q2200710q.htm

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


FORM 10-Q
                                                                                      (Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JULY 1, 2007

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

COMMISSION FILE NUMBER 1-12333


 
Iomega Corporation
(Exact name of registrant as specified in its charter)
                                                                   Delaware                                                                                                                              86-0385884
                                                                       (State or other jurisdiction                                                                                            (IRS employer identification number)
                                                                    of incorporation or organization)

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule12b-2 of the Exchange Act. (Check one):

Large accelerated filer o                                     Accelerated filer x                              Non-accelerated filer o 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes o         No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of July 31, 2007.

Common Stock, par value $0.03 1/3                                                                                                                           55,319,520
                    (Title of each class)                                                                                                                                 (Number of shares)
 

 
IOMEGA CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
 
                                            Page

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

PART I - FINANCIAL STATEMENTS

Item 1.       Financial Statements (Unaudited)

  Condensed Consolidated Balance Sheets at July 1, 2007
                    and December 31, 2006.......................................................................................................................
 
3

 
                     Ended July 1, 2007 and July 2, 2006................................................................................................
 
4

 
                    Ended July 1, 2007 and July 2, 2006.................................................................................................
 
5

 
                    Ended July 1, 2007 and July 2, 2006.................................................................................................
 
6

                 Notes to Condensed Consolidated Financial Statements...............................................................
 
7

 
                    Condition and Results of Operations.............................................................................................
 
29

Item 3.    Quantitative and Qualitative Disclosures About Market Risk........................................................
46

Item 4.    Controls and Procedures........................................................................................................................
 
46

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.....................................................................................................................................
 
47

Item 1A. Risk Factors.............................................................................................................................................
 
47

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds...........................................................
55

Item 4.  Submission of Matters to a Vote of Security Holders.........................................................................
 
55

Item 6.  Exhibits........................................................................................................................................................
 
55

Signatures.................................................................................................................................................................
 
56

Exhibit Index.............................................................................................................................................................
 
57
 

 

Copyright© 2007 Iomega Corporation.  All rights reserved.  Iomega, Zip, REV, StorCenter, iStorage, OfficeScreen and Jaz are either registered trademarks or trademarks of Iomega Corporation in the United States and/or other countries.  Certain other product names, brand names and company names may be trademarks or designations of their respective owners.
 

1

 
IOMEGA CORPORATION AND SUBSIDIARIES
NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
Forward-Looking Statements
 
This document contains forward-looking statements within the meaning of the federal securities laws. Any statements that do not relate to historical or current facts or matters are forward-looking statements. You can identify some of the forward-looking statements by the use of forward-looking words, such as “may,” “will,” “could,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “contingency(ies),” “plans,” “forecasts,” “forecasted,” “we generally,” “reserves,” goals,” “objectives” and the like, or the use of future tense. Statements concerning current conditions may also be forward-looking if they imply a continuation of current conditions. These forward-looking statements include, but are not limited to, statements concerning:

·  
Our goals for 2007, which are: (1) to continue to grow and deliver sustained profitability; (2) to further increase the size of our HDD business; (3) to continue to penetrate the high-growth NAS market; (4) to ramp REV® 70GB products and push for broad market adoption; (5) to grow our managed services business domestically and abroad; and (6) to continue to evaluate new opportunities where we can leverage our brand and channel assets.
·  
Our goal of increasing cash flow from operations;
·  
Our goal to achieve 2007 full year profitability and positive cash flow from operations through containing operating expense spending, HDD sales growth and maintaining or improving the gross margins and growing REV product sales;
·  
References to the ongoing efforts to complete our transition to a new distribution and logistics supplier;
·  
References to our fourth quarter being seasonally strong, or our summer months being seasonally slow in Europe due to holidays;
·  
Expected future taxes including taxes on repatriation of cash from Europe to the U.S.;
·  
References to expected volatility, expected term and value of stock options;
·  
The Section below entitled “Risk Factors”, including all discussions therein concerning things that could happen to Iomega®, its products, employees, profits or other aspects of the business in the future;
·  
All references to our focus or intended focus for our sales efforts;
·  
The belief that our balance of cash, cash equivalents and temporary investments, together with cash flows from future operations, will be sufficient to fund anticipated working capital requirements, funding of restructuring actions, capital expenditures and cash required for other activities for at least one year.

There are numerous factors that could cause actual events or our 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”  and “Quantitative and Qualitative Disclosures About Market Risk” included in Items 2 and 2 of Part I and “Risk Factors” included in Item 1A of Part II of this Quarterly Report on Form 10-Q.  In addition, any forward-looking statements represent our estimates only as of the day this Quarterly Report was first filed with the SEC and undue reliance should not be placed on these statements.  We specifically disclaim any obligation to update forward-looking statements, even if our estimates change.
 
2

 
IOMEGA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except per share data)

   
July 1, 2007
   
Dec. 31, 2006
 
   
(Unaudited)
       
Current Assets:
           
Cash and cash equivalents
  $
70,274
    $
56,617
 
Restricted cash
   
88
     
88
 
Temporary investments
   
4,766
     
11,443
 
Trade receivables, less allowance for doubtful accounts of
$955 at July 1, 2007 and $1,535 at December 31, 2006
   
21,402
     
30,418
 
Inventories
   
41,530
     
42,593
 
Deferred income taxes
   
2,247
     
2,747
 
Other current assets
   
2,385
     
3,401
 
Total Current Assets
   
142,692
     
147,307
 
                 
Property and Equipment, at Cost
   
75,846
     
84,845
 
Accumulated Depreciation
    (70,685 )     (78,292 )
Net Property and Equipment
   
5,161
     
6,553
 
                 
Goodwill
   
9,818
     
12,451
 
Other Intangibles, Net
   
925
     
1,043
 
Other Assets
   
17
     
60
 
Total Assets
  $
158,613
    $
167,414
 
   
Current Liabilities:
               
Accounts payable
  $
30,888
    $
35,105
 
Other current liabilities
   
22,350
     
32,475
 
Income taxes payable
   
1,646
     
454
 
Total Current Liabilities
   
54,884
     
68,034
 
                 
Deferred Income Taxes
   
8,048
     
9,573
 
Other Liabilities
   
2,842
     
-
 
                 
Commitments and Contingencies (Notes 4 and 5)
               
                 
Stockholders’ Equity:
               
Common Stock, $0.03 1/3 par value - authorized 400,000,000
shares, issued 55,317,270 shares at July 1, 2007 and
55,307,770 shares at December 31, 2006
   
1,847
     
1,846
 
Additional paid-in capital
   
60,426
     
59,635
 
Less: 575,200 Common Stock treasury shares, at cost, at
July 1, 2007 and December 31, 2006
    (5,662 )     (5,662 )
Retained earnings
   
36,228
     
33,988
 
Total Stockholders’ Equity
   
92,839
     
89,807
 
Total Liabilities and Stockholders’ Equity
  $
158,613
    $
167,414
 


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

3

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

   
For the Three Months Ended
 
   
July 1,
 2007
   
July 2,
 2006
 
   
(Unaudited)
 
Sales
  $
59,319
    $
40,652
 
Cost of sales
   
47,180
     
33,859
 
Gross Margin
   
12,139
     
6,793
 
                 
Operating Expenses:
               
Selling, general and administrative
   
10,397
     
10,510
 
Research and development
   
1,784
     
2,475
 
Restructuring charges (reversals)
    (44 )    
4,291
 
Goodwill impairment charge
   
1,253
     
2,341
 
License and patent fee income
    (102 )     (1,085 )
Bad debt credit
    (102 )     (153 )
Total Operating Expenses
   
13,186
     
18,379
 
Operating loss
    (1,047 )     (11,586 )
                 
Interest income
   
605
     
776
 
Interest expense and other income (expense), net
   
307
      (386 )
Loss before income taxes
    (135 )     (11,196 )
                 
Benefit for income taxes
   
1,226
     
797
 
Net Income (Loss)
  $
1,091
    $ (10,399 )
                 
Net Income (Loss) Per Basic Share
  $
0.02
    $ (0.20 )
Net Income (Loss) Per Diluted Common Share
  $
0.02
    $ (0.20 )
                 
Weighted Average Common Shares Outstanding
   
54,737
     
51,658
 
Weighted Average Common Shares Outstanding - Assuming Dilution
   
55,148
     
51,658
 


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


4


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

   
For the Six Months Ended
 
   
July 1,
 2007
   
July 2,
 2006
 
   
(Unaudited)
 
Sales
  $
135,303
    $
99,733
 
Cost of sales
   
108,861
     
81,139
 
Gross Margin
   
26,442
     
18,594
 
                 
Operating Expenses:
               
Selling, general and administrative
   
20,781
     
23,092
 
Research and development
   
3,523
     
5,042
 
Restructuring charges (reversals)
    (82 )    
4,569
 
Goodwill impairment charges
   
2,963
     
5,422
 
License and patent fee income
    (452 )     (1,085 )
Bad debt credits
    (366 )     (275 )
Total Operating Expenses
   
26,367
     
36,765
 
Operating income (loss)
   
75
      (18,171 )
                 
Interest income
   
1,274
     
1,539
 
Interest expense and other income (expense), net
    (107 )     (135 )
Income (loss) before income taxes
   
1,242
      (16,767 )
                 
Benefit for income taxes
   
998
     
2,199
 
Net Income (Loss)
  $
2,240
    $ (14,568 )
                 
Net Income (Loss) Per Basic Share
  $
0.04
    $ (0.28 )
Net Income (Loss) Per Diluted Common Share
  $
0.04
    $ (0.28 )
                 
Weighted Average Common Shares Outstanding
   
54,735
     
51,653
 
Weighted Average Common Shares Outstanding - Assuming Dilution
   
55,054
     
51,653
 


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


5


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

   
For the Six Months Ended
 
   
July 1,
 2007
   
July 2,
 2006
 
   
(Unaudited)
 
Cash Flows from Operating Activities:
           
Net income (loss)
  $
2,240
    $ (14,568 )
Adjustments to Reconcile Net Income (Loss) to  Cash Flows from
         Operations:
               
Depreciation and amortization
   
1,687
     
2,675
 
Deferred income tax provision (benefit)
    (1,025 )     (2,122 )
Tax contingency net releases
    (1,481 )    
-
 
Stock-related compensation expense
   
555
     
171
 
Goodwill impairment charges
   
2,963
     
5,422
 
Non-cash inventory write-offs (reversals)
   
582
      (742 )
Bad debt credits
    (366 )     (275 )
Other
    (36 )     (372 )
Changes in Assets and Liabilities:
               
Restricted cash
   
     
169
 
Trade receivables
   
9,382
     
14,397
 
Inventories
   
481
      (1,154 )
Other current assets
   
1,016
     
279
 
Accounts payable
    (4,217 )     (18,226 )
Other current liabilities
    (4,142 )     (4,372 )
Accrued restructuring
    (1,660 )    
1,156
 
Income taxes
   
1,192
      (599 )
Net cash provided by (used in) operating activities
   
7,171
      (18,161 )
                 
Cash Flows from Investing Activities:
               
Purchases of property and equipment
    (279 )     (403 )
Proceeds from sales of assets
   
56
     
82
 
Purchases of temporary investments
    (6,795 )     (11,280 )
Sales of temporary investments
   
13,554
     
17,420
 
Additional payments associated with CSCI, Inc. acquisition
    (120 )    
-
 
Net change in other assets and other liabilities
   
43
     
7
 
Net cash provided by investing activities
   
6,459
     
5,826
 
                 
Cash Flows from Financing Activities:
               
Proceeds from sales of Common Stock
   
27
     
34
 
Net cash provided by financing activities
   
27
     
34
 
Net Increase (Decrease) in Total Cash and Cash Equivalents
   
13,657
      (12,301 )
Total Cash and Cash Equivalents at Beginning of Period
   
56,617
     
70,943
 
Total Cash and Cash Equivalents at End of Period
  $
70,274
    $
58,642
 
                 
Non-Cash Investing and Financing Activities:
               
Adjustment of CSCI, Inc. acquisition
  $
210
    $
-
 
                 

The accompanying notes to condensed consolidated financial statements are an
integral part of these statements
 
6

 
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 
(1)  Operations and Significant Accounting Policies

In management’s opinion, the accompanying condensed consolidated financial statements reflect all adjustments of a normal recurring nature which are necessary to present fairly our financial position as of July 1, 2007 and December 31, 2006, the results of operations for the quarter and six months ended July 1, 2007 and July 2, 2006 and cash flows for the six months ended July 1, 2007 and July 2, 2006.

The results of operations for the quarter and six months ended July 1, 2007 are not necessarily indicative of the results to be expected for the entire year or for any future period.

The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our latest Annual Report on Form 10-K.

Reclassifications

Certain reclassifications have been made to the prior period’s condensed consolidated financial statements and notes to condensed consolidated financial statements to conform to the current period’s presentation.

Inventories

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

   
July 1,
   
Dec. 31,
 
   
2007
   
2006
 
   
(In thousands)
 
             
Raw materials
  $
1,645
    $
1,891
 
Finished goods
   
39,885
     
40,702
 
    $
41,530
    $
42,593
 

We evaluate 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).  We include product costs and direct selling expenses in our analysis of inventory realization.  To the extent that estimated selling prices do not exceed such costs and expenses, valuation reserves are established against inventories through a charge to cost of sales.  In addition, we generally consider inventory that is not expected to be sold within established timelines, as forecasted by our material requirements planning system, as excess and thus appropriate inventory reserves are established through a charge to cost of sales.
 
7

 
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)
 
(1)  Operations and Significant Accounting Policies (Continued)

Net Income (Loss) Per Common Share

Basic net income (loss) per common share (“Basic EPS”) excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period.  Diluted net income (loss) per common share (“Diluted EPS”) reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock.  The computation of Diluted EPS assumes no exercise or conversion of securities that would have an anti-dilutive effect on net income per common share.  In periods where losses are recorded, common stock equivalents would decrease the loss per share and therefore are not added to the weighted average shares outstanding.  Losses have been recorded for the quarter ended July 2, 2006, thus there was no dilution, as all outstanding options were considered anti-dilutive.

The following is a reconciliation of the numerator and denominator of Basic EPS to the numerator and denominator of Diluted EPS for all periods presented.

   
Net Income (Loss) (Numerator)
   
Shares
(Denominator)
   
Per Share Amount
 
   
(In thousands, except per share data)
 
                   
For the Three Months Ended:
                 
July 1, 2007:
                 
Basic EPS
  $
1,091
     
54,737
    $
0.02
 
Effect of options
   
-
     
411
     
-
 
Diluted EPS
  $
1,091
     
55,148
    $
0.02
 
                         
July 2, 2006:
                       
Basic EPS
  $ (10,399 )    
51,658
    $ (0.20 )
Effect of options
   
-
     
-
     
-
 
Diluted EPS
  $ (10,399 )    
51,658
    $ (0.20 )
                         
For the Six Months Ended:
                       
July 1, 2007:
                       
Basic EPS
  $
2,240
     
54,735
    $
0.04
 
Effect of options
   
-
     
319
     
-
 
Diluted EPS
  $
2,240
     
55,054
    $
0.04
 
                         
July 2, 2006:
                       
Basic EPS
  $ (14,568 )    
51,653
    $ (0.28 )
Effect of options
   
-
     
-
     
-
 
Diluted EPS
  $ (14,568 )    
51,653
    $ (0.28 )

8

 
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)
 
(1)  Operations and Significant Accounting Policies (Continued)

Net Income (Loss) Per Common Share (Continued)

The table below shows the number of outstanding options that had an exercise price greater than the average market price of the common shares (out of the money options) for the respective period.  The average market price of our Common Stock was $4.11 for the three months ended July 1, 2007 and $3.22 for the three months ended July 2, 2006.  The average market price of our Common Stock was $3.92 for the six months ended July 1, 2007 and $2.98 for the six months ended July 2, 2006.

   
For the Three Months Ended
   
For the Six Months Ended
 
   
July 1,
   
July 2,
   
July 1,
   
July 2,
 
   
2007
   
2006
   
2007
   
2006
 
                         
Out of the money options
   
846,892
     
1,180,621
     
848,392
     
1,507,955
 

Stock Compensation Expense

Prior to January 1, 2006, we accounted for our share-based employee compensation plans under the measurement and recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”).

Effective January 1, 2006, we adopted SFAS No. 123r, “Share-Based Payment”, (“SFAS 123r”) using the modified prospective transition method.  Because we elected to use the modified prospective transition method, results for prior periods have not been restated.

Our condensed consolidated statements of operations included $0.3 million of compensation expense related to stock-based compensation plans for the three months ended July 1, 2007 and $0.2 million for the three months ended July 2, 2006.

Our condensed consolidated statements of operations included $0.6 million of compensation expense related to stock-based compensation plans for the six months ended July 1, 2007 and $0.2 million for the six months ended July 2, 2006.

During the first quarter of 2006, we reduced our stock based compensation by $0.1 million due to a change in the estimated forfeiture rate as required by SFAS 123r.

Valuation and Amortization.  We use the Black-Scholes option-pricing model to estimate the fair value of each option grant on the date of grant or modification.  We amortize the fair value on an accelerated method for recognizing stock compensation expense over the vesting period of the option.

Expected Term.  The expected term is the period of time that granted options are expected to be outstanding.  We estimate the expected term based on historical patterns of option exercises, which we believe reflect future exercise behavior.  We examined patterns in our historical data in order to ascertain if there were any discernable patterns of exercises for demographic characteristics (such as geographic, job level, plan and significantly out of the money exercise prices).  Due to the current level of stock prices, we have excluded historical data that was significantly out of the money in determining our expected term.
 
9

 
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)
 
(1)  Operations and Significant Accounting Policies (Continued)

Stock Compensation Expense (Continued)

Expected Volatility.  We calculate volatility by using the historical stock prices going back over the estimated life of the option.

Risk-Free Interest Rate.  We base the risk-free interest rate used in the Black-Scholes option-valuation model on the market yield in effect at the time of option grant provided from the Federal Reserve Board’s Statistical Releases and Historical Publications from the Treasury constant maturities rates for the equivalent remaining terms.

Dividends.  We have no plans to pay cash dividends in the future.  Therefore, we use an expected dividend yield of zero in the Black-Scholes option-valuation model.

Forfeitures.  SFAS 123r requires us to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates.  We use historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest.  In calculating the forfeiture rates we have excluded options that were significantly out of the money, primarily because they relate to older, fully vested awards.

We used the following assumptions to estimate the fair value of options granted for the three months ended July 1, 2007 and July 2, 2006:

   
For the Three Months Ended
   
For the Six Months Ended
 
               Assumption               
 
July 1,
 2007
   
July 2,
 2006
   
July 1,
 2007
   
July 2,
 2006
 
   
(In thousands)
 
                         
Average expected term (in years)
   
3.9
     
3.9
     
3.9
     
3.9
 
Expected stock price volatility
   
39
%    
55
%    
39
%    
59
%
Risk-free interest rate (range)
   
4.6–4.9
%    
4.5–5.1
%    
4.5-4.9
%    
4.3-5.1
%
Expected dividends
 
   Zero
   
   Zero
   
   Zero
   
    Zero
 
 
   
 
     
 
     
 
     
 
 

10

 
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)
 
(1)  Operations and Significant Accounting Policies (Continued)

Accrued Warranty

We accrue for warranty costs based on estimated warranty return rates and estimated costs to repair.  We use a statistical-based model to estimate warranty accrual requirements.  The statistical model, used to project future returns, is based upon a rolling monthly calculation that computes the number of units required in the warranty reserve and is based upon monthly sales, actual returns and projected return rates.  Actual warranty costs are charged against the warranty reserve.  Factors that affect our warranty liability include the number of units sold, historical and anticipated rates of warranty returns and repair cost.  We review the adequacy of our recorded warranty liability on a quarterly basis and record the necessary adjustments to the warranty liability.

Changes in our warranty liability during all periods presented were as follows:

   
For the Three Months Ended
   
For the Six Months Ended
 
   
July ,
   
July 2,
   
July 1,
   
July 2,
 
   
2007
   
2006
   
2007
   
2006
 
   
(In thousands)
 
                         
Balance at beginning of period
  $
5,099
    $
4,455
    $
4,576
    $
4,973
 
Accruals/additions
   
1,276
     
942
     
3,272
     
1,637
 
Claims
    (1,386 )     (1,320 )     (2,859 )     (2,533 )
Balance at end of period
  $
4,989
    $
4,077
    $
4,989
    $
4,077
 
 

 
11

 
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)
 
(1)  Operations and Significant Accounting Policies (Continued)

Recent Accounting Pronouncements (Continued)

In September of 2006, the FASB issued SFAS Statement No. 157, “Fair Value Measurements” (“SFAS 157”).  This statement provides enhanced guidance for using fair value to measure assets and liabilities.  This statement also responds to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value and the effect of fair value measurements on earnings.  SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value.  SFAS 157 does not expand the use of fair value in any new circumstances.  This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007.  We do not expect our adoption of this new standard to have a material impact on our financial position, results of operations or cash flows.

In February of 2007, the FASB issued SFAS Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”).  SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value.  Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings.  SFAS 159 is effective for fiscal years beginning after November 15, 2007.  We are currently assessing the impact of SFAS 159 on our financial results.

12

 
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)
 
(2)  Income Taxes

We adopted the provisions of FIN 48 on January 1, 2007.  As a result of the implementation of FIN 48, we recognized no material adjustment in the liability for unrecognized income tax benefits.  At the adoption date of January 1, 2007, we had $8.2 million of unrecognized tax benefits, $4.0 million of which would affect our effective tax rate if recognized.  Consistent with the provisions of FIN 48, we reclassified $4.0 million of income tax liabilities from current to non-current liabilities because payment of cash is not anticipated within one year of the balance sheet date.

At April 1, 2007, we had $5.9 million of unrecognized tax benefits, $4.0 million of which would affect our effective tax rate if recognized.

As a result of the expiration of the statute of limitations on certain foreign income tax returns without notification of review by the taxing authorities during the second quarter of 2007, as described below, the total amount of unrecognized tax benefits was reduced by $1.4 million. At July 1, 2007, we have $4.5 million of unrecognized tax benefits, $2.6 million of which would affect our effective tax rate if recognized.

We recognize interest and penalties related to uncertain tax positions in income tax expense.  As of the date of adoption of FIN 48, we had accrued $0.3 million for the payment of interest and penalties relating to unrecognized tax benefits.  This amount was increased during the first quarter of 2007 by $0.1 million for additional accruals of interest and penalties and reduced during the second quarter of 2007 by $0.2 million for the release of accruals related to the expiration of the statute of limitations on certain foreign income tax returns without notification of review by the taxing authorities.  As of July 1, 2007, we have approximately $0.2 million of accrued interest related to uncertain tax positions, which was also reclassified from current to non-current liabilities upon adoption of FIN 48.

The tax years 2002-2006 remain open to examination by the major taxing jurisdictions to which we are subject.  We are no longer subject to examination by the Internal Revenue Service (“IRS”) for periods prior to 2002, although carryforward attributes that were generated prior to 2002 may still be adjusted upon examination by the IRS if they either have been or will be used in a future period.  Various state income tax returns are under examination by taxing authorities.  We do not believe that the outcome of any examination will have a material impact on our financial statements.

For the quarter ended July 1, 2007, we recorded a net income tax benefit of $1.2 million on a pre-tax loss of $0.1 million.  This net tax benefit was primarily comprised of a $1.6 million release of a contingency reserve related to a foreign tax exposure for which the statute of limitations expired in the second quarter of 2007 and a $0.5 million release of a deferred tax liability resulting from the goodwill impairment charge recorded during the quarter, partially offset by taxes provided on foreign earnings and capital taxes.

For the quarter ended July 2, 2006, we recorded an income tax benefit of $0.8 million on a pre-tax loss of $11.2 million.  This tax benefit was primarily comprised of a release of a deferred tax liability resulting from the goodwill impairment charge.

For the six months ended July 1, 2007, we recorded a net income tax benefit of $1.0 million on pre-tax income of $1.2 million.  This net tax benefit was primarily comprised of a $1.6 million release of a contingency reserve related to a foreign tax exposure for which the statute of limitations expired in the second quarter of 2007 and releases of $1.2 million of deferred tax liabilities resulting from the goodwill impairment charges recognized, partially offset by taxes provided on foreign earnings and capital taxes.
 
13

 
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)
 
(2)  Income Taxes (Continued)

For the six months ended July 2, 2006, we recorded an income tax benefit of $2.2 million on a pre-tax loss of $16.8 million.  This tax benefit was primarily comprised of a release of a deferred tax liability resulting from the goodwill impairment charges recognized, minor adjustments to the estimated foreign income taxes due to the filing of actual tax returns and the accrual of foreign income and capital taxes.

(3)  Business Segment Information

We have six reportable segments, which are organized into three business categories as follows:

              Business Categories              
                    Reportable Segments                   
   
Consumer Products
1.  Consumer Storage Solutions
 
2.  Zip Products
   
Business Products
3.  REV Products
 
4.  Network Storage Systems
 
5.  Services
   
Other Products
6.  Other Products

Consumer Products

Our Consumer Products category is comprised of the Consumer Storage Solutions (“CSS”) segment and the Zip® Products segment.

Our CSS segment involves the worldwide distribution and sale of various storage devices including external hard disk drives (“HDD”), CD-RW drives, DVD rewritable drives and external floppy disk drives.  During the second half of 2005, we began to focus this segment primarily on HDD products.

The Zip Products segment involves the distribution and sale of Zip drives and disks to retailers, distributors, resellers and OEMs.  We have ceased selling Zip drives to distributors or resellers in the European Union (“EU”) as of July 1, 2006, in the wake of the Restriction of Hazardous Substances (“RoHS”) lead free initiative.  Sales of Zip disks continue worldwide, including the European Union.
 
14

 
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)
 
(3)  Business Segment Information (Continued)

Business Products

Our Business Products category is comprised of the REV Products, the Network Storage Systems (“NSS”) and the Services segments.

Our REV Products segment involves the development, distribution and sale of REV products to retailers, distributors, OEMs and resellers throughout the world.  The first generation REV drives, which began shipping in April of 2004, are removable hard disk storage systems with a native capacity of 35 gigabytes (“GB” – where 1 gigabyte equals 1 billion bytes) and up to 90GB per disk of compressed capacity.  We began shipping the next generation REV 70GB products in July of 2006.  The REV 70GB Backup Drive doubles the capacity of our first generation REV products, resulting in 70GB of native capacity and up to 140GB of compressed capacity per disk.

Our NSS segment consists primarily of the development, distribution and sale of Network Attached Storage servers and the Network HDD drives (which were previously reported under the CSS segment in the Consumer Products category) in the entry-level and low-end Network Attached Storage market.

Our Services segment consists of the operations of CSCI, Inc. (“CSCI”), including OfficeScreen® solutions and system integration, and Iomega services such as iStorageTM.  We acquired CSCI in August of 2006; CSCI’s OfficeScreen managed security services include managing firewalls, VPNs and providing remote access for small businesses.  The Iomega services were previously reflected in the Other Products segment.

Other Products

Our Other Products segment consists of license and patent fee income (when not assigned to specific products) and products that have been discontinued or are otherwise immaterial, including Jaz, Iomega software products such as Iomega Automatic Backup software and other miscellaneous products.  iStorage and other services that were previously reflected in this segment have been reclassified to the Services segment under the Business Products category.

Product Operating Income (Loss)

Product operating income is defined as sales and other income related to a segment’s operations, less both fixed and variable product costs, and direct and allocated operating expenses.  Operating expenses are charged to the product segments on a direct method or as a percentage of sales.  When such costs and expenses exceed sales and other income, this is referred to as a product operating loss.  The accounting policies of the product segments are the same as those described in Note 1.  Intersegment sales, eliminated in consolidation, are not material.  Non-allocated operating expenses include restructuring charges and certain extraordinary expenses.

15

 
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)
 
(3)  Business Segment Information (Continued)

The information in the following table was derived directly from our internal segments’ financial information used for corporate management purposes.  All prior period amounts have been reclassified to reflect the Network HDD drives and Services classification changes.

Reportable Operating Segment Information:

   
For the Quarter Ended
   
For the Six Months Ended
 
   
July 1,
 2007  
   
July 2,
 2006  
   
July 1,
 2007  
   
July 2,
 2006  
 
   
(In thousands)
 
Sales:
                       
Consumer Products:
                       
Consumer Storage Solutions
  $
40,088
    $
20,150
    $
92,577
    $
51,682
 
Zip Products
   
3,763
     
7,793
     
9,281
     
19,436
 
Total Consumer Products
   
43,851
     
27,943
     
101,858
     
71,118
 
Business Products:
                               
REV Products
   
9,203
     
8,889
     
20,407
     
19,668
 
Network Storage Systems
   
4,816
     
3,395
     
9,554
     
8,251
 
Services
   
1,353
     
146
     
3,245
     
261
 
Total Business Products
   
15,372
     
12,430
     
33,206
     
28,180
 
Other Products
   
96
     
279
     
239
     
435
 
Total Sales
  $
59,319
    $
40,652
    $
135,303
    $
99,733
 
                                 
Product Operating Income (Loss):
                               
Consumer Products:
                               
Consumer Storage Solutions
  $
50
    $ (4,723 )   $
404
    $ (9,922 )
Zip Products
   
225
     
48
     
580
     
1,107
 
Total Consumer Products
   
275
      (4,675 )    
984
      (8,815 )
Business Products:
                               
REV Products
    (274 )     (3,759 )    
30
      (5,375 )
Network Storage Systems
    (764 )    
33
      (355 )    
420
 
Services
    (535 )    
125
      (1,055 )    
227
 
Total Business Products
    (1,573 )     (3,601 )     (1,380 )     (4,728 )
Other Products
   
207
     
981
     
389
     
936
 
Non-restructuring charge
   
-
     
-
     
-
      (995 )
Restructuring (charges) reversals
   
44
      (4,291 )    
82
      (4,569 )
Total Operating Income (Loss)
  $ (1,047 )   $ (11,586 )   $
75
    $ (18,171 )

16

 
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)
 
(4)  Restructuring Charges/Reversals

We currently have restructuring reserves under three different restructuring actions: the 2006 restructuring actions, the 2005 restructuring actions and the 2004 restructuring actions.  The following table summarizes the reserve balances related to each of these restructuring actions:

   
July 1,
   
Dec. 31,
 
   
2007
   
2006
 
   
(In thousands)
 
             
Other Current Liabilities:
           
Third Quarter 2001 restructuring actions
  $
-
    $
1,366
 
2003 restructuring actions
   
-
     
6
 
2004 restructuring actions
   
111
     
77
 
2005 restructuring actions
   
84
     
219
 
2006 restructuring actions
   
18
     
205
 
Total
  $
213
    $
1,873
 
                 
Fixed Asset Reserves:
               
2003 restructuring actions
  $
-
    $
114
 
2005 restructuring actions
   
64
     
131
 
Total
  $
64
    $
245
 

During both the first and second quarters of 2007, we recorded a net restructuring release of less than $0.1 million.

During the second quarter of 2006, we recorded net restructuring charges of $4.3 million of which $1.5 million related to the 2001 restructuring actions; a $0.1 million release related to the 2004 restructuring actions and $2.9 million related to the 2006 restructuring actions.

During the first quarter of 2006, we recorded restructuring charges of $0.3 million related to the 2006 restructuring actions.

These charges are described below under their respective caption.

2006 Restructuring Actions

During 2006, we recorded $3.0 million of net restructuring charges for the 2006 restructuring actions.  These charges included $2.7 million of cash charges for severance and benefits for approximately 90 personnel worldwide who were notified during the first and second quarters of 2006 that their positions were being eliminated, $0.2 million of cash charges for miscellaneous contract and lease cancellations and $0.1 million of non-cash charges related to excess furniture, leasehold improvements and other miscellaneous assets.  The $3.0 million was shown as restructuring expenses as a component of operating expenses.  None of these restructuring charges was allocated to any of our business segments.  The restructuring actions were part of an effort to align our cost structure with our expected future revenue levels and to reorganize our Company from a focus on autonomous geographic regions and products to a simplified functional organization.
 
17

 
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)
 
(4)  Restructuring Charges/Reversals (Continued)

2006 Restructuring Actions (Continued)

The worldwide workforce reduction was across all business functions and levels within Iomega.  Of the 90 impacted personnel worldwide, approximately 20 employees were on transition into the third quarter of 2006, primarily in Europe due to legal notice requirements.

During the first quarter of 2007, we recorded a restructuring benefit of less than $0.1 million related to severance and benefits because of lower than expected benefits.

During the second quarter of 2007, we recorded a restructuring benefit of less than $0.1 million related to international facilities.  Due to recent organization changes, we began utilizing a portion of the floor space that we had subleased to another company.  As of July 1, 2007, we have made $2.7 million in cumulative cash payments related to the 2006 restructuring charges.

Remaining restructuring reserves of less than $0.1 million are included in our accrued restructuring charges at July 1, 2007.  Utilization of and other activity related to the 2006 restructuring reserves during the quarter ended July 1, 2007 are summarized below:

   
Balance
         
Utilized
   
Foreign
Currency
   
Balance
 
   
4/1/07
   
Reversals
   
Cash
   
Non-Cash
   
Changes
   
7/1/07
 
   
(In thousands)
 
2006 Restructuring Actions:
                                   
Severance and benefits (a)
  $
1
    $ (1 )   $
-
    $
    $
-
    $
-
 
Lease termination costs (a)
   
44
      (19 )     (19 )    
     
-
     
6
 
Miscellaneous liabilities (a)
   
13
      (1 )    
-
     
-
     
     
12
 
    $
58
    $ (21 )   $ (19 )   $
-
    $
-
    $
18
 
                                                 
Balance Sheet Breakout:
                                               
Accrued restructuring charges (a)
  $
58
    $ (21 )   $ (19 )   $
-
    $
-
    $
18
 

(a)  
Amounts represent primarily cash charges.

18

 
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)
 
(4)  Restructuring Charges/Reversals (Continued)

2006 Restructuring Actions (Continued)

Utilization of and other activity related to the 2006 restructuring reserves during the six months ended July 1, 2007 are summarized below:

   
Balance
         
 Utilized 
   
Foreign
Currency
   
Balance
 
   
12/31/06
   
Reversals
   
Cash
   
Non-Cash
   
Changes
   
7/1/07
 
   
(In thousands)
 
2006 Restructuring Actions:
                                   
Severance and benefits (a)
  $
133
    $ (39 )   $ (95 )   $
    $
1
    $
-
 
Lease termination costs (a)
   
58
      (19 )     (33 )    
     
-
     
6
 
Miscellaneous liabilities (a)
   
14
      (1 )     (1 )    
-
     
     
12
 
    $
205
    $ (59 )   $ (129 )   $
-
    $
1
    $
18
 
                                                 
Balance Sheet Breakout:
                                               
Accrued restructuring charges (a)
  $
205
    $ (59 )   $ (129 )   $
-
    $
1
    $
18
 

(a)  
 Amounts represent primarily cash charges.

2005 Restructuring Actions

During 2005, we recorded $5.7 million of restructuring charges for the 2005 restructuring actions.  These charges included $4.0 million of cash charges for severance and benefits for approximately 120 personnel worldwide who were notified during the third quarter of 2005 that their positions were being eliminated, $0.7 million of cash charges for miscellaneous contract cancellations, $0.5 million of cash charges for lease termination costs and $0.4 million of non-cash charges related to excess furniture, leasehold improvements and other miscellaneous assets.  The $5.7 million was shown as restructuring expenses as a component of operating expenses.  None of these restructuring charges was allocated to any of our business segments.  The restructuring actions were part of an effort to align our cost structure with our expected future revenue levels.

The worldwide workforce reduction was across all business functions and levels within Iomega.  Of the 120 impacted personnel worldwide, approximately 20 employees worked on a transition basis into the fourth quarter of 2005 and January of 2006.

During 2006, we recorded $0.2 million of restructuring charges for the 2005 restructuring actions for lease cancellation due to our inability to sublease a facility in Texas.  This was more than offset by a $0.3 million release of restructuring reserves associated with miscellaneous contract obligations due to negotiating lower settlement amounts and excess severance and benefits.

During the first quarter of 2007, we recorded a restructuring benefit of $0.1 million due to higher than expected sublease income.

We have made $5.0 million in cumulative cash payments related to the 2005 restructuring actions, of which less than $0.1 million was disbursed during the first quarter of 2007 and $0.1 million was disbursed during the second quarter of 2007.
 
19

 
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)
 
(4)  Restructuring Charges/Reversals (Continued)

2005 Restructuring Actions (Continued)

Remaining restructuring reserves of less than $0.1 million are included in our accrued restructuring charges and less than $0.1 million are included in our fixed asset reserves at July 1, 2007.  Utilization of and other activity related to the 2005 restructuring reserves during the three months ended July 1, 2007 are summarized below:

   
Balance
         
Utilized
   
Balance
 
   
4/1/07
   
Reversals
   
Cash
   
Non-Cash
   
7/1/07
 
   
(In thousands)
 
2005 Restructuring Actions:
                             
Lease termination costs (a)
  $
132
    $
-
    $ (48 )   $
    $
84
 
Lease related assets (b)
   
93
     
     
      (29 )    
64
 
    $
225
    $
-
    $ (48 )   $ (29 )   $
148
 
                                         
Balance Sheet Breakout:
                                       
Accrued restructuring charges (a)
  $
132
    $
-
    $ (48 )   $
    $
84
 
Fixed asset reserves (b)
   
93
     
     
      (29 )    
64
 
    $
225
    $
-
    $ (48 )   $ (29 )   $
148
 

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

Utilization of and other activity related to the 2005 restructuring reserves during the six months ended July 1, 2007 are summarized below:

   
Balance
         
Utilized
   
Balance
 
   
12/31/06
   
Reversals
   
Cash
   
Non-Cash
   
7/1/07
 
   
(In thousands)
 
2005 Restructuring Actions:
                             
Lease termination costs (a)
  $
219
    $ (81 )   $ (54 )   $
    $
84
 
Lease related assets (b)
   
131
     
     
      (67 )    
64
 
    $
350
    $ (81 )   $ (54 )   $ (67 )   $
148
 
                                         
Balance Sheet Breakout:
                                       
Accrued restructuring charges (a)
  $
219
    $ (81 )   $ (54 )   $
    $
84
 
Fixed asset reserves (b)
   
131
     
     
      (67 )    
64
 
    $
350
    $ (81 )   $ (54 )   $ (67 )   $
148
 

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

At July 1, 2007, lease payments are being made on a continuous monthly basis, and of these facilities, the last lease expires in July of 2008.  We have entered into a sublease agreement on the leased facility that expires in 2008.  The lease related assets are being utilized by the tenant who is subleasing the facility.

20

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

(4)  Restructuring Charges/Reversals (Continued)

2004 Restructuring Actions

During 2004, we recorded $3.7 million of restructuring charges for the 2004 restructuring actions, including $2.6 million of cash charges for severance and benefits for 108 regular and temporary personnel worldwide (approximately 19% of our worldwide workforce) who were notified by September 26, 2004 that their positions were being eliminated, $0.7 million of cash charges for lease termination costs and $0.4 million of non-cash charges related to excess furniture.  All of the $3.7 million of restructuring charges recorded during 2004 were shown as restructuring expenses as a component of operating expenses.  None of these restructuring charges was allocated to any of the business segments.

In conjunction with the DCT license agreement signed during the fourth quarter of 2004, we notified an additional 9 employees that their positions were being eliminated.  Severance and benefits charges for these 9 employees were included in the $2.6 million above.  Another 24 employees were hired by the licensee of the DCT technology.  This additional reduction in force of 33 employees brought the total reduction of employees to 141 positions or approximately 25% of our worldwide workforce as of September 26, 2004.

Of the $2.6 million in severance and benefits charges for the 117 regular and temporary personnel, $1.9 million was for 103 employees located in North America, $0.4 million was for 9 employees located in Asia and $0.3 million was for 5 employees located in Europe.  The worldwide workforce reduction was across all business functions and across all levels of Iomega.  Of the 117 individuals worldwide, 14 employees worked on a transition basis into the first quarter of 2005 and one additional employee worked into the second quarter of 2005.  Transition pay was not a part of the restructuring charges but rather was reported in normal operations as incurred.  Separation pay was based on years of service and job level and included health insurance continuance payments.  Separation payments, for most employees, were made after the last day of employment and after separation agreements had been signed by the employees except for those where continuous payments were legally required and for two other employees.  The $2.6 million in severance and benefits costs recognized during 2004 included the costs associated with those employees whose positions were eliminated during 2004 and the ratable recognition of the severance and benefits costs paid to those employees who were on transition beyond the minimum retention period (60 days) as defined by SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”).

As part of the 2004 restructuring actions, we recorded a $0.4 million non-cash charge related to excess furniture that was no longer being utilized because of our downsizing.  None of these charges was allocated to any of the business product segments.  All but the $0.4 million of excess furniture charges was paid in cash.

During 2006, we recorded $0.2 million of restructuring releases for the 2004 restructuring actions, including $0.1 million for lease termination costs and $0.1 million for furniture due to higher than estimated sales proceeds.

During the first quarter of 2007, we recorded an additional $0.1 million for lease termination costs related to increases in landlord maintenance costs.

21

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

(4)  Restructuring Charges/Reversals (Continued)

2004 Restructuring Actions (Continued)

During the second quarter of 2007, we released less than $0.1 million associated with lease termination costs for a building which lease expired and the facility was turned back to the landlord.

As of July 1, 2007, we have made $3.7 million in cumulative cash payments related to the 2004 restructuring actions, of which less than $0.1 million was disbursed during 2007.

Remaining restructuring reserves of $0.1 million are included in our accrued restructuring charges as of July 1, 2007.  Utilization of and other activity related to the 2004 restructuring reserves during the three months ended July 1, 2007 are summarized below:

   
Balance
               
Utilized 
   
                                Balance
 
   
4/1/07
   
Additions
   
Reversals
   
Cash
   
Non-Cash
   
7/1/07
 
   
(In thousands)
 
2004 Restructuring Actions:
                                   
Lease termination costs (a)
  $
165
    $
-
    $ (6 )   $ (48 )   $
    $
111
 
                                                 
Balance Sheet Breakout:
                                               
Accrued restructuring charges (a)
  $
165
    $
-
    $ (6 )   $ (48 )   $
    $
111
 

(a)  
Amounts represent cash charges.

Utilization of and other activity relating to the 2004 restructuring charges during the six months ended July 1, 2007 are summarized below:

   
Balance
               
Utilized 
   
                                Balance
 
   
12/31/07
   
Additions
   
Reversals
   
Cash
   
Non-Cash
   
7/1/07
 
   
(In thousands)
 
2004 Restructuring Actions:
                                   
Lease termination costs (a)
  $
77
    $
88
    $ (6 )   $ (48 )   $
    $
111
 
                                                 
Balance Sheet Breakout:
                                               
Accrued restructuring charges (a)
  $
77
    $
88
    $ (6 )   $ (48 )   $
    $
111
 

(a)  
 Amounts represent cash charges.

Lease payments are being made on a continuous monthly basis, and the lease expires in 2008.  The facility has been subleased.
 
22

 
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)
 
(4)  Restructuring Charges/Reversals (Continued)

2003 Restructuring Actions

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

Of the $14.5 million recorded for the 2003 restructuring actions, $5.0 million was charged to cost of sales with the remaining $9.5 million being shown as restructuring expenses as a component of operating expenses.  The $5.0 million charged to cost of sales included $2.6 million to reimburse a strategic supplier for its restructuring expenses and $2.4 million to exit a third-party Zip disk manufacturing agreement.  This $5.0 million was charged to the Zip Products segment and the remaining $9.5 million was not allocated to any of the business segments.

Of the 198 individuals worldwide whose positions were identified for elimination in the third quarter of 2003, 42 employees worked on a transition basis into the fourth quarter of 2003, 7 employees worked on a transition basis into the first quarter of 2004, 4 employees worked on a transition basis into the second quarter of 2004 and 3 employees worked on a transition basis into the third quarter of 2004.  The total amount of separation payments or liability for the 198 employees notified during 2003 was $6.7 million.

During 2004, we recorded $0.5 million of restructuring charges related to the ratable recognition of the severance and benefits costs to be paid to the employees who remained in transition into 2004.  However, during the first quarter of 2004, we also released $0.3 million of estimated outplacement liabilities as employee usage of outplacement resources was less than originally estimated.

During 2005, we recorded an additional $1.1 million in restructuring charges related to the 2003 restructuring actions due to our inability to sublease a facility because of market conditions in Roy, Utah.

During the second quarter of 2007, we released less than $0.1 million associated with lease termination costs for a building which lease expired and the facility was turned back to the landlord.

Remaining restructuring reserves of less than $0.1 million are included in our accrued restructuring charges at July 1, 2007.  Utilization of the 2003 restructuring reserves during the three months ended July 1, 2007 is summarized below:

   
Balance
   
Utilized 
         
Balance
 
   
4/1/07
   
Cash
   
Non-Cash
   
Reversals
   
7/1/07
 
   
(In thousands)
 
2003 Restructuring Actions:
                             
Lease termination costs (a)
  $
5
    $
-
    $
    $ (5 )   $
-
 
                                         
Balance Sheet Breakout:
                                       
Accrued restructuring charges (a)
  $
5
    $
-
    $
    $ (5 )   $
-
 

(a)  
Amounts represent primarily cash charges.

23

 
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)
 
(4)  Restructuring Charges/Reversals (Continued)

2003 Restructuring Actions (Continued)

Utilization of the 2003 restructuring reserves during the six months ended July 1, 2007 is summarized below:

   
Balance
   
Utilized 
         
Balance
 
   
12/31/06
   
Cash
   
Non-Cash
   
Reversals
   
7/1/07
 
   
(In thousands)
 
2003 Restructuring Actions:
                             
Lease termination costs (a)
  $
6
    $ (1 )   $
    $ (5 )   $
-
 
Furniture (b)
   
114
     
      (114 )    
-
     
-
 
    $
120
    $ (1 )   $ (114 )   $ (5 )   $
-
 
                                         
Balance Sheet Breakout:
                                       
Accrued restructuring charges (a)
  $
6
    $ (1 )   $
    $ (5 )   $
-
 
Fixed asset reserves (b)
   
114
     
      (114 )    
-
     
-
 
    $
120
    $ (1 )   $ (114 )   $ (5 )   $
-
 

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

Third Quarter 2001 Restructuring Actions

During the third quarter of 2001, we recorded restructuring charges of $33.3 million.  In the fourth quarter of 2001, we recorded a net reversal of $0.2 million with respect to the third quarter 2001 restructuring actions.  The $33.3 million of restructuring charges recorded in the third quarter of 2001 included $17.4 million associated with exiting lease facilities - of which $9.8 million related to leasehold improvements, furniture and information technology asset write-downs and $7.6 million was associated with lease termination costs - and $15.9 million related to the reduction of 1,234 regular and temporary personnel worldwide, or approximately 37% of our worldwide workforce.

During 2004, we recorded an additional $0.7 million in restructuring charges for our Ireland facility due to continuing depressed real estate market conditions in Ireland.  We were able to sublease this facility in the fourth quarter of 2004.

During 2005, we recorded an additional $0.3 million for U.S. lease termination costs because of us not being able to locate a subtenant as originally anticipated.

During 2006, we recorded an additional net $0.9 million for U.S. lease termination costs because of us not being able to locate a subtenant in the timeframe originally anticipated.  In January of 2007, we finalized an agreement to assist a company to purchase the building we were leasing and they have released us from our remaining lease obligations.  This resulted in an overall $0.6 million cash savings.
 
24

 
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)
 
(4)  Restructuring Charges/Reversals (Continued)

Third Quarter 2001 Restructuring Actions (Continued)

Remaining restructuring reserves of less than $0.1 million are included in our accrued restructuring charges as of July 1, 2007.  Utilization of the Third Quarter 2001 restructuring reserves during the three months ended July 1, 2007 is summarized below:

   
Balance
   
Utilized 
         
Balance
 
   
4/1/07
   
Cash
   
Non-Cash
   
Reversals
   
7/1/07
 
   
(In thousands)
 
Third Quarter 2001 Restructuring Actions:
                             
Lease cancellations (a)
  $
12
    $
-
    $
    $ (12 )   $
-
 
                                         
Balance Sheet Breakout:
                                       
Accrued restructuring charges (a)
  $
12
    $
-
    $
    $ (12 )   $
-
 

 
(a)  Amounts represent primarily cash charges.

Utilization of the Third Quarter 2001 restructuring reserves during the six months ended July 1, 2007 is summarized below:

   
Balance
   
Utilized 
         
Balance
 
   
12/31/06
   
Cash
   
Non-Cash
   
Reversals
   
7/1/07
 
   
(In thousands)
 
Third Quarter 2001 Restructuring Actions:
                             
Lease cancellations (a)
  $
1,366
    $ (1,354 )   $
    $ (12 )   $
-
 
                                         
Balance Sheet Breakout:
                                       
Accrued restructuring charges (a)
  $
1,366
    $ (1,354 )   $
    $ (12 )   $
-
 

 
(a)  Amounts represent primarily cash charges.

 (5)  Commitments and Contingencies

Litigation

There are no material legal proceedings to which we are a party.  We are involved in lawsuits and claims generally incidental to our business, none of which are expected to have a material impact on our results of operations, business or financial condition. 
 
25

 
IOMEGA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (Unaudited)
 
(6)  Stockholders’ Equity

Share-Based Compensation Plans

Stock Option Plans

We had a 1997 Stock Incentive Plan (the “1997 Plan”).  Our 1997 Plan provided f