Simple Storage for a Complicated World
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art1_03den1396.qk 3/25/03 8:19 PM Page 1 SIMPLE STORAGE FOR A COMPLICATED WORLD. 2002 Annual Report art1_03den1396.qk 3/25/03 8:20 PM Page 2 SIMPLE STORAGE FOR A COMPLICATED WORLD. To our Shareholders: We are pleased to enclose our Notice of Annual Meeting, Proxy Statement and 2002 Annual Report. Mobile and Desktop Solutions To ensure representation of your shares at the Annual Meeting, please take a moment to vote by phone or via the Internet, if applicable, or by using the enclosed proxy card at your earliest convenience. Network Storage Solutions Iomega® Mission Statement: Global Storage Leader To be the leading global provider of solutions to home users, small and medium-sized businesses for the storage, sharing and protection of valuable digital information. Forefront of New Technologies TM ® LETTER FROM THE CHAIRMAN To our Shareholders: Your Board and management are giving the highest priority to maximize the shareholder return on all of In last year’s annual report, I listed our critical goals for Iomega’s assets. In managing Iomega we consider that 2002. Probably most important, I said that one goal was we have two key business assets. One is our historical ® to achieve operating profits in all four quarters. Our operating business centered on Zip drives and disks, the management did an outstanding job in this area. We were strong Iomega brand and worldwide channel presence, our profitable in each of the four quarters, reporting net strong removable magnetic storage technology expertise income of $34.7 million for the year vs. a loss of $93.3 and intellectual property; and the other is our cash million in 2001. On a per share basis, we earned $0.68 reserves. The setbacks in the stock market over the last per share vs. a loss of $1.74 per share. year or so present attractive opportunities for the use of our cash and we are considering a myriad of strategic alternatives. We are approaching our decisions in this To appreciate the magnitude of our improvement, one only area in a very thoughtful and conservative manner. Your has to look at our product profit margin. In 2001 we Board has been impressed by our management’s earned $32.5 million in PPM on revenues of $831.1 willingness to explore opportunities both in and outside million, while in 2002 we earned $166.4 million in PPM on our industry to obtain the maximum benefit for our total revenue of $614.4 million. This is an outstanding shareholders. achievement, and our management and employees are to be congratulated on this performance. In the several months up to our 2002 annual meeting we had three long serving directors leave our Board. We were In my letter last year, I stated other goals for 2002: most fortunate subsequent to the meeting to be able to to bottom out our decline in sales of existing products and elect three outstanding individuals, Louis Caldera, to build the foundation for revenue growth in 2003 and Stephen David, and Neal Martini, to our Board. later years. Unfortunately, we have not stopped the decline in sales, nor have we built the foundation for growth in revenues. On a positive note, your Board Louis Caldera is currently Vice Chancellor for University believes that our management team is dedicated, Advancement for the California State University System. intelligent, experienced and competent. As I said last year, A West Point graduate class of 1978, he served as we strongly believe that we have the right team in place. Secretary of the Army from 1998 to 2001. He previously had served as Managing Director and Chief Operating ® Officer of the Corporation for National and Community Shareholders will note that at year-end Iomega had about Service, a federal grant-making agency with a budget of $454 million in cash and temporary investments. Despite $600 million. declining sales, our business today is profitable and cash flow is positive. Iomega is generating cash as opposed to using it. But until we develop new products that allow us Prior to his Washington assignments, Mr. Caldera was a to resume growth, we have no real need for this cash in member of the California State Legislature for five years our existing business. Because $285 million of our cash is and prior to that, a Deputy County Counsel for the County held offshore that would be taxed if repatriated, we are of Los Angeles. He had worked four years at two Los seeking to utilize these funds in a manner that will Angeles law firms after his graduation in 1987 from a joint minimize our tax obligations. The tax on repatriation to program of Harvard Business School and Harvard Law the US could be as much as $111 million, but we are School. He also served for five years in the Army after his hopeful that overseas investments, which are the best way graduation from West Point. to minimize the company's overall tax obligations, are available. In recent years, Mr. Caldera was awarded the Again, we could not be more pleased to have these three Distinguished Civilian Service Award by the Department outstanding individuals on our Board. All three are active, of Defense. He received an Honorary Doctor of Public conscientious participants in Board activities. Mr. David is Administration degree from Norwich University, the now Chairman of our Compensation Committee. Mr. Chairman’s Award from the U.S. Hispanic Chamber of Caldera is Chairman of the Ethics and Compliance Commerce, and the League of United Latin American Committee and is a member of our Audit Committee. Mr. Citizens National Legislature Award. Martini is also a member of the Audit and Ethics and Compliance Committees. Stephen N. David is Chief Information Officer and Business-to-Business Officer of the Procter & Gamble A lot of attention has been paid to Board structure and Company, Cincinnati, Ohio. corporate governance since the Enron debacle. This national concern is absolutely justified and long overdue. A native of Lincoln, Nebraska, Mr. David graduated from In my opinion, Iomega has as competent and dedicated a the University of Nebraska in 1970 after which he joined group of directors as you will find in business today. As an Procter & Gamble as a sales representative. example, our Audit Committee anticipated a couple of years ago possible problems which became evident with the Enron debacle and voluntarily put in place guidelines His career at Procter & Gamble has spanned many diverse limiting the provision of non-audit services by our auditors assignments and country postings. In 1982 as Senior and disclosing fees paid to the auditors for audit and non- Project Manager, Customer Services, Mr. David led the audit services. deployment of the first personal computers for the company. In 1986 he was named Country Manager P&G Hellas (Greece), and in 1989, General Manager – Arabian A last word on directors: Jack Dulaney died during 2002. Peninsula. He returned to the United States in 1992 and had several assignments including global responsibility Jack was an early Iomega investor and a director for a for the company’s sales organization. His experience in number of years. He was one of those rare individuals line management and Customer Business Development, who always did more than his share. He had an acute combined with his personal passion for IT and involvement sense of the difference between right and wrong and a in the current business-to-business work, contributed to well-developed sense of outrage with management and/or his being named, effective July 1, 2000, as Chief directors who put their interests ahead of the shareholders. Information Officer and Business-to-Business Officer with Subsequent to his retirement as a director, Jack served as overall responsibility for Procter & Gamble’s Internet strategy. a consultant on several occasions for Iomega and in each case refused to take any compensation whatsoever. He was, Our third new director is Neal Martini who has many years in short, a prototype for the type of director industry is of experience in our industry. He holds Bachelors and seeking today. Masters degrees in Electrical Engineering, and worked with Hewlett Packard for twenty-three years. He spent fifteen Jack will be missed. years in Research and Development activities, with his last five years in R&D as Manager of the R&D Lab in Hewlett As indicated earlier, your Board and management are very Packard’s San Diego division. conscious of the declines in revenue of our existing products. Our goals are to re-initiate internal growth and He then served as General Manager of the Color Laser Jet to invest our cash reserves for the benefit of our and Supplies division in Boise, Idaho, and subsequently shareholders. Time will tell whether we can achieve these became Vice President of Hewlett Packard and General goals. We can guarantee you well-motivated and energetic Manager of their Laser Jet Business unit, which had $10 efforts. We cannot guarantee success. billion in revenue and employed more than 2,800 people. Neal’s industry experience is of particular value to your Board. David J. Dunn Chairman of the Board March 21, 2003 TM ® LETTER FROM THE PRESIDENT AND CEO To our Shareholders: Mobile & Desktop Storage Solutions The results of Iomega’s activities in 2002 were mixed. We were Last year, our most important product platform — successful on a number of initiatives: we expanded our Zip drives and disks — saw a lower year over year sales product solutions, outsourced our manufacturing and decline than in previous years, lower manufacturing and improved our product generation and sourcing processes. material costs, resulting in historically high gross margins And at the end of 2002, we posted our fifth consecutive for the Zip business in 2002.