Dow Jones Real Audio Recording of Iomega Conference Call

Iomega Q3 Conference Call Synopsis

10/17/96 Iomega's Q3 Earnings

10/17/96 MF Ben's Q3 Report Card

10/17/96 MF Ben's Q3 Earnings Scorecard

Alice In Iomegaland, Pts. I, II & III

Iomega In Fooldom Today

Iomega On The Web

IOMG 2Q Earnings: 07/18/96

IOMG 1Q Earnings: 04/18/96

Iomega's Wild Ride: 06/19/96

Iomega: The Shakeout In Fooldom: 7/26/96

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Welcome to the Motley Fool's special on Iomega's third quarter earnings. To help you understand the history of Iomega, we've compiled background information on Iomega, and financial information from Company Research partners. Enjoy!

Transmitted: 10/16/96

(FOOL GLOBAL WIRE)
By Randy Befumo (MF Templar)

Iomega Q3 Earnings Announcement

ALEXANDRIA, Va., October 17, 1996/FOOLWIRE/ --- IOMEGA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %> dropped $2 31/32 to $22 7/8 in slightly above-average volume prior to releasing third quarter earnings after market close today. The stock continued to be active in immediate after-hours trading, with orders crossing at roughly the $23 level at which the stock closed. Those who sluffed off their shares prior to the removable storage company's earnings announcement might be hating life tomorrow morning as the company soundly trounced consensus expectations of $0.07 EPS. Iomega's earnings came in at solid $0.09 EPS, well above not only the analysts' consensus but also the $0.06 EPS to $0.08 EPS "whisper" numbers that were being batted around in the Iomega folder.

Revenues for Iomega clocked in at $310.1 million, well above the $84.7 million the company reported a year ago. Expectations had been for $285 million in revenues, which would have been flat sequential growth. Instead, sequential revenue growth was a solid 8.7% although profits were down two cents a share from the fiscal second quarter. Although 8.7% sequential revenue growth is well below the second quarter's 27.7%, this still puts Iomega at a 39.6% annualized run-rate and into the top tier of companies with roughly one billion in trailing sales. Highlights of the quarter for Iomega included the sale of its three millionth annuity that it calls the Zip drive and the decision to list its stock on the New York Stock Exchange (tentatively with the symbol IOM, although some have suggested that ZIP would be a much better ticker.)

Iomega has had quite a wild ride in the past 52 weeks, rising from a split-adjusted $3 a share a mere twelve months ago to crest as high as the mid-$50s back in the go-go momentum stock frenzy in May and June of this year. Throughout the wild changes in perception of the stock's value, the underlying company has continued to perform well, posting revenues and earnings that more than doubled the prior period every time at the earnings plate. Although the predominant perception in the media has been that Iomega was completely an online phenomenon, the underlying year-over-year growth that the company has been reporting has raised it from the ranks of the obscure to become one of the business growth stories of the decade.

With a share price of about $23, Iomega's market capitalization is currently $2.9 billion, or roughly 3.3 times sales. Although some have argued that brand, management and momentum warranted premium price-to-sales multiples in the 5.0 range on a forward basis, the company has not traded in that range since its hey-day in May. Assuming that the company can maintain its 39.6% annualized growth rate throughout the next four quarters, the company is on track to post $1.5 billion in sales for fiscal '97, which would put the stock at 2.0 times sales.

Recent data from James O'Shaugnessey's new book, What Works On Wall Street, suggest that price-sales multiples of 1.5 or below make for attractive investments. Ken Fisher in Super Stocks advanced the thesis based off of two years of market data that for technology-space companies, price-sales ratios of 0.75 or below made for bargain basement trades; price-sales ratios of 3.0 or above tended to represent overvalued companies; and large, quality technology-type names tended to settle in around 1.5 times sales. Of course, balance this all against recent information from the DMG Technology Group which suggests that valuation correlates better with operating margin than actual growth and you can throw both O'Shaugnessey and Fisher out the window. Some evidence to support this includes MICROSOFT'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MSFT)") else Response.Write("(NASDAQ: MSFT)") end if %> perennial 7.0 times sales (or higher) valuation, through good times and bad.

Regardless of the current multiple, the price of $15 and below which Iomega traded at for most of August and the beginning of September seems bargain-basement by comparison. The company plunged below the mid-$20s after reporting problems with its European operations in the second quarter conference call, finally making the long-suffering short-sellers some money. In retrospect, the rise of retail short-sales of the security after the second quarter earnings slide stands as an excellent contra-indicator, as at this point the company has recovered its lost ground and once again begun to outperform analyst expectations. Where to from here? The company still trades at 63 times earnings with estimates of $0.80 EPS for next year year, giving it a forward multiple of about 29 for what looks like a 40% growth rate. While not the same bargain it was twelve months ago, the possibility of trading at 30 to 40 times trailing next year is a logical possibility. As always, the higher the multiple, the greater the risk.

Probably the most interesting event with Iomega today has nothing to do with the company's valuation at all. In a break with prior tradition, Iomega's management has made the bold and commendable move to allow more than just an elite group of large holders and sell-side analysts into the live call. In fact, it is both offering it live and rebroadcasting it over the World Wide Web in RealAudio 3.0 from the Dow Jones Web Site. The company, as usual, will also have a replay that investors can access by dialing (800) 633-8284 and putting in reservation # 2021724. The continued strides toward opening up the conference calls to the owners of the company -- its shareholders -- should be commended by all.

Transmitted: 10/17/96

Iomega Q3 Grades: There's No Place Like Growth

Revenue: A: >$284 million ACTUAL: $310 million
Gross Margin: C: 25%-26.4% ACTUAL: 26.3%
EPS: PASS: EPS > $.06 ACTUAL: $.09

As usual, I'm writing this without benefit of more than an hour or so to absorb the numbers so bear with me...

The revenue number is fantastic. Of course, that is in perspective to the lowered expectations. Relativity is king, as Albert E. might say. :-) Growth is growth and Iomega showed 9% revenue growth quarter over quarter. Not exactly up to previous quarters' levels but more than substantial considering the seasonality. Hill probably deserves a few awards for his performance.

Gross margin just missed the B grade by the slimmest of, well, margins, but they get the C. No grade inflation. However, it is an adequate number and reflects management's ability to control costs, especially in light of the rebates. I would have liked to see better and the conference call does indicate some Jaz tie ratio disappointments. I'll say what I hated seeing on a paper as a kid, "room for improvement," and move on. I'll be keeping an eye on them in Q4 though, that's for sure.

The inventory, AP, and AR numbers deserve some discussion.

Inventory seems a little low in light of the holiday buying season. Inventory -- aggregate inventory, not broken out so it is a rough number -- days increased from 64 to 71. Not exactly a huge stockpile of goods on hand and certainly I was expecting more, somewhere in the $200 million range. Actual Q3 was $178 million.

Accounts Payable is disappointing but in light of the rest of the balance sheet, certainly forgivable. AP actually DECLINED quarter over quarter while receivables, indicating that Iomega is paying their suppliers quicker than they really need to.

The flip side, that balances the AP decline out, is the decline in accounts receivable as a percentage of sales. It is always nice to see the company use its corporate muscle to ensure their customers pay them promptly. AR days equal 58 here, under the 60 days I consider adequate managament.

I never considered the EPS number that important and if it had been $.05 instead of $.09 I would have written exactly the same line. It's a PASS, gravy, an unneccessary extra to me. Quite boring actually, sorry. :-)

***DISCUSSION ***

OK, now that the grades are out of the way -- they can only tell part of the story anyway -- it's time for all the non-numerical and other fun stuff.

THE STOCK BUYBACK

According to the report, Iomega spent $4.4 million buying back 300,000 shares of their own stock at an average share price of $14.5. Don't blame them, but personally I winder what they'll use it for. Bonuses, stock swap aquisition, who knows. I don't and won't speculate further as it is a small percentage of cash on hand (less than 5%) so it doesn't interfere with operations at all. Giving those shares to me probably isn't on their list but I'd like to suggest it. :-)

As far as I'm concerned, as long as the cash spent on the stock buyback doesn't interfere with operations, they can do with it as they please. Buying stock back kinda ruins the "growth" label in many ways as some will say that if their best use of cash is a stock buyback, they ain't growing that fast. Maybe, maybe not. Their growth rate is NOT at 1995 levels and therefore they do have some excess cash hanging around. Fine with me. As I said, as long as it doesn't interfere with operations.

THE MOVE TO NYSE: FORGET THE "G"

Sure, thousands of Fools will be putting in that extra "G" into the portfolio quote window for weeks after Iomega moves to the NYSE sometime in the near future and becomes, simply, IOM, but I believe the move will help curb some of the volitility in the stock, both down and up. Works both ways so the benefit isn't to the "longs" or the "shorts" but to the "holders" on either side. Iomega will probably end up on the NYSE most active list for its fair share of the days but I believe the auction market lends itself to greater stability, if only because SOES is out of the picture. The truth will be in the pudding, or should that be puddin', hold the "G".

NEW VP OF R&D COMES FROM HP

Say it three times fast. Douglas M. Clifford , formerly of Hewlett Packard, said goodbye to HP after 28 years and has decided, according to the folks in Zip, Utah, to take up residence in their fair city. He seems to have the management experience every R&D lab desires. Is it me, or does Iomega appear to be shopping at HP for employees lately? I'm actually very pleased to see the emphasis on R&D, especially since R&D expenditures FELL from Q2. OK, they didn't fall much, about $1 million to $10.5 million, but I like to see R&D move its way up as the revenues do.

THE OEM FACTOR

I am VERY happy to see OEMs up to 10% of sales. A marked increase over Q2. I do take the IBM reference to an Aptiva shortage of internals with a grain of salt and an indication of something else. Sometimes it helps to not only read between the lines but read what they DIDN"T write as well. I'll elaborate.

First, just because IBM experienced a shortage of Zips does not mean the OEM inclusion rate is on track. Honestly, I had expected, last year, that OEM inclusion rate would much higher about now. Expectations must adapt to the reality of the marketplace, not the wishes of the shareholder. I still consider the 10% rate to be a fine indication of OEM acceptance, just not overwhelming.

The conference call bit about IBM needing to include EXTERNAL Zips since the supply on internal Zips was not large enough scares me a bit. Iomega needs to hone their product demand forecasting a bit better. Apple is the number one loser in product demand forecasting, making too many of the models consumers DON'T want and not enough of the ones they DO and Iomega can learn a valuable lesson. Having enough ZIPS can still hurt sales if they ain't the RIGHT Zips. This doesn't seem to be a major crush, such as the Apple Powerbook fiascos, but I hope management took the lesson to heart that not all Zips are selling at the same rates and some might be overproduced while other are underproduced. Forecasting is tough, I give them credit, but I hope they get better. A place for improvement.

SEASONALITY

Well, it's official. They used the "S" word in conference call. Glad about it too. Q2 over Q1 revenue growth was on the order of 27%. This quarter it was 9%, factor of 3. Am I kicking and screaming about the walls caving in? I would if this had been Q4 or if I had been unprepared for such a small revenue growth number. I was prepared, thanks to Edwards' comments in the Q2 conference call and the downward revisions from H&Q and JPM. Taking into account seasonality, a factor that many shareholders did not seem to want to accept as real back in July, the numbers look quite different and actually quite good.

SUMMING IT UP:

Life is relative. 9% revenue growth Q2 over Q3 in 1995 would have been unheard of, a disaster. This year it's a victory. A challenge taken and a challenge accepted but NOT defeated.

This is not the same company it was one year ago. Revenue growth will be more seasonal and the growth rate of both EPS and revenue year over year will certainly be lesser than previous lofty and impossible to maintain levels. Facts are, it is much harder for a $2 billion company to grow at 60% than a $150 million company. Iomega is no longer a little upstart. Heck, soon enough they even get a new stock symbol. Consider it a right of adulthood.

The slower Q over Q growth, the seasonality, the whole change in percentages over last year does not mean Iomega is in trouble but just adapting to the bigger clothes. Their growth rate might be slower but their balance sheet looks much healthier over year ago levels. Cash is a lofty 32% of sales ensuring that intermediate future needs will be met, margins are up, AR and AP are well within respectibility levels, and operating expenses are down. All signs of quality management. I'm extremely pleased with the quarter's results and the $0.09 is just gravy.

It looks like the company is adapting quite well to shopping in the "BIG" company section. I just hope the shareholders will adapt with 'em and realize that while BIG doesn't mean slow, it does mean slower. They had a damn fine quarter, CONSIDERING. Sometimes it gets too easy to forget that relativeness, especially when you don't drive into IOMG HQ every day and face the problems, hurdles, and decisions they do. I do, however, look forward to keeping Edwards & Co.'s feet to the flames all during Q4.

Companies grow, change, and adapt to their size, market share, position, and future possbilities. Good ones do anyway. Stockholders must learn to do the same. Good ones anyway.

I'm going to close out with one of those dumb obvious lines, one I wrote in my Q2 '96 write-up.

"The key, as always, is future growth."

Sometimes the simple things are the hardest to attain. Congratulations Iomega. See ya at Q4 where I expect to see what happened with the big "M" factor. I can't wait.

Cheers,

Benjamin Eliot Lipman

Transmitted: 10/17/96

MF Ben's Q3 Earnings Scorecard
(Actual Q2 numbers listed as reference.)

The grades assigned reflect my opinion. Nothing more.

I have previously found it better for me to set realistic limits (both up and down) for a company's performance BEFORE the earnings come out, just as statisticians don't "peek" at their data for fear of tailoring their conclusions, so that I do not merely "see" what I want to see from the report.

I have based my assumptions primarily on historical performance using Q2 (the most recent quarter) as the benchmark for all numbers. Deviations from Q2 levels are based on analyst reports, public company "guidance" and, perhaps most influential of all, personal analysis based on three months of posting and very helpful "sculpting" from other Fools on this board.

I post this scorecard with the hope that it will inspire some last minute debate on my numbers and help other Fools learn to evaluate Iomega for themselves.

These grades are NOT meant to be predictive but to give me a basis with which to judge the earnings report tomorrow evening.

1) Revenue. Q2: $283,638

For growth companies, growth is king. DOH! You can only grow margins so much (to 100% anyway), but revenue, theoretically, is forever. While Iomega hasn't had a sequential down quarter to quarter revenue number since 1984 (Q2 I believe), this one looks to break that hitting streak.

End of the world? Nope. Just gets hard to break that seasonality factor when the FY sales rate is running $1 billion plus. Here's how I am looking at prospective revenue numbers.

A: >$284 million

Anything above $284 would be sensational! The seasonality factor, well, to put it plainly, sucks, but its hard to get consumers to buy anything but ice cream and convertibles in July and August, so overcoming the seasonality factor and the revised down expectations would be the dream. I'm not holding my breath -- though I have clicked my heels a few times and whispered...

"There's no place like growth, there's no place like growth..."

B: $275 - $284 million.

While a slight revenue decline is expected, I would consider $275 million to be a pretty good job of managing the quarter. I think that revenue may sneak in somewhere here near but only on an optimistic day. Most likely it came down, as usual, to the last day or two of the quarter and how much they shipped then. A photo finish, most likely.

C: $265-274 million.

I always wondered why students were labeled either "overachievers" or "underachievers" but there was never anyone who was happily labeled "achiever." The C grade is the "achiever" in my mind. Pappy Jack at GE wouldn't be proud of a C on a report card but the shareholders probably shouldn't put KE over their knee for it either. Survivable. Utterly expected. Just fine. Nothing to shout about either way.

D: $255-264

Don't wanna talk about it. I'd be very dissatisfied with revenue in this range, especially the bottom end. A 10% revenue drop is poor management handling of the seasonality factor.

I'm assuming IOMG won't fail this course. Revenue below $255 without a damn good reason and I'd have to think long and hard about why I'm holding shares in this company. There's no place like growth, there's no place...

2) Gross Margin. Q2: 26.86%

Revenue surely measures the growth rate of the company but gross margin is very telling of management's ability to manage that growth. We should be starting another upswing in margins pretty soon as higher disk to drive sales kick in -- if only because another manufacturer will be making and selling IOMG drives, leaving IOMG with the fat and sassy disk sales -- AND a skewed tie ratio. But that is something to look forward to in Q4. For Q3 we had the rebates as heavy downward pressure on gross margins. Redemption rate will affect this so its hard to grade.

A: 28%+

Q1 gross margins hovered around the same 27% level and IOMG seems to have had some trouble sneaking by it. This would be astounding. I don't expect it for much more than a nano-second. Reality bites.

B: 26.5%- 27.9%

Improving gross margin slightly or having it decline slightly is the fact of the world. With the rebates, a slight slide in gross margins (offset by an increase in efficiencies) would be some slick management and cost savings. I'd be impressed.

C: 25%-26.4%

Without the rebates, a GM of 25% would usually have me writing posts I'd just end up getting flamed for by screennames I've never seen...with the rebates I expect IOMG gross margins to be around the 25-26% range. Giving back $50 has to hurt. :-)

D: 23%-24.9%

I would need an explanation in gross margins dropped below 25%. Sure, I'm being a little harsh but I don't expect rebate redemption to be more than 40% so I expect only a slight decrease in GM from what isn't being offset already.

F: <23%

Ugh.

3) Inventory. Q2: $146,173

No grades here but I'd like to see Iomega with a couple of weeks of finished goods inventory going into Q3. With the equivalent percentages of raw and WIP, that would put inventory north of $200 million (assuming a $400 million Q4). Anything less and I'd be afraid of them flushing sales by managing inventory too tightly.

4) EPS. Q2: $.11

This really even shouldn't be in here because I will easily sacrifice short term profitability for long term profitability. To make it easy, its a pass/fail test.

     PASS: EPS > $.06
     FAIL: EPS < $.06

I'll call $.06 the push. Honestly, the number isn't that important to me. Revenue and gross margin are much more important. While missing estimates might hurt the stock price, it wouldn't faze me as a shareholder. I'd love to see them beat estimates but I'd rather see them grow revenue than concentrate on short-term profitability. Of course, all three should be possible. I still will take, for the seasonal quarter, revenue over EPS. For the non-seasonal Q4 the story changes. Since the analysts downgraded so recently I give THEM the benefit of the doubt and $.06 it is as the mark.

5) Accounts Payable. Q2: $159,341

I figure Q3 and Q4 as the last two quarters IOMG can take advantage of this free source of financing. I doubt the larger suppliers, such as Intel, will be happy with IOMG stretching past the due date. In terms of days, anything north of 70 would be great and show some real squeezing of the stone for some free money.

The flip side, of course, is Accounts Receivables. Keep it under 60 days please. Iomega should have the clout to get those checks in FAST, if their customer wants that next shipment of Zipcakes, that is. :-) Skillful AR and AP management is not only a great way to supplement the "usual" sources of funds, but is a sign of management fully involved with all aspects of the business.

THE SCORECARD WRAP-UP:

To me this is all an exercise in expectations. Mine haven't been extremely high this quarter to begin with. Nine months ago I would have been labeled a decrease, no matter how slight, in Q over Q revenue as a major disappointment. Most bulls here would have called it an impossibility as little as 5 months ago. Maybe less. This quarter I expect it.

The facts are that few people are expecting Iomega revenue and GM numbers to show the incredible growth they have over the past 7 quarters. It's hard to grow at a huge percentage rate forever. 6 more years of that fast growth and their revenue number would have exceeded the GNP! You get the picture.

As I said months ago, I'm very much looking forward to Q4. However, Iomega's current product line is now seasonal, call them mortal. This quarter will reflect that mortality.

I will try to remember that mortality in what may be heady days to come.

Cheers,

Benjamin

Transmitted: 10/17/96

THROUGH THE LOOKING GLASS

Book 1

Alice was a simple girl leading a simple life. She kept most of her money in index funds with a modest allocation to small cap growth and some bonds for balance.

In the Fall of 1995, Alice was dutifully balancing her books and, like a squirrel who knows winter is coming, decided to purchase some short term CDs for harvesting at tax time .

On her way to the bank she picked up the mail and spotted a small item in an investment newsletter she subscribed to. It recommended buying stock in a company she had never heard of. But then she read the description of the company's product and immediately knew it was a winner.

Alice didn't buy her CDs that day. Instead, she stopped in at a local stockbroker's office and discussed her discovery. The broker was polite in the face of her irrationality and humored her by looking up some information about this little company called Iomega. Alice astonished him by purchasing some stock.

The next day, the stock went up a dollar. The next day it did it again. For a week, the stock continued to go up at least a fraction every day and Alice wondered why. Seeking more information than the broker could give her, she began to explore her online service for investment information.

And that's when she fell down the rabbit hole.

There it was... wearing a jester's cap with bells and a silly grin, and it appeared under the command of Fool!

"It's late! It's late!"... cried the Fool. "You must plan now for your future. Buy it now and hold it long!"

Curious, Alice explored this new world. It was a wonder. So many doors to open. One labeled "Fool's School", another "Foolish Four", still another said "Boring", which didn't interest her much. One door said "Messages" and Alice thought that seemed like a good place to start.

Opening the door marked Messages, Alice found herself in a maze of alphabetical names. Some incomprehensible, and others common household items: Coke, Kodak, HBO and IBM. And then, there it was: IOMEGA. The company she had never heard of a week ago, and whose stock she now owned.

Dizzy with anticipation, Alice opened the door marked Iomega. And fell quickly under its spell. It was a treasure vault of information populated by amazing people with strange-sounding names. There was a grinning cheshire cat called Web's Foot; a furry creature named Kevin who tore things apart and told everyone how they worked; and a wise-sounding brewer from Texas who pontificated about Investing Wisely and Profiting Hugely. Still another inhabitant claimed to be cynical but was contrarily optimistic. Alice had never before encountered such bewildering creatures, but she was mesmerized and decided to stay.

And so began Alice's Adventure in Iomega Land.

Transmitted: 10/16/96

ALICE IN IOMEGA LAND

Book 2

Once trapped in Iomega Land, Alice soon discovered there was no way out. She kept trying to follow the two arrows, one pointing right and the other pointing left. But no matter which way she turned, she was bombarded with a world turned upside down.

The creatures spoke a strange language too. It seemed rooted in English, but they used words like Scuzzi and IDE and misspelled simple words like Easy and Jazz.

And when they got excited they yelled "Whee".... or another strange word like "GOIO".

Nobody paid attention to Alice and she soon realized that she was invisible. For there was another door marked "Post" and unless she opened that door, no one would know she was there. So Alice happlily lurked in the corridor between the two arrows for months.

And Alice began to grow.

Soon she became familiar with many of the creatures. Some she liked more than others, and in time even their odd language began to make sense. For these inhabitants of Iomega Land were pioneers... explorers in a new world, eager to share their wonder of discovery with anyone who was listening.

Sometimes the Iomegans chanted in euphoria: "Gap up in the morning!" or, " Rally in Volume!". Other times they soothed one other with "don't worry, just profit taking" and occasionally expressed their anger in shouts of "Media Conspiracy"

In time, Alice realized there were a group of aliens in this world who were called TA's. She found the TA people fascinating also... but they spoke a nonsensical language full of tea cups and candlesticks and seemed to be obsessed with their heads and shoulders. But the TA people were an enthusiastic bunch and they played in something called "Bollinger Bands".

Autumn passed and soon it was snowing. Alice had grown double in size.

One day, as so often happens in a new land, the Iomegans were invaded by enemies. They called themselves Bears and they envied the riches in Iomega Land. These Bears were angry and threatening and they shouted in ALL CAPS. "Down with IOMG", they cried, "You'll never be a STANDARD". They shot arrows at the TA people and warned about trendlines. They promised death to the Iomegans and shame to the The Fool.

Alice stopped growing for a while. But she didn't shrink.

The dreaded leader of the Bears was called "Dio" and his first lieutenant was called "Q". They were a powerful army and they influenced the national royalty known as the Fourth Estate, which they used as reinforcements in their battle.

Many Iomegans fell during the early months of the Winter of 96, felled by the cold winds of fear and the chill of shaken faith.

But Alice stayed her ground, safely hidden in the hall of Fools.

Emboldened by their victories, the Bears made a fatal error. They began to short Iomega with reckless abandon. Every time Iomegans advanced, they were driven back by more shorting. Then more and more, until finally, the Bears could short no more. Supplies were running low and the armory was closing its doors to the Bears.

Alice slowly began to grow again.

When the Bears could find no more weapons, the Iomegans began to advance. The TA people joined them as allies, and soon they attracted many others who were caught up in the cause.

Alice doubled in size again.

Transmitted: 10/16/96

ALICE IN IOMEGA LAND

Book 2 (cont'd)

The Iomega battle swept through Fooldom. Others from the Land of Diana, Presstek, and even the mighty warriors from America Online, all rallied to the defense of Iomegans.

Alice tripled in size.

Soon this great struggle was given coverage far and wide. It was discussed on cable tv and on airplanes by flight attendants. Shoeshine boys took up arms, and even the wee people from IDID saw the promise of glory and joined the battle.

Alice quadrupled, then quintupled... and she was still growing!

Alarmed, she considered jumping out of this upside-down world, but still she kept following that right arrow until she was lost once again.

Then, something peculiar happened.

As the Iomegans basked in their victory, counting more riches to come from a Second Quarter Vault, a great warrior force was amassing in Europe. A secret attack was being planned from afar.

Alice shrank just a bit, but hardly noticed it.

When the European ambush came, it caught the Iomegans unaware and undefended. These forces stealthily sacked the riches from the Second Quarter Vault and Alice shrank some more.

The rag tag army of Iomegans began to scatter. Some dropped their shares and ran at the first sight of the Europeans. Still others waited for a peek into the Second Quarter Vault and then fled when they saw the ravages.

Some continued the courageous fight until the Red Queen of Margin appeared. With a blood curdling cry of "off with their heads!" the Margin Queen demanded they drop their weapons and give back their spoils to her.

Alice couldn't bear watching any more. She stepped out from the hall of Fools and entered the fray. No longer large, she still had her strength and felt an obligation to pledge her allegiance to the Iomegans. Greatly reduced in numbers now, she found a few them hiding in abandoned bear caves. But others had left for the Orient or jungles in South America to regroup and plan a triumphant comeback.

The casualty rate had been high and as Alice joined the small number of survivors -- some who were reduced to skin and bones -- she was given a cap with bells. Dubious about this turn of events, Alice decided it was akin to a purple heart, and set about healing the wounds of her fellow survivors.

As the long, cold summer of '96 drew to a close there was a startling turn of events. Iomega advanced its own army of allied forces. The weight of these allies was impressive: Seagate, Intel, Matshushita, Motorola, Sony, Texas Instruments all united under the leadership of Chairman Kim.

Soon after, the Iomegans heard whispers of the survival of those missing-in-action. One by one, the MIAs sent word to Iomega Land that they were alive and coming back to fight again. The first hint was a missive from that famous war correspondent, Belflower, who sent word he was sharpening his pencil and reloading his camera. Then a furry creature crawled out from a bear cave and blinked in the sunshine. The Big-footed one visited to give the Invocation, and others drifted back from near and far. The sound of jingling bellcaps began to swell.

Reports from the field indicated a stockpiling of weapons. A new vault was discovered in the fourth quarter of Iomega Land.

Alice smiled. She could feel herself growing again.

--to be continued in 1997.

Transmitted: 10/16/96