVD combination drive that also contained a 7-in-1 card reader that will read/write to industry standard flash media devices. All current Iomega CD-RW drives are compatible with USB 2.0 interfaces, come with Iomega’s HotBurn^® Pro CD/DVD writer software, Iomega Automatic Backup software and certain third-party software packages and are compatible with both PC and Mac^® operating systems.

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IOMEGA CORPORATION AND SUBSIDIARIES

BUSINESS (Continued)

Mobile and Desktop Storage Products (Continued)

Iomega DVD Rewritable Drives. Iomega DVD rewritable drives are used for the same purposes as CD-RW drives and for transferring and storing video content on DVD discs. At December 31, 2004, the Company sold DVD drives in external configurations only. Iomega’s Super DVD Writer and the Super DVD QuikTouch^TM Video burner support all DVD formats except for DVD-RAM, read, write and rewrite to CD-RW disks and are compatible with both PC and Mac^® operating systems. The Super DVD QuikTouch^TM Video burner features “one-touch” burning capability; with its Double Layer technology, it can store up to 8.5GB of data files per disc. It is only compatible with PC operating systems. All Iomega DVD rewritable drives currently ship with HotBurn Pro DVD burning software, Iomega Automatic Backup software and certain third-party software packages.

Iomega HDD Drives

Iomega Desktop HDD Drives. Iomega desktop HDD drives (3.5-inch form factor) include Iomega Automatic Backup software and certain third-party software packages, are available in capacities ranging from 80GB to 400GB and are compatible with both PC and Mac^® operating systems.

Iomega Portable HDD Drives. Iomega portable HDD drives (2.5-inch form factor) are available in capacities ranging from 40GB to 60GB, ship with Iomega Automatic Backup software and certain third-party software packages, are host powered, so they can be used without requiring a separate power supply and are compatible with both PC and Mac^® operating systems.

Iomega Mini Hard Drives. Iomega Mini Hard drives (1.8-inch form factor) are available in either 20GB or 40GB capacities, use the high speed USB 2.0 interface and are compatible with both PC and Mac^® operating systems, weigh 3.5 ounces and are USB-powered, requiring no external power supply.

Iomega Network Hard Drives. Iomega network hard drives are available in either 160GB or 250GB capacities and are compatible with PC, Mac^® and Linux operating systems. With the network hard drive, multiple users can store and share files from any standard or wireless computer connected to that network.

Iomega Mini and Micro Mini USB Flash Drives

The Iomega Mini and Micro Mini USB flash drives are portable, easy-to-use, secure devices for transporting and sharing data. Both drives plug into any computer’s USB port and are compatible with both PC and Mac^® operating systems.

Iomega Mini USB Flash Drives. Iomega Mini USB flash drives are as small as a car key and have capacities ranging from 128MB to 2GB. These drives offer Mini Lock software to password protect the data on the drive.

Iomega Micro Mini USB Flash Drives. Iomega Micro Mini USB flash drives are as small as a thumbnail and have capacities ranging from 64MB to 1GB.

Iomega Floppy USB Drives

The Iomega Floppy USB drive is a host-powered external drive which does not require a separate power supply. The Floppy USB drive reads and writes to all formatted floppy disks and is compatible with both PC and Mac^® operating systems. The Iomega Floppy Plus 7-in-1 card reader has the same features described above and allows users to read and retrieve data from a variety of flash media devices.

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IOMEGA CORPORATION AND SUBSIDIARIES

BUSINESS (Continued)

Mobile and Desktop Storage Products (Continued)

Other Mobile and Desktop Storage Products

Other Mobile and Desktop Storage products have been discontinued or are otherwise immaterial and include: Jaz^® and PocketZip disks; Peerless drive systems; Iomega software products described below and other miscellaneous products. Jaz, PocketZip and Peerless drives were discontinued in 2002, though the Company continues to sell the Jaz and PocketZip disks to support the installed drive base of these products.

Software

HotBurn^® and Hotburn Pro CD/DVD Writer Software. HotBurn and HotBurn Pro software simplify the process of creating CDs and DVDs. HotBurn software is compatible with both PC and Mac^® operating systems. HotBurn Pro software, which is an advanced version of HotBurn software, is only compatible with PC operating systems. HotBurn and HotBurn Pro software include CD and DVD mastering, packet writing and cover editing. HotBurn Pro software is included with the Company’s CD-RW and DVD rewritable drives. Both HotBurn and HotBurn Pro software can be downloaded from the Iomega website.

Iomega Active Disk Software. Iomega Active Disk software allows users to automatically launch and run software applications directly from their Iomega USB drive, external hard drive or Zip disk. Users simply connect their device or insert their disk in the drive and the Active Disk enabled application launches and runs automatically. When finished, users simply close their application and disconnect their device. The software, along with all of the related work, is saved to the secure, removable storage device, leaving no trace of the work on the host computer.

Iomega Automatic Backup^TM Software. Iomega Automatic Backup and Iomega Automatic Backup Pro software are designed to automatically save important information. Iomega Automatic Backup maintains copies of important files safely and automatically. Users select the folders on any storage device that they want to protect. Then, every time users save a file to one of these folders, Iomega Automatic Backup automatically makes a backup copy to the storage device selected by the user. Iomega Automatic Backup can also store multiple file revisions, so users can recover earlier versions of important files if the current version is damaged. Iomega Automatic Backup Pro is professional-level backup software that is included with Iomega REV, network HDD and HDD drives and NAS servers. It includes the data backup found in Iomega Automatic Backup and adds disaster recovery functionality as well. Disaster recovery allows the user to do a full system backup.

Professional Storage Products

REV Products

REV Drives and Disks. In April 2004, the Company began shipping the first products in its REV product family. The REV drives and disks consist of a drive (in external USB 2.0, Firewire and SCSI and internal ATAPI, SCSI and SATA versions) and removable disks with a native capacity of 35GB and up to 90GB compressed.

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IOMEGA CORPORATION AND SUBSIDIARIES

BUSINESS (Continued)

Professional Storage Products (Continued)

REV-Based Autoloaders. During the fourth quarter of 2004, the Company launched a REV-based Autoloader, which holds ten 35GB removable disks and one drive. REV products are designed for backup and high-capacity portable storage for small- and medium-sized businesses and enterprise workgroups. Potential markets include but are not limited to traditional tape backup/archiving, video surveillance, professional broadcasting, medical imaging data storage, and high-end workstation support. Compared to DDS and Travan-based tape systems, REV drives and disks are faster, more durable, easier to maintain, provide random access to data and the drives are less expensive.

Iomega Network Attached Storage

The Company ships NAS servers with capacities ranging from 160GB to 1.6TB. The Company markets its NAS offerings toward small- and medium-sized businesses and enterprise workgroups. All of the Company’s NAS servers use a Microsoft^® Windows^®-based operating system.

Aftermarket service plans for Iomega NAS servers are available either separately or bundled with NAS servers depending upon the NAS server model and may include, among other options, on-site repair, extended warranties and 24-hour phone support.

New Technologies

The New Technologies business category included the research and development for the DCT technology, a storage device with small form-factor, removable cartridges incorporating flexible magnetic media. During 2004, the Company wound down its DCT Program development efforts and announced that it would pursue other strategic alternatives for the technology. The Company subsequently secured licensing agreements for the DCT technology. See the section entitled “OEMs, Licensees and Private Label Customers” for more detail on the licenses related to the DCT technology.

Product Development

During 2004, 2003 and 2002, the Company’s research and development expenses were $24.4 million, $31.6 million and $36.2 million, respectively (or 7%, 8% and 6%, respectively, of net sales). These expenses were incurred primarily for the research and development of REV products and the DCT technology. Development expenses were also incurred for software enhancements as well as in the sourcing, qualification and testing of sourced products, including CD-RW and DVD rewritable drives, NAS servers and other products.

Though overall research and development costs are anticipated to be lower in 2005 as compared to 2004, the Company anticipates continued significant development costs. Such costs will be associated with follow-on and next generation REV products, software enhancements and sourcing, qualification and testing of sourced products, including CD-RW and DVD rewritable drives, NAS servers and other products.

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 source those new products within a cost structure that enables the Company to sell such products through effective channels at competitive prices. The Company can provide no assurance that it will be successful in this regard.

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IOMEGA CORPORATION AND SUBSIDIARIES

BUSINESS (Continued)

Marketing

The Company’s worldwide marketing objective is to build awareness of and generate demand for the Company’s products and services. The Company’s marketing efforts are focused on the positioning and messaging of the Company’s products, software and services to enhance the value of the Iomega brand.

The Company delivers brand and product-specific messages to a variety of segments including consumers, business decision makers and Information Technology (“IT”) professionals through advertising, public relations efforts, tradeshows and events, direct marketing, internet marketing and the www.iomega.com website. These awareness-generating activities are enhanced with demand stimulus programs and promotions, such as in-store, direct mail or e-mail offers, to market segments for distribution, reseller and retail channel partners.

In addition, to enhance the Company’s ability to serve the small- to medium-sized businesses segment, the Company has actively recruited qualified VAR partners to sell the Company’s REV and NAS products. These VAR partners are supported through the Company’s ioLink initiative with marketing programs, training and sales materials.

Sales

The Company sells its products primarily through computer product and consumer electronic distributors, retailers, catalogs, VARs, OEMs, private label customers and on its own website. 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 as well as a description of the markets served by the Company’s respective products.

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

Retail Sales

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 to the retail channel indirectly through distributors. Certain of the Company’s products are sold at a retail level by most of the leading retailers of computer products in the United States. Retailers to whom the Company sold directly as of December 31, 2004 in the United States included Best Buy, BH Photo, Circuit City, CompUSA, Costco, Datavision, Fry’s Electronics, J&R Music World, MicroCenter, Office Depot, Office Max, Quill Corporation, Sam’s Club, Staples, Viking Office Products and WalMart Stores.

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IOMEGA CORPORATION AND SUBSIDIARIES

BUSINESS (Continued)

Sales (Continued)

Distributors

Distributors as of December 31, 2004 included Bell Microproducts, D&H Distributors, Inc., Horizon USA, Ingram Micro, Inc., SP Richards, Synnex, Tech Data and United Stationers in the U.S.; Actebis, Banque Magnetique, CMS Peripherals, Datamatic S.P.A., Dexxon Data Media S.A., E&K Data, Esprinet S.P.A., Tech Data International S.A.R.L. and Ingram Micro Europe in Europe; Ingram Micro, Neoteric Informatique Pvt. Ltd. and Tech Pacific in Asia and ControleNet Tecnologia Ltd., Grupo Deltran, Ingram Micro Mexico, Intcomex, Microglobal and Stylus S.A. in Latin America.

Direct catalog partners as of December 31, 2004 included CDW Computer Centers, Corporate Express, PC Connection and PC Mall.

For the year ended December 31, 2004, sales to Ingram Micro, Inc. accounted for 22% of the Company’s consolidated sales and sales to Tech Data Corporation accounted for 14% of the Company’s consolidated sales. The loss of either of these customers would have a material adverse effect on the Company.

Company Website

The Company offers its products, including various promotional items, through its www.iomega.com website.

International Sales

The Company sells its products outside North America primarily through international distributors. The Company has sales offices located throughout North America and in Switzerland. There are marketing and market development organizations located throughout the rest of Europe and Asia. The majority of sales to European customers are denominated in Euro. All sales to Latin American and Asian customers are denominated in U.S. dollars. In total, sales outside of the United States represented 50%, 42% and 37% for the years ended December 31, 2004, 2003 and 2002, 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 Customers

In addition to sales through retail and distribution channels, the Company has entered into a number of agreements with a variety of OEMs within the computer industry. The Company has arrangements with several major PC manufacturers to incorporate Zip drives into their computer systems as optional features; however, these arrangements are expected to wind down in 2005 as Zip products reach the end of their product life cycle. The Company has also entered into agreements with several smaller OEMs regarding REV internal drives.

The Company has a private-branding arrangement with Fuji covering the sale of Zip 100MB, 250MB and 750MB disks globally in packages that include the Zip brand name in addition to Fuji’s name.

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IOMEGA CORPORATION AND SUBSIDIARIES

BUSINESS (Continued)

OEMs, Licenses and Private Label Customers (Continued)

During the fourth quarter of 2004, the Company entered into a definitive license agreement regarding its DCT intellectual property. The license agreement terms included an upfront cash payment of $10.5 million to the Company and an additional $3.5 million cash payment to the Company at a later date based upon the licensee’s commercialization date of the technology but no later than November 2007. Further, the license agreement calls for potential royalties to be paid on future products utilizing the technology up to $11.0 million. The $10.5 million is reflected in the operating expenses section of the consolidated statement of operations under the caption, “license fees”, as the cash has been received and the Company has fulfilled all of its obligations related to that payment. The Company will not recognize the $3.5 million in its financial statements until the related cash payment is received. There is no guarantee that the Company will receive any future payments from this transaction.

During 2004, the Company entered into a separate license agreement regarding certain disk controller technology. The license terms included the payment of $1.0 million to the Company. This license agreement calls for royalties to be paid on future products, or if no products are manufactured within a two year period, the licensee will pay the Company an additional $1.5 million.

Supply Chain

During the fourth quarter of 2002, the Company completed the sale of its Penang, Malaysia Manufacturing Subsidiary to Venture Corporation Limited (“Venture”), where the Company’s Zip drives and disks are manufactured (see the caption entitled “Penang Manufacturing Subsidiary Impairment Charges” 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 or Note 2 of the notes to the consolidated financial statements in Part IV of this Annual Report on Form 10-K for more details concerning the sale of this subsidiary). The Company entered into a five-year manufacturing services agreement with Venture and the Company’s former Penang Manufacturing Subsidiary for the manufacture and supply of Zip drives and certain other storage related products. Currently, all of the Company’s requirements for Zip drives and disks are manufactured by Venture.

Since the sale of the Penang Manufacturing Subsidiary, the Company has not had any manufacturing facilities. The Company has outsourced the manufacturing of all of its products to various suppliers.

Although the Company believes it is positioned to obtain an adequate supply of its products in the future, the Company may encounter future difficulties in achieving desired levels of product; in managing relationships with its suppliers; or in locating suppliers able to meet the Company’s quality, quantity, pricing and other requirements for manufactured products.

Distribution

The Company in recent years has outsourced its distribution and logistics centers to various suppliers. During 2004, the Company entered into separate agreements with a global provider of distribution and logistics services and a global provider of reverse logistics services to consolidate its distribution, logistics and reverse logistics requirements.

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IOMEGA CORPORATION AND SUBSIDIARIES

BUSINESS (Continued)

Supply Chain (Continued)

Components and Sourced Products

Although the Company has outsourced its manufacturing capabilities, the Company has retained responsibility for the supply of certain key components for its Zip and REV products. See the caption entitled “Component Supplies” in the section entitled “Factors Affecting Future Operating Results” 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 for more details concerning components and sourced products.

Backlog

The Company had an order backlog at the end of December 2004 of approximately $9 million, as compared to approximately $14 million at the end of December 2003. The entire December 31, 2004 order backlog is expected to be filled during 2005; however, the purchase agreements or purchase orders pursuant to which orders are made generally allow the customer to cancel orders without penalty.

Competition

As previously discussed, the Company has organized its reportable segments into three business categories: a) Mobile and Desktop Storage Products, b) Professional Storage Products and c) New Technologies. See each of these sections above for descriptions of the specific products contained in these categories.

Mobile and Desktop Products

The Company’s Mobile and Desktop Products compete with a broad variety of data storage devices. In many cases, these competing devices are substantially identical to the Company’s products. For example, the Company sells CD-RW drives, DVD rewritable drives, external hard disk drives, floppy drives, and small “thumb” or “key” drives which integrate USB connectivity and flash (or other solid state) memory. A number of manufacturers and competitors make and sell products which are, for all practical purposes, identical to the Company’s products in these areas. Many of these manufacturers sell directly to personal computer OEMs as well as into the aftermarket channels under their own brand names. Drive manufacturers also sell their drive components or finished drives to resellers which use their own engineering expertise prior to resale to add value to the drive such as interface, external design, software as well as brand name. 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 manufacturers while also competing with them, it is subject to significant supply risk and situations where the manufacturer underprices the Company in the market. The Company attempts to differentiate its non-Zip Mobile and Desktop products with compelling software, interface, usability and other features, but can provide no assurance that it will be able to do so.

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IOMEGA CORPORATION AND SUBSIDIARIES

BUSINESS (Continued)

Competition (Continued)

By contrast, the Company is not aware of any product which shares the specific characteristics of its Zip drives and disks (affordable, removable, flexible, magnetic media with capacities ranging up to 750MB). Nevertheless, all of the substitute products identified above compete with the Company’s Zip products in areas such as price, performance, brand recognition, quality, customer support or software/accessories included with the drives. Other products competing with the Company’s Mobile and Desktop Storage Products include internal hard drives, magnetic cartridge disk drives (that use either floppy or rigid media), magnetic tape drive, and magneto optical drives. Given the wide variety of competing personal storage products in the market, the Company believes that Zip sales will continue to decline and will be significantly less in 2005 as compared to 2004.

To the extent that the Company’s Mobile and Desktop Products are used for incremental primary storage capacity, they compete with non-removable media storage devices such as conventional hard disk drives, which continue to offer increasing capacity and reliability at reduced prices. In addition, one of the key features offered by the Company’s Mobile and Desktop Products, the ability to transport electronic data, is increasingly fulfilled by various internet applications. Thus, the Company’s Mobile and Desktop Products compete with a variety of internet applications with respect to moving and sharing files.

Professional Storage Products

The Company’s Professional Storage Products consist of the Company’s proprietary REV products and NAS servers.

REV products face significant competition from a variety of technologies, including the following: entry-level and low-end magnetic tape drives; optical-based products incorporating either recordable or rewritable CD or DVD technology, including new products based on Blu-Ray and similar high-capacity optical storage technologies; magneto-optical technologies and external hard disk drives.

Network Storage products compete with other NAS products as well as traditional methods for increasing storage on network servers, such as additional hard drives, tape drives/tapes, general purpose servers (“GPS”) and direct attached storage (“DAS”) that are connected to the system. The Company believes that NAS products offer a more compelling product solution than DAS or the purchase of an incremental server by being less costly per GB, more efficiently enabling workgroup file sharing, being fast and easy to deploy and having a lower total cost of ownership because there are no applications running on the device.

The Company competes primarily in the entry-level and low-end of the market. The key competitors in these two categories include: Dell, Snap Appliance, Linksys and Hewlett-Packard (“HP”). The Company intends to compete by providing small- to medium-sized businesses relevant features, competitive pricing, brand recognition, strong relationships in the VAR and catalog channels, quality, customer support and strong sourcing relationships. Given that the Company is sourcing substantially complete products from a limited number of sources, it is subject to significant supply risks.

New Technologies

The Company’s New Technologies segment performed research and development and does not market any products.

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BUSINESS (Continued)

Competition (Continued)

Conclusion

The Company believes that in order to compete successfully, it must continually reduce the costs of its products. As a result, the Company has undergone several restructuring actions in the past few years, including 2004, 2003 and 2001 with the intent of reducing ongoing operational costs. (see the caption entitled “Restructuring Charges/Reversals” 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 or Note 5 of the notes to the consolidated financial statements in Part IV of this Annual Report on Form 10-K for more details concerning the 2004, 2003 and 2001 restructuring charges.) During 2004, the Company consolidated its worldwide distribution, logistics and reverse logistics outsourcing partners with the goal to fulfill these functions with as few prime contractors as possible and to lower costs. Through these and other actions, the Company is continuing to focus on reducing the costs of its products by reducing the cost of parts and components used in the Company’s products through improved procurement processes and inventory management, product design modifications and by taking advantage of industry-wide reductions in costs and decreasing defect rates. 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 such products.

The Company believes that in order to compete successfully, it will also need to differentiate its products from the competition through effective marketing and advertising portraying the benefits of the Company’s products and embedded software.

Currently only REV products (smaller OEMs only) and Zip products (in declining quantities) are being sold in the OEM market. 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 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 MB of storage capacity), performance (speed and capacity), functionality (reliability, product size, removability and transportability), broad adoption and standardization of the technology across many devices, ease of installation and use, brand, perceived functionality and utility 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 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 and 2.5-inch REV drives.

The data storage industry is highly competitive and the Company expects that the industry will remain highly competitive in the future. In addition, the data storage industry is characterized by rapid technological development. The Company competes with many 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.

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IOMEGA CORPORATION AND SUBSIDIARIES

BUSINESS (Continued)

Proprietary Rights

The Company relies on a combination of patents, copyrights, trademarks, trade secrets and contractual provisions to protect its technology. The Company has pending approximately 150 U.S. and foreign patent applications relating to its Zip and REV drives and disks, Optical drives, DCT technology and various software applications, although there can be no assurance that such patents will be issued. The Company holds approximately 380 individually or jointly owned U.S. and foreign patents relating to its Zip and REV drives and disks, Optical drives, DCT technology, software applications and other technologies. Some of these patents and patent applications are subject to license agreements with third parties. 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 they will prevent or impede a third party from developing competing products or that their validity will not be challenged or that affirmative defenses to infringement will not be asserted.

The Company has various 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, the Company is regularly notified of alleged claims that it may be infringing certain patents, trademarks and other intellectual property rights of third parties. It is not possible to predict the cost of litigation, potential damages or outcome of such claims and there can be no assurance that such claims will be resolved in the Company’s favor. An unfavorable resolution of one or more of such claims could have a material adverse effect on the Company’s business or financial results.

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, 2004, the Company employed 462 individuals worldwide. Three of the Company’s employees in Italy 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 2004 and is not expected to have a material effect in 2005.

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BUSINESS (Continued)

Certifications

The Company’s Chief Executive Officer and Chief Financial Officer have provided the certifications required by Rule 13a-14(a) under the Exchange Act, copies of which are filed as exhibits to this Form 10-K. In addition, an annual Chief Executive Officer certification was submitted by the Company’s Chief Executive Officer to the New York Stock Exchange on June 25, 2004 in accordance with the New York Stock Exchange’s listing requirements.

ITEM 2. PROPERTIES:

The Company’s executive offices and corporate headquarters 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 Roy, Utah. 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 North America, the Company leases office space in Geneva, Switzerland for use as its European region headquarters. The Company leases office space in Singapore for its Asia Pacific region headquarters. In addition, the Company has its European sales office located in Switzerland. There are marketing and market development organizations located throughout the rest of Europe and Asia. The Company considers its properties to be in good operating condition and suitable for their intended purposes. The Company owns substantially all equipment used in its facilities. See Note 6 of the notes to consolidated financial statements for the future lease payment amounts by year.

ITEM 3. LEGAL PROCEEDINGS:

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

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, 2004.

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EXECUTIVE OFFICERS OF THE COMPANY

The executive officers of the Company as of March 15, 2005 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, Mr. Heid held a variety of management positions over twelve years at HP, 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 HP’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.

Sean P. Burke joined the Company in January 2003 as Vice President and General Manager, Mobile and Desktop Solutions. Prior to joining the Company, Mr. Burke spent twelve years at Compaq Computer Corporation (including six months with HP, after Compaq Computer Corporation was acquired by HP), a global manufacturer of computer products and services, where he held a variety of management positions. Mr. Burke’s roles included Vice President and General Manager, iPAQ Products Business Unit as well as Vice President of Asia Consumer Business located in Singapore.

Thomas D. Kampfer joined the Company in July 2001 as Vice President, General Counsel and Secretary. From June 2004 to February 2005, Mr. Kampfer also served as the Company’s interim Chief Financial Officer. 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. Prior to Proxima, Mr. Kampfer spent eleven years at IBM Corporation, a global manufacturer of computer products and services, where he held a variety of engineering and legal positions.

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EXECUTIVE OFFICERS OF THE COMPANY (Continued)

Thomas Liguori joined the Company in February 2005 as Vice President, Finance and Chief Financial Officer. Prior to joining the Company, Mr. Liguori served from April 2000 to February 2005 as the Chief Financial Officer of Channell Commercial Corporation, a worldwide designer and manufacturer of telecommunications equipment supplied to broadband and telephone network providers. From 1996 to 2000 Mr. Liguori served at Dole Food Company, a producer and marketer of produce and other packaged foods, where he served as Chief Financial Officer of Dole Europe in Paris, France. From 1992 to 1996, he held various financial positions, including Vice President, Finance with Teledyne Inc., a manufacturer of aerospace, electronic and industrial products. Prior to Teledyne Inc., Mr. Liguori was a management consultant for Deloitte & Touche, an accounting firm, and he began his career with Honeywell, Inc.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES:

Securities

Iomega Common Stock is traded on the New York Stock Exchange under the symbol IOM. As of December 31, 2004, there were 5,283 holders of record of Common Stock. The Company has not historically paid regular recurring cash dividends on its Common Stock. However, during the third quarter of 2003, the Company’s Board of Directors declared a one-time cash dividend of $5.00 per share, which was paid on October 1, 2003 to stockholders of record on September 15, 2003. The Company has no plan to pay cash dividends in the future. The following table reflects the high and low sales prices as reported by the New York Stock Exchange for 2004 and 2003.

Price Range of Common Stock

Unregistered Sales of Equity Securities

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

Issuer Purchases of Equity Securities

During the fourth quarter of 2004, the Company did not repurchase any shares of the Company’s Common Stock. As of December 31, 2004, approximately $122.3 million remained available for future repurchases under the $150 million stock repurchase plan authorized by the Company’s Board of Directors on September 8, 2000. The repurchase plan does not have a fixed termination date.

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ITEM 6. SELECTED FINANCIAL DATA:

The following tables indicate the trends in certain components of the consolidated statements of operations, balance sheets and other information for each of the last five years (adjusted for the one-for-five reverse stock split effected on September 28, 2001). The information for 2001 has been reclassified to show the effects of Emerging Issues Task Force Issue No. 01-09, “Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor’s Products” (“EITF 01-09”) which requires, retroactively, certain consumer and trade sales promotion expenses to be shown as a reduction of sales. The amount of this reclassification resulted in a reduction to sales and a corresponding decrease in selling, general and administrative expenses of $3.2 million for 2001. The Company did not have the necessary information to reflect an EITF 01-09 reclassification for 2000. The EITF 01-09 reclassification did not impact operating income.

The following selected financial data should be read in conjunction with the consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this Annual Report on Form 10-K.

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SELECTED FINANCIAL DATA (Continued)

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

Overview

Iomega designs and markets products that help customers protect, secure, capture and share their valuable digital information. The Company’s reportable segments are based primarily on the nature of the Company’s products and include Zip products, Sourced Branded products, REV products (which began shipping in April 2004) and Network Storage Systems (“NSS”).

Since 1996, the Zip product segment has been, by far, the largest contributor to the Company’s sales and product profit margin (“PPM”). As the Zip business has approached the end of its product life cycle, the Company has been trying to find other profitable sources of revenue to replace the declining high gross margin Zip business. This has been challenging for the Company. In recent years, the Company invested significant efforts and dollars on the development of two new technologies: REV products and the Digital Capture Technology (“DCT”) Program. During 2004, the Company launched its new REV products. REV products generated $30.8 million of new sales in 2004, but were not profitable due to significant development, start-up and marketing launch costs. The Company elected not to launch any DCT products, due in part to a determination that the Company lacked the resources to simultaneously pursue the DCT technology and REV products. The Company subsequently licensed the DCT technology to a third party, incurred impairment and other charges and sold some of its DCT assets for a net gain of $6.6 million (see the “DCT Program License Agreement, Impairment Charges and Related Asset Sales” discussion for more detail on the activities related to winding down the DCT Program).

In other efforts to replace the declining Zip business, the Company has developed and launched a variety of products, none of which were commercially successful. In addition, the Company has launched and attempted to expand its Sourced Branded and NSS businesses. During 2004, for the first time, sales of the Sourced Branded business segment exceeded Zip product sales. However, the Company’s Sourced Branded segment does not generate high gross margins and the segment has never been profitable for an entire year. Moreover, the NSS business has also incurred losses each year.

Thus, the Zip product segment remains the Company’s only consistently profitable segment. In light of the inevitable decline of the Zip business, the Company will not be viable unless it generates significant PPM from products other than Zip products. REV products currently represent the Company’s most realistic opportunity to develop a significant PPM stream which could at least partially offset the rapidly-declining Zip PPM. Management expects to continue to invest significant resources with the goal to increase REV product sales. It is unlikely that the Company will be able to operate profitably unless and until REV products generate significant positive PPM. However, the Company can provide no assurance that the REV business will generate PPM sufficient to offset declining Zip PPM.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Overview (Continued)

For 2005, the Company’s primary goals are to: (1) significantly grow REV product sales, (2) continue to grow Sourced Branded sales, gross margin percentage and PPM and (3) closely monitor overhead costs and operating expenses with the key objective to make the overall business profitable. The Company can provide no assurance that it will achieve these goals. The Company continues to work on several cost initiatives related to improving Sourced Branded gross margins, including the continued transition to a regional assembly process and optimizing the supply chain. During 2004, the Company recorded $4.5 million of restructuring charges to align the Company’s cost structure with its expected future revenue levels. During 2005, it is imperative that the Company achieve the anticipated sales growth from both REV and Sourced Branded products to achieve its goals.

At December 31, 2004, the Company’s total cash, cash equivalents and temporary investment balance was $120.8 million (see the “Liquidity and Capital Resources” discussion for more detail on the tax impacts of repatriating foreign cash). The Company believes its total cash is sufficient to operate the business for at least one year.

Application of Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting periods. Areas where significant judgments occur include, but are not limited to: revenue recognition, price protection and rebate reserves, inventory valuation reserves, accrued excess purchase commitments, tax valuation allowances and impairment of goodwill and other intangible assets. Actual results could differ materially from these estimates.

Management has discussed the development and selection of the following critical accounting policies with the Audit Committee of the Company’s Board of Directors (“Audit Committee”) and the Audit Committee has reviewed these disclosures.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Application of Critical Accounting Policies (continued)

Revenue Recognition

The Company defers recognition of sales on estimated excess inventory in the distribution, retail and catalog channels. For this purpose, excess inventory is the amount of inventory that exceeds the channels’ four-week requirements as estimated by management. Original Equipment Manufacturers (“OEMs”) and value added resellers (“VARs”) customers are not considered to have excess inventory as they usually do not carry more than four weeks of inventory. The distribution, retail and catalog channels’ four-week requirements are estimated based on inventory and sell-through amounts reported to the Company by the Company’s key customers, who make up the substantial majority of the Company’s sales in these channels. No adjustment is made for those customers that do not report inventory and sell-through information. The Company defers estimated sales and cost of sales associated with estimated excess channel inventory in its consolidated financial statements. This inventory and sell-through information is reported to the Company at the stock keeping unit (“SKU”) level. However, for purposes of the excess inventory calculation, this information is accumulated at the major product level (i.e. Zip 100MB drive, Zip 250MB drive, etc). The Company uses the last 13 weeks of reported sell-through information to calculate a weekly average, which is then used to estimate the channels’ four-week requirements. This estimate may not be indicative of four weeks of future sell-through. The Company defers sales and cost of sales associated with estimated excess channel inventory in the consolidated statements of operations, with the resulting offset being reflected in the consolidated balance sheets in margin on deferred revenue.

The table below shows the related revenue and cost of sales deferrals associated with the estimated excess channel inventory.

The decrease in margin on estimated channel inventory during 2004 reflects lower levels of channel inventory and product mix changes away from high margin Zip products.

The Company believes that the accounting estimates related to excess channel inventory are “critical accounting estimates” because: (1) the reserve is highly susceptible to change from period to period due to the variability of the different inputs to the calculation of the reserve such as changes in the level of channel inventory and channel sell-through rates and (2) the material impact that changes in these inputs can have on sales, cost of sales and margin on deferred revenue. Excess channel inventory is a critical estimate for all segments of the Company’s business.

Since the Company has no material debt and adequate cash balances, the Company believes that changes in excess channel inventory accruals would not impact the Company’s liquidity.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Application of Critical Accounting Policies (Continued)

Price Protection and Rebate Reserves

The Company has agreements with some of its direct and indirect customers which, in the event of a price decrease, allow those customers (subject to certain limitations) a credit equal to the difference between the price originally paid and the new decreased price on units in the customer’s inventory on the date of the price decrease not to exceed the number of units shipped to the customer for a specified time period prior to the price decrease. When a price decrease is anticipated, the Company establishes reserves against gross trade receivables with the corresponding reduction in sales for estimated amounts to be reimbursed to qualifying customers. In addition, the Company records reserves at the time of shipment for estimated volume rebates and other estimated rebates given to consumers at the time of purchase from channel partners for which sales have been recognized. 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 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. The Company uses price protection and rebate programs in all of its segments and the statement of operations charges are recorded against their respective segment.

The Company believes that the accounting estimates related to price protection and rebate programs are “critical accounting estimates” because: (1) the reserve is highly susceptible to change from period to period due to the assumptions made concerning redemption rates and other variables and (2) changes in this reserve can have a material impact on sales and trade receivables.

Price protection and rebate reserves have fluctuated in the past. For example, during 2002, $4.2 million of price protection and rebate reserves that were recorded in prior periods were released as they were not claimed as originally estimated.

Reserves for volume and other rebates and price protection totaled $16.0 million at December 31, 2004 and $18.7 million at December 31, 2003 and are netted against trade receivables in the consolidated balance sheets. The decrease in this reserve for 2004 was primarily a reflection of lower rebate and price protection programs during 2004 relative to the lower sales in 2004. The Company believes that the use of rebates will continue to be a significant part of the Company’s business strategy.

Since the Company has no material debt and adequate cash balances, the Company believes that changes in price protection and rebate accruals would not impact the Company’s liquidity.

Inventory Valuation Reserves

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

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Application of Critical Accounting Policies (Continued)

The Company believes that the accounting estimates related to inventory valuation reserves are “critical accounting estimates” because: (1) the reserve is highly susceptible to change from period to period due primarily to estimating future sales volumes of products and future sales prices, (2) the competitive nature of the technology industry which can quickly change the price of the Company’s products in the market place or the overall demand for the Company’s products and (3) changes in the value of inventory can have a material impact on cost of sales and inventory valuation reserves.

Inventory valuation reserve adjustments are necessitated primarily from changes in estimating future sales volumes and from changes in the estimates made of future sales prices. Estimating future sales volumes is particularly difficult for new products and end-of-life (“EOL”) products. Estimating future sales price is particularly difficult on Sourced Branded products due to price competition and short product cycles.

Zip products have shown a long market life compared to the Company’s other products. In light of their high margins, its inventory carrying value has been recoverable at estimated selling prices. Consequently, Zip products have not, until recently, been as susceptible to inventory valuation reserve adjustments as some of the Company’s other products. Now, as Zip products reach the end of their product life cycle, Zip products and components have become susceptible to excess and obsolete inventory reserves. If Zip volumes decline at a quicker rate or in greater volumes than forecasted, the risk associated with inventory valuation reserves will increase.

During 2004, the Company recorded a net decrease in inventory valuation reserves of $1.1 million. The $1.1 million decrease was comprised of additions of $4.9 million less utilization of $6.0 million as reserved product was scrapped or sold. The $4.9 million addition to inventory valuation reserves was comprised of $2.9 million for Zip products, $0.9 million for Sourced Branded products and $0.6 million for NSS, with the remaining $0.5 million for other various products. The $2.9 million Zip charge resulted primarily from purchased EOL components which exceeded the EOL volume forecast. The $0.9 million Sourced Branded product charge resulted primarily from product priced below cost in order to move the inventory. The $0.6 million of NSS charge resulted primarily from additional NAS and Tape product write-offs in early 2004 related to the announcement in late 2003 regarding the discontinuance of the high-end of the market NAS servers and Tape products. The $6.0 million inventory reserve utilizations were primarily for Zip, Source Branded and NAS products as product was sold or scrapped.

During 2003, the Company recorded a net increase in inventory valuation reserves of $2.0 million which was recorded in cost of sales in the consolidated statement of operations. This $2.0 million net increase was comprised of an addition of $8.0 million to the inventory valuation reserves which was partially offset by $6.0 million in inventory reserve utilizations as product that had been previously reserved was sold or scrapped. The $8.0 million addition to the inventory valuation reserves was comprised of $4.6 million for Zip products, $2.0 million for Sourced Branded products and $1.4 million for other products (primarily NAS and Jaz products). The $4.6 million Zip write-off was primarily for the reserve of inventory components previously purchased which exceeded estimated needs. The $2.0 million write-off for Sourced Branded products primarily resulted from the continued price declines necessary to sell Sourced Branded products. The $1.4 million write-off for other products primarily related to the discontinuance of the high-end of the market NAS servers and excess Jaz inventory. The $6.0 million of inventory reserve utilizations was primarily for Peerless, Zip and Sourced Branded products. As the Company continues to offer new products or exits product lines, there is no assurance that further inventory valuation reserves will not be required.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Application of Critical Accounting Policies (Continued)

At December 31, 2004, the Company had inventory valuation reserves of $7.3 million, which compares to inventory valuation reserves of $8.5 million at December 31, 2003. The decrease in inventory valuation reserves during 2004 was primarily attributable to decreases in reserves as described above.

Adjustments to the inventory reserves are a non-cash adjustment and would not affect the Company’s liquidity.

Accrued Excess Purchase Commitments

The purchase orders under which the Company buys many of its products generally extend one to three quarters in the future. The quantities on the purchase orders are based on forecasted future sales requirements. It is difficult to estimate future product demand for new products or products with declining sales. Such estimates may result in excess purchase commitments, where the Company makes commitments for purchases that the Company does not ultimately utilize. The accrual for excess purchase commitments also includes liabilities such as cancellation charges or handling fees incurred because of excess supplier inventory or equipment.

With the continued declines of Zip volumes, this has become an area of particular risk for the Company. Suppliers of certain critical components of both Zip drives and disks have stopped producing, or EOL’d such components and other suppliers are planning to do so. In such cases, the Company attempts to make an EOL purchase of the required component(s) based on its estimates of all future requirements. With respect to estimating excess purchase commitments, the Company is at risk that it will order insufficient or excess quantities of key components or that certain suppliers may produce excess inventory of key components in the absence of firm orders from Iomega, leading to potential disputes regarding payment obligations.

The Company believes that the accounting estimates related to accrued excess purchase commitments are “critical accounting estimates” because: (1) the reserve is highly susceptible to change from period to period due primarily to estimating future sales volumes of products, (2) the inherit difficulty of estimating future requirements or final build-out of components that have been EOL’d by the supplier and (3) decisions to discontinue projects with suppliers.

During 2004, the Company recorded a net decrease in excess purchase commitment reserves of $2.0 million. This decrease was comprised of $2.3 million of additions less utilization of $4.3 million. The majority of the $2.3 million increase resulted from Zip product exposures at the Company’s manufacturing suppliers as a result of decreases in the EOL forecast. The $4.3 million utilizations resulted primarily from Zip and Sourced Branded products as much of what was utilized came from prior reserves and was primarily paid to suppliers, product was moved into inventory or reserves reduced due to increases in forecast demand.

During 2003, the Company recorded a net increase in excess purchase commitment reserves of $2.5 million. This increase was comprised of $5.5 million of additions less utilization of $3.0 million. Of the $5.5 million of additions, $3.6 million related to Zip products, primarily for Zip head stack assembly supplier exposures as the recent EOL forecast used for head stack component build out was significantly less than previous projections and for commitments resulting from the consolidation of Zip media manufacturers, $0.7 million related to Sourced Branded products supplier commitments, primarily for Asia Pacific region DVD products where demand was not as expected, with the remaining $1.2 million for EOL additions related to various other products.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Application of Critical Accounting Policies (Continued)

The accrual for excess purchase commitments totaled $2.8 million at December 31, 2004 and $4.7 million at December 31, 2003.

Since the Company has no material debt and adequate cash balances, the Company believes that changes in accrued excess purchase commitments would not impact the Company’s liquidity.

Tax Valuation Allowances

Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes” (“SFAS 109”) requires that a valuation allowance be established when management determines that it is more likely than not that all or a portion of a deferred tax asset will not be realized. The Company evaluates the realizability of its net deferred tax assets on a quarterly basis and valuation allowances are provided or released, as necessary. During this evaluation, the Company reviews its forecasts of income in conjunction with other positive and negative evidence surrounding the realizability of its deferred tax assets to determine if a valuation allowance is required. Adjustments to the valuation allowance will increase or decrease the Company’s tax provision or benefit.

The Company believes that the accounting estimates related to deferred tax valuation allowances are “critical accounting estimates” because: (1) the need for valuation allowance is highly susceptible to change from period to period due to changes in deferred tax asset and deferred tax liability balances, (2) the need for valuation allowance is susceptible to actual operating results and (3) changes in the tax valuation allowance can have a material impact on the tax provision/benefit in the consolidated statements of operations and on deferred income taxes in the consolidated balance sheet.

For example, during 2004, the Company recorded a $21.2 million increase in the valuation allowance resulting primarily from new foreign tax credits and decreases in deferred tax liabilities. Included in the $21.2 million increase in the valuation allowance was an $8.0 million increased valuation allowance resulting from new foreign tax credits created by deemed Swiss withholding taxes on foreign earnings. The recording of the new foreign tax credits was the result of a change in the Company’s intention to repatriate foreign cash to the U.S. in the form of dividends in the future. The valuation allowance was also increased as the result of a decrease in the deferred tax liability of $22.3 million resulting from a decrease in the pool of unrepatriated foreign earnings.

During 2003, the Company increased its valuation allowance by $4.7 million, primarily as a result of its evaluation of the realizability of its increased state net operating loss carryforwards (“NOLs”) deferred tax assets, which were adjusted in conjunction with the completion of an IRS audit.

Adjustments to deferred tax valuation allowances are non-cash adjustments and do not affect the Company’s liquidity.

Impairment of Goodwill and Other Intangible Assets

The Company has $11.7 million of goodwill, all of which is associated with the Zip product segment. The Company also has $2.4 million of other intangible assets, primarily a licensing agreement and intellectual property that is also entirely associated with the Zip product segment. As Zip product segment sales and profits continue to decline, the risk increases that the $11.7 million of goodwill and the $2.4 million of other intangible assets will become impaired and that impairment charges will become necessary. The Company

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Application of Critical Accounting Policies (Continued)

performs its annual impairment test required under SFAS No. 142, “Accounting for Goodwill and Intangible Assets” (“SFAS 142”) in the first quarter of each year. Each quarter, the Company compares how actual quarterly profits are tracking with the projected profits that were used in the annual impairment test to make sure that there has not been a significant adverse change in business climate or that an unforeseen trend has developed. As part of this quarterly review, the Company also looks for any other indicators of impairment, such as any significant adverse changes in legal factors, adverse regulatory assessments or loss of key personnel. There were no indicators of impairment from the time the impairment evaluation was performed in the first quarter of 2004 to December 31, 2004.

The Company believes that the accounting estimates related to assessing potential impairment of the Company’s goodwill and other intangible assets are “critical accounting estimates” because: (1) the subjectivity inherent in determining the fair value of the Zip product segment and (2) the impact that future impairment charges will have on the consolidated statements of operations and the consolidated balance sheet.

The remaining estimated useful lives for the Company’s other intangible assets range approximately from one-half to one and one-half years. As Zip sales and profits continue to decline, the Company anticipates that the Zip goodwill may start to become impaired in late 2005 or early 2006. One of the intangible assets will be fully amortized in 2005 and the other will be fully amortized in the second quarter of 2006.

Future impairment charges will be non-cash charges and will not affect the Company’s liquidity.

Results of Operations

The following table sets forth certain financial data as a percentage of sales for the years ended December 31, 2004, 2003 and 2002:

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (Continued)

The Company’s net loss for the year ended December 31, 2004 was $36.7 million, or $0.71 per share, compared with a net loss of $18.9 million, or $0.37 per share, for the year ended December 31, 2003. The 2004 net loss included:

Included in the 2003 net loss were:

Seasonality

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

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

DCT Program License Agreement, Impairment Charges and Related Asset Sales

As the Company has previously disclosed, its DCT business plan was dependent upon adoption of significant consumer electronics OEMs. Unfortunately, the Company was not successful in securing OEM commitments. During the second quarter of 2004, the Company investigated the possibility of bringing the DCT technology to market as a stand-alone computer peripheral storage device. However, based on the Company’s analysis and objective evaluation of the market environment in which the DCT technology would compete, the Company concluded that it did not have sufficient resources to simultaneously pursue the opportunities of the DCT technology and REV products. Consequently, the Company decided not to launch an Iomega branded PC peripheral DCT device and began winding down the DCT Program during the third quarter of 2004. As part of the wind down activities, the Company determined that fixed assets related solely to the DCT Program were impaired and thus during 2004 recorded as cost of sales, $4.5 million of impairment charges. This $4.5 million charge was attributable entirely to the New Technologies business segment. The fair value of the assets was determined based on industry knowledge and from the disposition of similar assets in the past. During 2004, the Company also recorded $0.5 million of other charges for cancelled commitments, comprised primarily of supplier claims, for equipment and parts that had been committed to by both the Company’s suppliers as well as second tier suppliers.

During the fourth quarter of 2004, the Company entered into a definitive license agreement regarding its DCT intellectual property. The license agreement terms included an upfront cash payment of $10.5 million to the Company and an additional $3.5 million cash payment to the Company at a later date based upon the licensee’s commercialization date of the technology but no later than November 2007. Further, the license agreement calls for potential royalties to be paid on future products utilizing the technology up to $11.0 million. The $10.5 million is reflected in the operating expenses section of the consolidated statement of operations under the caption, “license fees”, as the cash has been received and the Company has fulfilled all of its obligations related to that payment. The Company will not recognize the $3.5 million in its financial statements until the related cash payment is received. There is no guarantee that the Company will receive any future payments from this transaction.

During the license agreement negotiations, the Company also entered into other agreements, including the sale of various fixed assets, primarily testing equipment and miscellaneous engineering equipment that Iomega had used as part of the DCT Program. The Company received $1.2 million of cash for these assets resulting in a gain of $1.1 million. The breakout of the gain between “cost of sales” and “research and development” was determined based upon where the initial expense to purchase the respective assets was recorded. All of these charges and gains are reflected in the New Technologies business segment.

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IOMEGA CORPORATION AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

DCT Program License Agreement, Impairment Charges and Related Asset Sales (Continued)

A breakdown of the DCT Program license fees, impairment and other charges incurred during 2004 is included in the table below:

Penang Manufacturing Subsidiary Impairment Charges

On November 1, 2002, the Company completed the sale of all of the stock of its wholly-owned indirect subsidiary, Iomega Malaysia Sdn. Bhd. (the “Penang Manufacturing Subsidiary”), to Venture Corporation Limited (“Venture”) pursuant to an agreement entered into by the parties on September 29, 2002 (the “Agreement”). The principal assets of the Penang Manufacturing Subsidiary were manufacturing equipment, inventory and a 376,000 square-foot manufacturing facility in Penang, Malaysia where all of the Company’s Zip drives and disks are manufactured. Pursuant to the terms of the Agreement, at the closing of the transaction, the Company received total proceeds of $10.2 million for the Penang Manufacturing Subsidiary, which amount was determined by an arms-length negotiation between the parties and was based on the net asset value of the Penang Manufacturing Subsidiary on November 1, 2002. Included in the assets sold by the Company was $6.8 million of cash in operating accounts, so the Company received net cash proceeds of $3.4 million. As a result of this sale in 2002, the Company recorded impairment charges of $10.7 million (reported in cost of sales in the consolidated statements of operations) for the impairment of the Penang Manufacturing Subsidiary’s net assets to their fair value as determined by the sales price. Of the $10.7 million in impairment charges, $10.6 million was attributable to the Zip product line and $0.1 million was attributable to the Jaz product line. The majority of the fixed assets and inventory were attributable to the Zip product line. For more detail on the sale of the Penang Manufacturing Subsidiary and the related impairment and tax charges, see Note 2 of the notes to consolidated financial statements.

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IOMEGA CORPORATION AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Restructuring Charges/Reversals

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

During 2001, the Company recorded $33.1 million (net of a $0.2 million fourth quarter 2001 reversal) related to restructuring actions initiated during the third quarter of 2001.

During 2002, the Company had a net reversal or adjustment of $2.4 million of previously recorded restructuring reserves. This $2.4 million net reversal was comprised of $2.0 million related to charges recorded for the 1999 restructuring actions and $0.4 million related to charges recorded for the third quarter 2001 restructuring actions.

During 2003, the Company recorded restructuring charges of $16.5 million, ($11.5 million recorded as restructuring charges and $5.0 million as cost of sales) of which $14.5 million was for restructuring actions initiated during the third quarter of 2003 and $2.1 million was associated with restructuring actions initiated during the third quarter of 2001 related to lease expenses for facilities which the Company had been unable to sublease, partially offset by a $0.1 million release of severance and benefit reserves related to the 2001 restructuring actions due to original estimates being higher than what was utilized.

During 2004, the Company recorded net restructuring charges of $4.5 million, of which $3.7 million was for restructuring actions initiated during the third quarter of 2004, $0.1 million was for the 2003 restructuring actions and $0.7 million was for the third quarter 2001 restructuring actions.

The detail of the third quarter 2001, 2003 and 2004 restructuring actions and an update on the current status of each of these actions as of December 31, 2004 follows below.

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IOMEGA CORPORATION AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Restructuring Charges/Reversals (Continued)

Third Quarter 2001 Restructuring Actions

During the third quarter of 2001, the Company recorded 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 2001 restructuring actions. The restructuring charges in the third quarter of 2001 included $17.4 million associated with exiting lease facilities - of which $9.8 million related to leasehold improvements, furniture and information technology asset write-downs and $7.6 million was associated with lease termination costs - and $15.9 million related to the reduction of 1,234 regular and temporary personnel worldwide, or approximately 37% of the Company’s worldwide workforce. During the fourth quarter of 2001, 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 2001 restructuring actions but who were not notified of their termination until the fourth quarter of 2001.

Of the $33.3 million in total third quarter 2001 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. Of the $33.3 million of restructuring charges, $23.5 million was for cash charges and $9.8 million was for non-cash charges.

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 of 2001, 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 was not a part of the restructuring charges but rather was reported in normal operations as incurred. In compliance with the WARN Act, affected employees were given pay in lieu of a 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 region 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 region 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 of 2001, 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

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IOMEGA CORPORATION AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Restructuring Charges/Reversals (Continued)

had not been notified, the Company did not accrue the severance and benefit costs associated with these individuals in the original third quarter 2001 restructuring charges. Additionally, in the fourth quarter of 2001, $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.

2001 Activity/Changes in Third Quarter 2001 Restructuring Reserves

Remaining restructuring reserves of $8.9 million were included in the Company’s accrued restructuring charges and $3.6 million were included in the fixed asset reserves as of December 31, 2001. The third quarter 2001 restructuring charges originally totaled $33.3 million.

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IOMEGA CORPORATION AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Restructuring Charges/Reversals (Continued)

Utilization of and other activity relating to the third quarter 2001 restructuring reserves during 2001 are summarized below: