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

FORM 10-Q

|ý                                                 | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 
|------------------------------------------------- | ----------------------------------------------------------------------------------------
|For the quarterly period ended September 26, 2003
|or                                               
|o                                                 | 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 1-7534



STORAGE TECHNOLOGY CORPORATION(Exact name of registrant as specified in its charter)

Delaware

84-0593263(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)One StorageTek Drive, Louisville, Colorado

80028-4309(Address of principal executive offices)

(Zip Code)


Registrant's
telephone number, including area code303-673-5151

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. ý Yes       o No

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
ý Yes      o No   The registrant had 110,625,078 shares
of common stock outstanding as of November 3, 2003.

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# STORAGE TECHNOLOGY
CORPORATION INDEX TO FORM 10-Q September 26, 2003

|                                                                                                                       | PAGE
|---------------------------------------------------------------------------------------------------------------------- | ----
|PART I - FINANCIAL INFORMATION                                                                                         |     
|Item 1 - Financial Statements                                                                                          |     
|Consolidated Balance Sheets                                                                                            |     
|Consolidated Statements of Operations                                                                                  |     
|Consolidated Statements of Cash Flows                                                                                  |     
|Consolidated Statements of Comprehensive Income                                                                        |     
|Notes to Consolidated Financial Statements                                                                             |     
|Item 2 - Managements Discussion and Analysis of Financial                         Condition and Results of Operations |     
|Item 3 - Quantitative and Qualitative Disclosures about Market Risk                                                    |     
|Item 4 - Controls and Procedures                                                                                       |     
|PART II - OTHER INFORMATION                                                                                            |     
|Item 1 - Legal Proceedings                                                                                             |     
|Item 6 - Exhibits and Reports on Form 8-K                                                                              |     
|Signatures                                                                                                             |     

2

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# STORAGE
TECHNOLOGY CORPORATION 
CONSOLIDATED BALANCE SHEETS 
(In Thousands, Except Share Amounts)

|                                                                                                                                                                                      | 09/26/03 |  | 12/27/02 |          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------- |  | -------- | ---------
|
|ASSETS                                                                                                                                                                                |          |  |          |          
|Current assets:                                                                                                                                                                       |          | 
|Cash and cash equivalents                                                                                                                                                             |          |  | $        | 888,204  
|Short-term investments                                                                                                                                                                |          |  |          | 9,950    
|Accounts receivable                                                                                                                                                                   |          |  |          | 474,175  
|Inventories                                                                                                                                                                           |          |  |          | 115,258  
|Deferred income tax assets                                                                                                                                                            |          |  |          | 116,217  
|Other current assets                                                                                                                                                                  |          |  |          | 3,572    
|                                                                                                                                                                                      |          |  |          |          
|Total current assets                                                                                                                                                                  |          |  |          | 1,607,376
|                                                                                                                                                                                      |          |  |         
|Long-term investments                                                                                                                                                                 |          |  |          | 29,873   
|Property, plant, and equipment                                                                                                                                                        |          |  |          | 214,165  
|Spare parts for maintenance                                                                                                                                                           |          |  |          | 45,437   
|Deferred income tax assets                                                                                                                                                            |          |  |          | 103,060  
|Other assets                                                                                                                                                                          |          |  |          | 118,460  
|                                                                                                                                                                                      |          |  |          |          
|Total assets                                                                                                                                                                          |          |  | $        | 2,118,371
|                                                                                                                                                                                      |          |  |          |          
|LIABILITIES                                                                                                                                                                           |          | 
|Current liabilities:                                                                                                                                                                  |          |  |          |          
|Current portion of long-term debt                                                                                                                                                     |          |  | $        | 1,015    
|Accounts payable                                                                                                                                                                      |          |  |          | 111,556  
|Accrued liabilities                                                                                                                                                                   |          |  |          | 429,125  
|Income taxes payable                                                                                                                                                                  |          |  |          | 229,703  
|Other current liabilities                                                                                                                                                             |          |  |          | 51,725   
|                                                                                                                                                                                      |          |  |          |          
|Total current liabilities                                                                                                                                                             |          |  |          | 823,124  
|                                                                                                                                                                                      |          |  |         
|Long-term debt                                                                                                                                                                        |          |  |          | 10,576   
|                                                                                                                                                                                      |          |  |          |          
|Total liabilities                                                                                                                                                                     |          |  |          | 833,700  
|                                                                                                                                                                                      |          |  |          |          
|Commitments and Contingencies (Note 5)                                                                                                                                                |          | 
|                                                                                                                                                                                     
|STOCKHOLDERS EQUITY                                                                                                                                                                  |          | 
|Common stock, $0.10 par value, 300,000,000 shares authorized;
          110,387,783 shares issued at September 26, 2003, and
          106,849,329 shares issued at December 27, 2002 |          |  |          | 11,039   
|Capital in excess of par value                                                                                                                                                        |          |  |          | 975,275  
|Retained earnings                                                                                                                                                                     |          |  |          | 337,727  
|Accumulated other comprehensive loss                                                                                                                                                  |          |  |          | (19,020  
|Treasury stock, 268,238 shares at September 26, 2003,     and 238,276 shares at December 27, 2002, at cost                                                                            |          |  |          | (5,142   
|Unearned compensation                                                                                                                                                                 |          |  |          | (15,208  
|                                                                                                                                                                                      |          |  |          |          
|Total stockholders equity                                                                                                                                                            |          |  |          | 1,284,671
|                                                                                                                                                                                      |          |  |          |          
|Total liabilities and stockholders equity                                                                                                                                            |          |  | $        | 2,118,371
|                                                                                                                                                                                      |          |  |          |          

The
accompanying notes are an integral part of the consolidated financial statements.

3

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# STORAGE TECHNOLOGY
CORPORATION 
CONSOLIDATED STATEMENTS OF OPERATIONS 
(Unaudited) 
(In Thousands, Except Per Share Amounts)

|                                               | Quarter Ended |  | Nine Months Ended |        
|---------------------------------------------- | ------------- |  | ----------------- | -------
|
|Revenue:                                       |               |  |                   |        
|Storage products                               |               |  | $                 | 312,435
|Storage services                               |               |  |                   | 207,825
|                                               |               |  |                   |        
|Total revenue                                  |               |  |                   | 520,260
|                                               |               |  |                   |        
|Cost of revenue:                               |               |  |                   |        
|Storage products                               |               |  |                   | 164,285
|Storage services                               |               |  |                   | 118,907
|                                               |               |  |                   |        
|Total cost of revenue                          |               |  |                   | 283,192
|                                               |               |  |                   |        
|Gross profit                                   |               |  |                   | 237,068
|Research and product development costs         |               |  |                   | 49,803 
|Selling, general, and administrative expense   |               |  |                   | 145,028
|                                               |               |  |                   |        
|Operating profit                               |               |  |                   | 42,237 
|                                               |               |  |                  
|Interest income                                |               |  |                   | 2,556  
|Interest expense                               |               |  |                   | (486   
|                                               |               |  |                   |        
|Income before income taxes                     |               |  |                   | 44,307 
|                                               |               |  |                  
|Provision for income taxes                     |               |  |                   | (13,300
|                                               |               |  |                   |        
|Net income                                     |               |  | $                 | 31,007 
|                                               |               |  |                   |        
|EARNINGS PER COMMON SHARE                      |               | 
|                                               |               |  |                  
|Basic earnings per common share                |               |  | $                 | 0.29   
|                                               |               |  |                   |        
|Weighted-average shares                        |               |  |                   | 108,612
|                                               |               |  |                   |        
|Diluted earnings per common share              |               |  | $                 | 0.28   
|                                               |               |  |                   |        
|Weighted-average and dilutive potential shares |               |  |                   | 111,502
|                                               |               |  |                   |        

The
accompanying notes are an integral part of the consolidated financial statements.

4

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# STORAGE TECHNOLOGY
CORPORATION 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Unaudited) 
(In Thousands)

|                                                     | Nine Months Ended | 
|---------------------------------------------------- | ----------------- | 
|
|OPERATING ACTIVITIES                                 |                   | 
|Cash received from customers                         |                   | 
|Cash paid to suppliers and employees                 |                   | 
|Interest received                                    |                   | 
|Interest paid                                        |                   | 
|Income tax paid                                      |                   | 
|                                                     |                   | 
|Net cash provided by operating activities            |                   | 
|                                                     |                   | 
|INVESTING ACTIVITIES                                 |                   | 
|Purchases of investments                             |                   | 
|Purchases of property, plant, and equipment          |                   | 
|Proceeds from sale of property, plant, and equipment |                   | 
|Other assets                                         |                   | 
|                                                     |                   | 
|Net cash used in investing activities                |                   | 
|                                                     |                   | 
|FINANCING ACTIVITIES                                 |                   | 
|Repayments of credit facilities, net                 |                   | 
|Proceeds from employee stock plans                   |                   | 
|Proceeds from other debt                             |                   | 
|Repayments of other debt                             |                   | 
|                                                     |                   | 
|Net cash provided by (used in) financing activities  |                   | 
|                                                     |                   | 
|Effect of exchange rate changes on cash              |                   | 
|                                                     |                   | 
|Increase in cash and cash equivalents                |                   | 
|Cash and cash equivalents - beginning of the period  |                   | 
|                                                     |                   | 
|Cash and cash equivalents - end of the period        |                   | 
|                                                     |                   | 
|RECONCILIATION OF NET INCOME TO NET CASH             |                   | 
|PROVIDED BY OPERATING ACTIVITIES                     |                   | 
|Net income                                           |                   | 
|Depreciation and amortization expense                |                   | 
|Inventory writedowns                                 |                   | 
|Translation (gain) loss                              |                   | 
|Other non-cash adjustments to income                 |                   | 
|Decrease in accounts receivable                      |                   | 
|Decrease in other current assets                     |                   | 
|(Increase) decrease in inventories                   |                   | 
|Increase in spare parts                              |                   | 
|(Increase) decrease in deferred income tax assets    |                   | 
|Increase (decrease) in accounts payable              |                   | 
|Increase (decrease) in accrued liabilities           |                   | 
|Increase (decrease) in other current liabilities     |                   | 
|Increase in income taxes payable                     |                   | 
|                                                     |                   | 
|Net cash provided by operating activities            |                   | 
|                                                     |                   | 

The
accompanying notes are an integral part of the consolidated financial statements.

5

---

# STORAGE TECHNOLOGY
CORPORATION 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
(Unaudited) 
(In Thousands)

|                                                                                                                                                      | Quarter Ended |  | Nine Months Ended |        
|----------------------------------------------------------------------------------------------------------------------------------------------------- | ------------- |  | ----------------- | -------
|
|Net income                                                                                                                                            |               |  | $                 | 31,007 
|                                                                                                                                                      |               |  |                   |        
|Other comprehensive income (loss), net of tax:                                                                                                        |               | 
|Unrealized gains (losses) on marketable securities:                                                                                                   |              
|Holding gains (losses), net of tax (benefit)           expense of $(171), $0, $394, and $0                                                            |               |  |                   | (456   
|Reclassification adjustment for net gains included
           in net income, net of tax expense of $165, $0,           $699, and $0                   |               |  |                   | (386   
|Foreign currency hedging contracts:                                                                                                                   |               | 
|Net gains (losses) on foreign currency cash flow hedges, net           of tax (benefit) expense of $(7,719), $322, $(16,381),           and $(11,431) |               |  |                   | (12,279
|Reclassification  adjustment for net losses included                                                                                                  |               | 
|in net  income,  net of tax  benefit  of $6,580,                                                                                                      |               | 
|$3,402, $10,969, and $1,396                                                                                                                           |               |  |                   | 10,467 
|                                                                                                                                                      |               |  |                   |        
|Other comprehensive income (loss), net of tax                                                                                                         |               |  |                   | (2,654 
|                                                                                                                                                      |               |  |                   |        
|Comprehensive income                                                                                                                                  |               |  | $                 | 28,353 
|                                                                                                                                                      |               |  |                   |        

The
accompanying notes are an integral part of the consolidated financial statements.

6

---

# STORAGE TECHNOLOGY
CORPORATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)

# NOTE 1  BASIS OF
PREPARATION

The accompanying interim consolidated
financial statements of Storage Technology Corporation and its wholly owned subsidiaries
(StorageTek or the Company) have been prepared on substantially the same basis as the
Companys annual consolidated financial statements and should be read in conjunction
with the Companys Annual Report on Form 10-K for the year ended December 27, 2002.
In the opinion of management, the interim consolidated financial statements reflect all
adjustments necessary for the fair presentation of results for the periods presented, and
such adjustments are of a normal, recurring nature. Certain prior year amounts have been
reclassified to conform to the current year presentation.

The consolidated results for interim
periods are not necessarily indicative of expected results for the full fiscal year.

# NOTE 2 
STOCK-BASED COMPENSATION PLANS

The Company accounts for stock-based
compensation plans under the recognition and measurement principles of Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. Stock-based compensation cost related to
restricted stock is reflected in net income. No stock-based compensation cost related to
stock options is reflected in net income, as all options granted under those plans have an
exercise price equal to the market value of the underlying common stock on the date of
grant.

The following table illustrates the
effect on net income and earnings per share if the Company had applied the fair value
recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, to stock-based compensation (in
thousands, except per share amounts):

|                                                                                                                                          | Quarter Ended |  | Nine Months Ended |       
|----------------------------------------------------------------------------------------------------------------------------------------- | ------------- |  | ----------------- | ------
|
|Net income, as reported                                                                                                                   |               |  | $                 | 31,007
|                                                                                                                                          |               |  |                   |       
|Add: Stock-based compensation expense included in
        reported net income, net of related tax effects                                 |               |  |                   | 1,143 
|                                                                                                                                          |               |  |                   |       
|Deduct: Total stock-based compensation expense
    determined under fair value based method for all    awards, net of related tax effects |               |  |                   | (5,275
|                                                                                                                                          |               |  |                   |       
|Pro forma net income                                                                                                                      |               |  | $                 | 26,875
|                                                                                                                                          |               |  |                   |       
|Earnings per share:                                                                                                                       |              
|Basic, as reported                                                                                                                        |               |  | $                 | 0.29  
|Basic, pro forma                                                                                                                          |               |  | $                 | 0.25  
|Diluted, as reported                                                                                                                      |               |  | $                 | 0.28  
|Diluted, pro forma                                                                                                                        |               |  | $                 | 0.25  

7

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# NOTE 3  INVESTMENTS

Short- and long-term investments
consist of the following available-for-sale securities as of September 26, 2003 (in
thousands):

|                                      | AmortizedCost |  | UnrealizedHoldingGains |        | EstimatedFair Value |  
|------------------------------------- | ------------- |  | ---------------------- | ------ | ------------------- | -
|                                      |               |  |                        |        |                     |  
|U.S. Government and agency securities |               |  | $                      | 35,619 |                     | $
|Corporate securities                  |               |  |                        | 4,080  |                     |  
|                                      |               |  |                        |        |                     |  
|                                      |               |  | $                      | 39,699 |                     | $
|                                      |               |  |                        |        |                     |  

The Companys short- and
long-term investments, which consist of marketable debt securities, have been classified
as available-for-sale securities and recorded at estimated fair value based on quoted
market prices. Unrealized gains and losses on these investments are reported, net of tax,
as a component of accumulated other comprehensive income (loss). Securities with original
maturities of greater than three months and less than one year are classified as
short-term investments. Securities with original maturities greater than one year are
classified as long-term investments.

Amortized cost is determined based on
specific identification. Interest earned on investments is included in interest income.
There were no realized gains or losses on sales of short- or long-term investments for the
third quarter or nine months ended September 26, 2003 and September 27, 2002.

The following table summarizes the
amortized cost and estimated fair value of debt securities by contractual maturity as of
September 26, 2003 (in thousands):

|                                       |  | AmortizedCost |   | EstimatedFair Value | 
|-------------------------------------- |  | ------------- | - | ------------------- | 
|Due within one year                    |  |               | $ | 9,949               | 
|Due after one year through three years |  |               |   | 29,750              | 
|                                       |  |               |   |                    
|                                       |  |               | $ | 39,699              | 
|                                       |  |               |   |                    

# NOTE 4 
INVENTORIES

Inventories, net of associated
reserves, consist of the following (in thousands):

|                | 09/26/03 |  | 12/27/02 |        
|--------------- | -------- |  | -------- | -------
|Raw materials   |          |  | $        | 23,973 
|Work-in-process |          |  |          | 24,920 
|Finished goods  |          |  |          | 66,365 
|                |          |  |          |        
|                |          |  | $        | 115,258
|                |          |  |          |        

# NOTE 5  LITIGATION

The Company is involved in a number
of pending legal proceedings that arise from time to time in the ordinary course of
business. Management believes that any liability as a result of adverse outcomes in such
proceedings would not have a material adverse effect on the financial condition of the
Company taken as a whole. However, the outcome of these actions is inherently difficult to
predict. In the event of an adverse outcome, the ultimate potential loss could have a
material adverse effect on the Companys financial condition or reported results of
operations in a particular quarter. An unfavorable decision, particularly in patent
litigation, could require material changes in production processes and products or result
in the Companys inability to ship products or components found to have violated
third-party patent rights.

8

---

# NOTE 6  FINANCING
ARRANGEMENTS

Effective July 31, 2003, the Company
reduced its existing $150.0 million revolving credit facility (the Revolver) to $75.0
million. The Revolver expires in October 2004. The interest rates for borrowing under the
Revolver are dependent on the Companys Total Debt to rolling four quarter Earnings
Before Interest Expense, Taxes, Depreciation, and Amortization (EBITDA) ratio and the term
of the outstanding borrowing. The rate ranges from the applicable LIBOR plus 1.75% to
2.50% or the agent banks base rate plus 0.00% to 0.50%. The Company pays a 0.50% per
annum commitment fee on any unused borrowings. The Company had no outstanding borrowings
under the Revolver as of September 26, 2003. The Revolver is secured by the Companys
U.S. accounts receivable and U.S. inventory, and contains certain financial and other
covenants, including restrictions on the payment of cash dividends on the Companys
common stock.

# NOTE 7  OPERATIONS
OF BUSINESS SEGMENTS

The Company is organized into two
reportable business segments based on the definitions provided in SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information: storage
products and storage services. The storage products segment includes sales of tape, disk,
network, and other miscellaneous products. The storage services segment includes
maintenance and support services, as well as professional services.

The Company does not have any
intersegment revenue, and segment operating performance is evaluated based on gross
profit. The aggregate gross profit by segment equals the consolidated gross profit, and
the Company does not allocate research and product development costs; selling, general,
and administrative expense; interest income; interest expense; or benefit (provision) for
income taxes to the segments. The following table shows revenue and gross profit by
segment (in thousands):

|                   | Quarter Ended |  | Nine Months Ended |        
|------------------ | ------------- |  | ----------------- | -------
|
|Revenue:           |               |  |                   |        
|Storage products   |               |  | $                 | 312,435
|Storage services   |               |  |                   | 207,825
|                   |               |  |                   |        
|Total revenue      |               |  | $                 | 520,260
|                   |               |  |                   |        
|Gross profit:      |              
|Storage products   |               |  | $                 | 148,150
|Storage services   |               |  |                   | 88,918 
|                   |               |  |                   |        
|Total gross profit |               |  | $                 | 237,068
|                   |               |  |                   |        

9

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The following table provides
supplemental financial data regarding revenue from the Companys storage products
segment (in thousands):

|                               | Quarter Ended |  | Nine Months Ended |        
|------------------------------ | ------------- |  | ----------------- | -------
|
|Tape products                  |               |  | $                 | 240,729
|Disk products                  |               |  |                   | 38,074 
|Network products               |               |  |                   | 23,776 
|Other                          |               |  |                   | 9,856  
|                               |               |  |                   |        
|Total storage products revenue |               |  | $                 | 312,435
|                               |               |  |                   |        

# NOTE 8  EARNINGS
PER COMMON SHARE

The following table presents the
calculation of basic and diluted earnings per share (in thousands, except per share
amounts):

|                                            | Quarter Ended |  | Nine Months Ended |        
|------------------------------------------- | ------------- |  | ----------------- | -------
|
|Net income                                  |               |  | $                 | 31,007 
|                                            |               |  |                   |        
|Weighted average common shares outstanding: |               | 
|Basic                                       |               |  |                   | 108,612
|Effect of dilutive common stock             |               | 
|equivalents                                 |               |  |                   | 2,890  
|                                            |               |  |                   |        
|Diluted                                     |               |  |                   | 111,502
|                                            |               |  |                   |        
|Earnings per common share:                  |               | 
|
|Basic                                       |               |  | $                 | 0.29   
|Diluted                                     |               |  | $                 | 0.28   

For the quarters ended September 26,
2003, and September 27, 2002, options to purchase 401,785 and 7,239,457 shares of common
stock, respectively, were excluded from the computation of diluted earnings per share
because the exercise price of the options was greater than the average market price of the
Companys common stock, and therefore, the effect would have been antidilutive. For
the nine months ended September 26, 2003, and September 27, 2002, options to purchase
1,146,145 and 5,352,769 shares of common stock, respectively, were excluded from the
computation of diluted earnings per share for the same reason.

# NOTE 9 
INDEMNIFICATIONS AND WARRANTIES

Financial Accounting Standards Board
(FASB) Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, requires that a liability be recorded in the guarantors balance sheet
upon issuance of certain guarantees. FIN 45 also requires additional disclosures about the
guarantees an entity has issued, including a rollforward of the entitys product
warranty liabilities.

10

---

In the normal course of business, the
Company is party to a variety of agreements under which it may be obligated to indemnify
the other party for certain matters. These obligations typically arise in contracts where
the Company customarily agrees to hold the other party harmless against losses arising
from a breach of representations or covenants for certain matters such as title to assets
and intellectual property rights associated with the sale of products. The Company also
has indemnification obligations to its officers and directors. The duration of these
indemnifications varies, and in certain cases, is indefinite. In each of these
circumstances, payment by the Company depends upon the other party making an adverse claim
according to the procedures outlined in the particular agreement, which procedures
generally allow the Company to challenge the other partys claims. In certain
instances, the Company may have recourse against third parties for payments made by the
Company.

The Company is unable to reasonably
estimate the maximum potential amount of future payments under these or similar agreements
due to the unique facts and circumstances of each agreement and the fact that certain
indemnifications provide for no limitation to the maximum potential future payments under
the indemnification. The Company has not recorded any liability for these indemnifications
in the accompanying consolidated balance sheets; however, the Company does accrue losses
for any known contingent liability, including those that may arise from indemnification
provisions, when future payment is both probable and reasonably estimable.

The Company provides warranties
associated with the sale of its products. The Companys standard product warranties
provide for the repair or replacement of products that fail to meet their published
specifications. In situations where a product fails its essential purpose to the customer,
the Company may also be responsible for refunding the purchase price of the product if the
Company cannot remedy the product failure. The Company establishes a warranty liability
for the estimated cost of warranty-related claims at the time revenue is recognized. The
following table summarizes information related to the Companys warranty reserves (in
thousands):

|                               | Nine Months Ended | 
|------------------------------ | ----------------- | 
|
|Balance at beginning of period |                   | 
|Accruals for warranties issued |                   | 
|Adjustments to warranties      |                   | 
|Amortization                   |                   | 
|                               |                   | 
|Balance at end of period       |                   | 
|                               |                   | 

# NOTE 10  RECENT
ACCOUNTING PRONOUNCEMENTS

In November 2002, the Emerging Issues
Task Force (EITF) issued EITF Issue No. 00-21, Accounting for Revenue Arrangements
with Multiple Deliverables. EITF Issue No. 00-21 addresses how to determine whether
a revenue arrangement involving multiple deliverables contains more than one unit of
accounting for the purposes of revenue recognition and how the revenue arrangement
consideration should be measured and allocated to the separate units of accounting. EITF
Issue No. 00-21 applies to all revenue arrangements that the Company enters into after
June 27, 2003. The adoption of this statement did not have a material impact on the
Companys financial condition or results of operations.

In January 2003, the FASB issued
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities.
FIN 46 provides guidance on how to identify a variable interest entity (VIE) and determine
when the assets, liabilities, and results of operations of a VIE need to be included in a
companys consolidated financial statements. FIN 46 also requires additional
disclosures by primary beneficiaries and other significant variable interest holders in a
VIE. The provisions of FIN 46 are effective immediately for all VIEs created after January
31, 2003. For VIEs created before February 1, 2003, the provisions of FIN 46 must be
adopted at the beginning of the first interim or annual reporting period beginning after
June 15, 2003. The adoption of this statement did not have a material impact on the
Companys financial condition or results of operations.

11

---

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. SFAS No. 149 amends and clarifies the accounting for derivative
instruments, including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. SFAS No. 149 is generally effective for contracts
entered into or modified after June 30, 2003, and for hedging relationships
designated after June 30, 2003. The adoption of this statement did not have a
material impact on the Companys financial condition or results of operations.

In May 2003, the EITF reached
consensus on Issue No. 01-8, Determining Whether an Arrangement Contains a
Lease. The FASB ratified this consensus in May 2003. EITF Issue No. 01-8 provides
guidance on how to identify a lease in an arrangement that also provides for the delivery
of other goods or services by the seller (lessor), such as outsourcing arrangements. The
provisions of EITF Issue No. 01-8 apply to arrangements entered into or modified after
June 28, 2003, the beginning of the first reporting period after May 28, 2003. The
adoption of this statement did not have a material impact on the Companys financial
condition or results of operations.

In May 2003, the EITF reached a
consensus on Issue No. 03-5, Applicability of AICPA Statement of Position (SOP)
97-2, Software Revenue Recognition, to Non-Software Deliverables in an Arrangement
Containing More-Than-Incidental Software. The FASB ratified this consensus in August
2003. EITF Issue No. 03-5 affirms that the revenue recognition guidance in SOP 97-2
applies to non-software deliverables, such as computer hardware, in an arrangement if the
software is essential to the functionality of the non-software deliverables. The Company
is required to adopt EITF Issue No. 03-5 in the fourth quarter of 2003. The adoption of
EITF Issue No. 03-5 is not anticipated to have a material impact on the Companys
financial condition or results of operations.

12

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# ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

All assumptions, anticipations,
expectations, and forecasts contained in the following discussion regarding our business,
future products, business plans, financial results, performance, and future events are
forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. Our actual results may differ materially because of a number of risks and
uncertainties. Some of these risks are detailed below in FACTORS THAT MAY AFFECT
FUTURE RESULTS and elsewhere in this Form 10-Q. Forward-looking statements can be
identified by the use of words such as may, will,
should, expects, plans, anticipates,
believes, estimates, predicts, intends,
potential, continue, or the negative of such terms, or other
comparable words. Forward-looking statements also include the assumptions underlying or
relating to any such statements. The forward-looking statements contained in this Form
10-Q represent a good-faith assessment of our future performance for which management
believes there is a reasonable basis. We disclaim any obligation to update the
forward-looking statements contained herein, except as may be otherwise required by law.

# BUSINESS SEGMENTS
SUMMARY (in thousands, except percentages)

|                                                          | Quarter Ended |  | Nine Months Ended |        
|--------------------------------------------------------- | ------------- |  | ----------------- | -------
|
|Revenue                                                   |               |  |                   |        
|Storage products                                          |               |  | $                 | 312,435
|Storage services                                          |               |  |                   | 207,825
|                                                          |               |  |                   |        
|Total revenue                                             |               |  | $                 | 520,260
|                                                          |               |  |                   |        
|Cost of revenue                                           |              
|Storage products                                          |               |  | $                 | 164,285
|Storage services                                          |               |  |                   | 118,907
|                                                          |               |  |                   |        
|Total cost of revenue                                     |               |  | $                 | 283,192
|                                                          |               |  |                   |        
|Gross profit                                              |              
|Storage products                                          |               |  | $                 | 148,150
|Storage services                                          |               |  |                   | 88,918 
|                                                          |               |  |                   |        
|Total gross profit                                        |               |  | $                 | 237,068
|                                                          |               |  |                   |        
|Gross profit margin                                       |              
|Storage products                                          |               |  |                   | 47.4   
|Storage services                                          |               |  |                   | 42.8   
|Total gross profit margin                                 |               |  |                   | 45.6   
|                                                         
|Supplemental financial data -    storage products revenue |              
|Tape products                                             |               |  | $                 | 240,729
|Disk products                                             |               |  |                   | 38,074 
|Network products                                          |               |  |                   | 23,776 
|Other                                                     |               |  |                   | 9,856  
|                                                          |               |  |                   |        
|Total storage products revenue                            |               |  | $                 | 312,435
|                                                          |               |  |                   |        

13

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THIRD QUARTER 2003
FINANCIAL OVERVIEW

We increased revenue and earnings in
the third quarter of 2003, compared to the third quarter of 2002, despite the continued
weakness in the economies in Europe and the flat information technology spending
environment. We continue to focus on providing our customers with integrated storage
solutions that optimize their storage environments. We also continue to focus on reducing
costs and expenses.

Our cash and investments increased
from $657.6 million as of December 27, 2002, to $928.0 million as of September 26, 2003, a
$270.4 million increase. Our debt-to-capitalization ratio remains constant at 1%, and we
continue to generate positive cash flows from operations.

REVENUE AND GROSS PROFIT
MARGIN

Total revenue for the third quarter
of 2003 was $520.3 million, an increase of 4% compared to the same period in 2002. Total
revenue for the nine months of 2003 was $1.5 billion, an increase of 5% compared to the
same period in 2002. These increases were primarily due to favorable foreign currency
fluctuations, as well as increased revenue from storage services and disk products. Total
gross profit margin for the third quarter of 2003 was 45.6%, basically unchanged compared
to the same period in 2002. Total gross profit margin for the nine months of 2003 was
45.0%, an increase from 44.3% for the same period in 2002. These increases were primarily
due to higher gross profit margins from the storage products segment.

# Storage Products

Our storage products revenue
primarily consists of sales of tape, disk, and network products, including related
software, for the mainframe and open-systems markets. The open-systems market consists of
products designed to operate in the UNIX, NT, and other non-MVS operating environments.

Storage products revenue increased 2%
for both the third quarter and nine months of 2003, respectively, compared to the same
periods in 2002, primarily due to an increase in disk product revenue. The increase in
disk product revenue is primarily the result of an increase in the amount of storage
capacity we sold, and reflects the continued strength of our open-systems disk offerings
and incremental sales of our recently introduced disk product, Bladestore. Sales of
open-systems tape products also contributed to the increase in product revenue. These
increases were partially offset by decreased sales revenue from enterprise tape products.
Storage products gross profit margin increased from 45.8% and 44.1% for the third quarter
and nine months of 2002, respectively, to 47.4% and 46.3% for the same periods in 2003,
primarily due to our efforts to reduce product costs and improve inventory management.

# Storage Services

Our storage services revenue
primarily consists of revenue associated with the maintenance and support of StorageTek
products and third-party storage products, as well as professional services revenue
associated with various storage consulting activities.

Storage services revenue increased 7%
and 11% during the third quarter and nine months of 2003, respectively, compared to the
same periods in 2002. The growth in service revenue was driven by both increased
maintenance and professional services revenue. Storage services gross profit margin
decreased to 42.8% and 43.1% for the third quarter and nine months of 2003, respectively,
from 45.1% and 44.5% for the same periods in 2002, primarily as a result of an increasing
revenue contribution from professional services, which typically carry lower margins.

14

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RESEARCH AND PRODUCT
DEVELOPMENT

Research and product development
costs decreased 7% during the third quarter and nine months of 2003, compared to the same
periods in 2002. Research and product development costs as a percentage of revenue were
10% for the third quarter and nine months of 2003. This percentage compares to 11% for the
third quarter and nine months of 2002. The decrease is primarily due to engineering
initiatives designed to improve research and product development productivity, increase
strategic alignment, and reduce non-essential spending. We continue to evaluate and
prioritize research and product development programs to maximize our return on investment.
Our research and product development activities focus on tape and disk products, virtual
storage, storage area network (SAN) products, and related services.

SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSE

Selling, general, and administrative
expense (SG&A) increased 2% and 5% during the third quarter and nine months of 2003,
respectively, compared to the same periods in 2002, primarily due to the unfavorable
impacts of foreign currency movements on the operating expenses of our international
operations. As a percentage of revenue, SG&A was basically unchanged from the third
quarter and nine months of 2002. We are continuing our efforts to control discretionary
spending and identify new opportunities to drive increased profitability. We continue to
make investments in the sales and marketing areas of our business. These investments are
principally focused on expanding sales coverage in the growing open-systems market.

INCOME TAXES

Our effective tax rate was 30% for
the third quarter and nine months of 2003, compared to 32% for the same periods in 2002.
The decrease in the effective tax rate is primarily due to the continued realization of
benefits associated with our global manufacturing and distribution strategy.

Statement of Financial Accounting
Standards (SFAS) No. 109 requires that deferred income tax assets be recognized to the
extent realization of such assets is more likely than not. Based on the currently
available information, we have determined that we will more likely than not realize $219.3
million of deferred income tax assets as of September 26, 2003. Our valuation allowance of
approximately $24.7 million as of September 26, 2003, relates principally to foreign net
operating loss carryforwards.

CRITICAL ACCOUNTING
POLICIES

Our critical accounting policies are
disclosed in our Annual Report on Form 10-K for the year ended December 27, 2002. We have
made no changes to those policies during the nine months ended September 26, 2003.

RECENT ACCOUNTING
PRONOUNCEMENTS

For information regarding recent
accounting pronouncements, see Note 10 of NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS, included in Item 1 of this Form 10-Q, which information is incorporated
by reference into this Item 2.

15

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LIQUIDITY AND CAPITAL
RESOURCES

# Internal Sources of
Liquidity

Our cash balance increased $230.6
million during the nine months of 2003 primarily as a result of cash flows generated by
our operations. Our operating activities provided cash of $250.1 million during the nine
months of 2003, basically unchanged compared to cash of $257.6 million generated from
operations during the same period in 2002. Cash used in investing activities decreased to
$66.8 million during the nine months of 2003 from $97.0 million during the nine months of
2002. The decrease in cash used in investing activities is primarily due to a $52.2
million payment for the purchase of equipment from Electronic Data Systems Corporation in
2002, partially offset by purchases of short- and long-term investments of $39.7 million
during the third quarter of 2003. Our financing activities provided $44.8 million of cash
during the nine months of 2003, primarily related to proceeds from employee stock plans.
Cash used in financing activities was $59.8 million during the nine months of 2002,
primarily as a result of the repayment of borrowings under our credit facilities,
partially offset by proceeds from employee stock plans.

We expect that cash flows from
operations will continue to serve as our principal source of working capital. Cash flows
from operations could be negatively impacted by a decrease in demand for our products and
services as a result of rapid technological changes and other risks described under
FACTORS THAT MAY AFFECT FUTURE RESULTS.

# External Sources of
Liquidity

Effective July 31, 2003, we reduced
our existing $150.0 million revolving credit facility (the Revolver) to $75.0 million. The
Revolver expires in October 2004. The interest rates for borrowing under the Revolver are
dependent on our Total Debt to rolling four quarter Earnings Before Interest Expense,
Taxes, Depreciation, and Amortization (EBITDA) ratio and the term of the outstanding
borrowing. The rate ranges from the applicable LIBOR plus 1.75% to 2.50% or the agent
banks base rate plus 0.00% to 0.50%. We pay a 0.50% per annum commitment fee on any
unused borrowings. We had no outstanding borrowings under the Revolver as of September 26,
2003. The Revolver is secured by our U.S. accounts receivable and U.S. inventory, and
contains certain financial and other covenants, including restrictions on the payment of
cash dividends on our common stock.

Our debt-to-capitalization ratio was
1% as of September 26, 2003. See Internal Sources of Liquidity above for a
discussion of cash sources and uses.

INTERNATIONAL OPERATIONS

International operations accounted
for approximately 51% and 53% of our revenue during the third quarter and nine months of
2003, respectively, compared to 48% and 49% during the same periods of 2002. We also sell
products through U.S. indirect distribution channels that have end-user customers located
outside the United States. We expect that we will continue to generate a significant
portion of our revenue from international operations. See We may be materially
affected by the risks of conducting business outside the United States under
FACTORS THAT MAY AFFECT FUTURE RESULTS for a discussion of the risks
associated with international operations.

The majority of our international
operations involve transactions denominated in the local currencies of countries within
western Europe, principally Germany, France, and the United Kingdom; Australia; Canada;
Japan; and South Korea. An increase in the exchange value of the U.S. dollar reduces the
value of revenue and profits generated by our international operations. As a result, our
operating and financial results can be materially affected by fluctuations in foreign
currency exchange rates. In an attempt to mitigate the impact of foreign currency
fluctuations, we employ a foreign currency hedging program. See MARKET RISK
MANAGEMENT below.

16

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MARKET RISK MANAGEMENT

# Foreign Currency
Exchange Rate Risk

Our primary market risk relates to
changes in foreign currency exchange rates. The functional currency for our foreign
subsidiaries is the U.S. dollar. A significant portion of our revenue is generated by our
international operations. As a result, our financial condition, results of operations, and
cash flows can be materially affected by changes in foreign currency exchange rates. We
attempt to mitigate this exposure as part of our foreign currency hedging program. The
primary goal of our foreign currency hedging program is to reduce the risk of adverse
foreign currency movements on the reported financial results of our non-U.S. dollar
transactions. Factors that could have an impact on the effectiveness of our hedging
program include the accuracy of forecasts and the volatility of foreign currency markets.
All foreign currency derivatives are authorized and executed pursuant to our policies. We
do not hold or issue derivatives or any other financial instruments for trading or
speculative purposes.

To implement our foreign currency
hedging program, we use foreign currency options and forwards. These derivatives are used
to hedge the risk that forecasted revenue denominated in foreign currencies might be
adversely affected by changes in foreign currency exchange rates. Foreign currency
forwards are also used to reduce our exposure to foreign currency exchange rate
fluctuations in connection with monetary assets and liabilities denominated in foreign
currencies.

A hypothetical 10% adverse movement
in foreign exchange rates applied to our foreign currency exchange rate sensitive
instruments held as of September 26, 2003, and as of December 27, 2002, would result in a
hypothetical loss in fair value of approximately $71.1 million and $64.5 million,
respectively. The increase in the hypothetical loss is primarily due to an increase in
outstanding derivatives used to hedge forecasted cash flows. These hypothetical losses do
not take our underlying international operations into consideration. We anticipate that
any hypothetical loss associated with our foreign currency exchange rate sensitive
instruments would be substantially offset by gains associated with our underlying
international operations.

# Interest Rate Risk

Changes in interest rates affect
interest income earned on our cash investments, as well as interest expense on short-term
borrowings. A hypothetical 10% adverse movement in interest rates applied to cash
investments, short- and long-term investments, and short-term borrowings as of September
26, 2003, and December 27, 2002, would not have a material adverse effect on our financial
condition, results of operations, or cash flows.

# Credit Risk

We are exposed to credit risk
associated with cash investments, short- and long-term investments, foreign currency
derivatives, and trade receivables. We do not believe that our cash investments, short-
and long-term investments, and foreign currency derivatives present significant credit
risks, because the counterparties to the instruments consist of major financial
institutions, and we manage the notional amount of contracts entered into with any single
counterparty. Substantially all trade receivable balances are unsecured. Our credit risk
on trade receivables is limited by the large number of customers in our customer base and
their dispersion across various industries and geographic areas. Although we have a large
number of customers who are dispersed across different industries and geographic areas, a
prolonged economic downturn could increase our exposure to credit risk on our trade
receivables. We perform credit evaluations of our customers and maintain an allowance for
potential credit losses.

17

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FACTORS THAT MAY AFFECT
FUTURE RESULTS

We may be materially
affected by global economic and political conditions

Our ability to generate revenue
growth during the last several years was adversely affected by the slowdown in the global
economy as customers delayed their purchase decisions, reduced their information
technology spending budgets, increased their purchase authorization approval requirements,
and reduced their capital expenditures by optimizing the current capacities of their data
storage equipment. While we have seen some signs of economic improvement in the United
States and the emerging market areas during the nine months of 2003, the rate of
improvement has been slow and we did not see much improvement in Europe. We do not
currently anticipate any significant economic improvement during the remainder of 2003.
During 2001 and 2002, we implemented various cost-saving measures to help mitigate the
adverse effects of the slowdown in the global economy on our results of operations. We
cannot provide any assurance that a prolonged economic downturn will not have additional
adverse effects on our financial condition, results of operations, or our ability to
generate revenue growth. Furthermore, we cannot provide any assurance that our cost-saving
measures will be successful or sufficient to allow us to continue to generate improved
operating results in future periods.

Our financial condition and results
of operations could also be materially affected by unstable global political conditions.
Terrorist attacks or acts of war could significantly disrupt our operations and the
operations of our customers, suppliers, distributors, or resellers. We cannot predict the
potential impact on our financial condition or results of operations should such events
occur.

We may be materially affected by a
decrease in demand for our tape products or by an inability to maintain key competitive
advantages in tape

In the third quarter and nine months
of 2003, approximately 77% of our storage products revenue was generated by sales of our
tape products. Services associated with our tape products also represent a significant
portion of our storage services revenue. If overall demand for tape storage products
declines, or if we lose market share in tape, our financial condition and results of
operations could be materially affected.

One of the key competitive advantages
that our tape products have over competing disk products is that tape products store data
at a fraction of the cost of disk storage. The cost of disk storage continues to decrease
rapidly due to competition and new disk drive technologies such as Advanced Technology
Attachment (ATA). We must continue to develop and introduce new tape products that reduce
the cost of tape storage at a rate that is similar to or greater than the decline in disk
storage costs in order to maintain this competitive advantage. We cannot provide any
assurance that we will be able to reduce the cost of our tape products at a rate similar
to the decline in disk storage costs.

18

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# We may be materially
affected by aggressive competition

The data storage industry is highly
competitive, and customers make their decisions based on a number of competitive factors,
including the following:

- Functionality
- Technology
- Performance
- Reliability
- System scalability
- Price
- Quality
- Product availability
- Customer service
- Brand recognition

We must address each of these factors
effectively in order to successfully compete. If we are unable to adapt our products and
services to changes in these competitive factors, we may lose market share to our
competitors.

In order to grow revenue in the
future, it is critical that we execute on our Information Lifecycle
ManagementTM (ILM) strategy by continuing to capitalize on our ability to
deliver complete storage solutions that satisfy customer storage requirements. Our ILM
strategy requires that we successfully integrate the sale of products and services. We
have achieved some initial success in our efforts to address customer storage needs by
focusing on the delivery of storage solutions that include a combination of tape, disk,
and network products, together with the associated services. This success has resulted in
increased revenue contributions from disk and network products, as well as services. We
have also seen the adoption of strategies similar to our ILM strategy by our competitors.
We cannot provide any assurance that we will successfully execute our ILM strategy or that
this strategy will provide us a competitive advantage in the data storage industry.

We may be materially affected by
our ability to grow our indirect channels successfully

We are continually developing our
indirect distribution channels, including original equipment manufacturers (OEMs),
value-added distributors (VADs), value-added resellers (VARs), and other distributors.
Indirect channels sales contributed approximately 48% of our total product revenue for the
nine months of 2003 compared to 45% for the same period in 2002. Increasing our sales
through these indirect channels is critical to expanding our reach into the growing
open-systems market. Successfully managing the interaction of our direct and indirect
channel efforts to effectively reach all of the potential customer segments for our
products and services is a complex process. We cannot provide any assurance that we will
be successful in expanding our indirect channel sales. Our ability to forecast future
demand for our products may be adversely affected by unforeseen changes in demand from our
indirect channel partners. Storage product margins may be adversely impacted on a
percentage basis to the extent we continue to receive a larger portion of our sales
through our indirect channels in the future. Maintenance revenue also may be adversely
affected in future periods to the extent that customers of our indirect channel partners
elect to purchase maintenance services from our competitors. Our financial results may
also be negatively affected if the financial condition of one or more of our channel
partners weakens or if the current economic downturn continues.

We may be materially affected by
the risks associated with expanding our service offerings

Services contributed approximately
40% and 41% of our total revenue in the third quarter and nine months of 2003,
respectively, compared to approximately 39% for the same periods in 2002. This growth was
partially driven by new service offerings such as storage consulting services,
implementation services, and storage management services. The development and delivery of
these new services are critical to the success of our plan to deliver complete storage
solutions to our customers. We must ensure that service professionals have the necessary
skill sets, experience, tools, and training to support these new service offerings.
Revenue growth from these new service offerings is needed to offset possible future
declines in maintenance revenue from our installed service base of products under
maintenance contracts as these products are displaced by sales of new StorageTek products
under warranty. Any failure to properly develop or deliver our new and existing service
offerings could have a material adverse effect on our financial condition and results of
operations.

19

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We may be materially affected by
the risks associated with sole source suppliers

We purchase certain key parts,
components, and services from sole source suppliers who we believe are currently the only
providers that meet our specifications or for which alternative sources of supply are not
readily available. The following table shows our significant sole source suppliers and the
products or services they provide:

|Name of sole source supplier |  | Product or service provided                                                        
|---------------------------- |  | -----------------------------------------------------------------------------------
|Imation Corporation          |  | T9840 and T9940 series tape media                                                  
|Sanmina-SCI Corporation      |  | Printed circuit boards and certain other manufacturing and repair services         
|LSI Logic Storage Systems    |  | D-Series open-systems disk products                                                
|Fujitsu Electronics America  |  | Application-specific integrated circuits (ASICs) for various tape and disk products
|Philips Semiconductors       |  | ASICs for various tape and disk products                                           
|Celestica                    |  | SN6000 network product                                                             
|Herald Datanetics Ltd. (HDL) |  | Key component used in certain tape products                                        

We also obtain certain key parts and
components from less significant sole source suppliers. If a sole source supplier did not
continue to provide its products or services, we would need to identify and qualify other
acceptable suppliers. This process could take an extended period, and we cannot provide
any assurance that we could identify and qualify an alternative source on a timely basis
or at an acceptable quality or price. We cannot provide any assurance that significant
sole source suppliers will be able to meet our ongoing quality or delivery requirements.
Failure to meet these requirements may have a material adverse impact on our financial
condition and results of operations.

HDL is located in the Peoples
Republic of China (PRC). Our dependence on HDL is subject to additional risks beyond those
associated with other sole source suppliers, including the lack of a well-established
court system or acceptance of the rule of law in the PRC, the degree to which the PRC
permits economic reform policies to continue, the political relationship between the PRC
and the United States, and broader political and economic factors. To date, we have not
experienced any material problems securing key components from HDL; however, we cannot
provide any assurance that we will not experience material problems in the future.

20

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We may be materially affected by a
failure to obtain quality parts and components in a timely manner or by a failure to
effectively manage inventory levels

We generally use standard parts and
components for our products and believe that there are a number of alternative, competent
vendors for most of those parts and components. Certain suppliers have experienced
occasional technical, financial, or other problems that have delayed deliveries in the
past. An unanticipated failure of suppliers to meet our requirements for an extended
period, or the inability to secure comparable components in a timely manner, could result
in a shortage of key components or products, longer lead times, reduced control over
production and delivery schedules, and an inability to fulfill customer orders in a timely
manner.

We have implemented various lean
manufacturing initiatives to help us manage our inventory levels. As we continue to move
toward a lean manufacturing environment, we will become increasingly dependent on a
limited supplier base to deliver quality parts and components in a timely manner. A
suppliers inability to deliver parts and components on a timely basis, or our
failure to effectively manage inventory levels, could have a material adverse effect on
our financial condition and results of operations.

We may be materially affected by
uneven sales patterns and by our ability to forecast customer demand accurately

In the past, our results have
followed a seasonal pattern, which reflects the tendency of customers to make their
purchase decisions at the end of a calendar year. During any fiscal quarter, a
disproportionately large percentage of total product sales are earned in the last weeks or
days of the quarter. It is difficult to predict the extent to which these historical
trends will continue in the future. We cannot provide any assurance that we will be able
to manage our uneven sales patterns.

We prepare and update our forecasts
on a regular basis to predict customer demand for our products and services. If predicted
demand is higher than actual demand, we may have excess inventory or an underutilized
employee base. If actual demand exceeds predicted demand, we may not be able to meet
customer requirements in a timely manner due to sourcing, manufacturing, or service
constraints. We cannot provide any assurance that we will be able to forecast customer
demand accurately or respond quickly to changes in customer demand.

Our gross profit margin may be
materially affected by product mix, channel mix, and resale of third-party products

We provide a variety of solutions to
meet customer needs, including tape, disk, and network products, along with associated
services. Our products and services contribute varying gross profit margins, and the gross
margin earned on a customers total solution is dependent on the amounts and types of
products or services involved. We cannot provide any assurance that our future gross
profit margin will be similar to our historical gross profit margin.

We market our solutions through a
combination of a direct sales organization and indirect channel partners. Direct sales to
the end-user customer usually result in higher gross profit margins than indirect channel
sales. We cannot provide any assurance that changes in our channel mix will not have a
material impact on gross profit margin in the future.

Third-party product sales continue to
increase as a percentage of total product sales, and our gross profit margin may be
adversely affected as those products become a larger portion of our total storage solutions.
We may also be at a cost disadvantage in acquiring third-party products that
are manufactured by competitors.

21

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We may be materially affected by
rapid technological change and evolving industry standards

Short product life cycles are
inherent in high-technology industries due to rapid technological change and evolving
industry standards. Our financial condition and results of operations depend on our
ability to respond effectively to these changes. We cannot provide any assurance that we
will be able to successfully develop, manufacture, and market innovative new products or
adapt our current products to new technologies or new industry standards. In addition,
customers may be reluctant to adopt new technologies and standards, or they may prefer
competing technologies and standards.

SAN solutions are an example of the
rapid technological change in our industry, since SAN technologies and standards are
continually evolving. We continue to develop the necessary product modifications and
professional services knowledge to implement our SAN solutions successfully in various
customer operating environments. Because the SAN market changes so quickly, it is
difficult to predict the future rate of adoption of our SAN solutions.

# We may be materially
affected by risks associated with new product development

New product research and development
is complex and requires the investigation and evaluation of multiple alternatives, as well
as planning the design and manufacture of those alternatives selected for further
development. Research and development efforts could be adversely affected by any of the
following:

- Hardware and software design flaws
- Product development delays
- Changes in data storage technology
- Changes in operating systems
- Changes in industry standards

In addition, we have outsourced
software development for certain tape and network products. We cannot provide any
assurance that research and development activities will be successful in bringing new
products to market.

Manufacturing new products involves
integrating complex designs and processes, coordinating with suppliers for parts and
components, and managing manufacturing capacities to accommodate forecasted demand.
Failure to obtain sufficient quantities of parts and components, as well as other
manufacturing delays or constraints, could adversely affect the timing of new product
introductions. We have experienced product development and manufacturing delays in the
past that adversely affected our results of operations and competitive position.

When we introduce new products, we
must effectively manage the transition from our existing products to the new products. If
we do not manage the transition effectively, we may be subject to the following adverse
effects:

- Excess or obsolete inventory
- Insufficient inventory or manufacturing capacity to meet customer demand
- Delayed customer purchases
- Lost sales if customers purchase from our competitors

In addition, sales of our new
products may replace some of the sales of our existing products. We cannot provide any
assurance that we will be able to successfully manage the development, introduction, or
transition of new products in the future.

22

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We may be materially affected by
the risks associated with developing and protecting intellectual property

We depend on our ability to develop new
intellectual property that does not infringe on the rights of others. We cannot provide
any assurance that we will be able to continue to develop such new intellectual property.

We rely on a combination of U.S.
patent, copyright, trademark, and trade secret laws to protect our intellectual property
rights. We enter into confidentiality agreements relating to our intellectual property
with our employees and consultants, and we include confidentiality provisions in license
and non-exclusive sales agreements with our customers.

We also file patent and trademark
registration applications with foreign governments; however, many foreign countries do not
have intellectual property laws that are as well developed as those of the United States.

Despite our efforts to protect our
intellectual property rights, unauthorized parties may attempt to copy or otherwise obtain
or use our intellectual property. Monitoring the unauthorized use of our intellectual
property is difficult, particularly in foreign countries. We cannot provide any assurance
that we will be able to adequately protect our intellectual property.

We may be materially affected if
we are unable to attract and retain key employees

Our future success depends in large part
on our ability to attract and retain our key employees. For example, our financial results
in Europe during 2003 have been adversely affected by transitions in our European
management team. We face significant competition for individuals who possess the skills
required to sell our products and services, as well as design, develop, manufacture,
service, and market those products and services. An inability to successfully attract and
retain these employees could have an adverse effect on our future financial condition and
results of operations.

We may be materially affected by
the risks of conducting business outside the United States

Our international business may be
affected by changes in demand resulting from global and localized economic, business, and
political conditions. We are subject to the risks of conducting business outside the
United States, including the following risks:

- Adverse political and economic conditions
- Impositions of tariffs or quotas
- Changes in laws or regulations
- Difficulty in obtaining export licenses
- Potentially adverse tax or labor laws
- The burdens of complying with a variety of foreign laws
- Longer payment cycles typically associated with international sales
- Other factors outside our control

We expect these risks to increase in
the future as we expand our operations in Eastern Europe, Latin America, and Asia. We
cannot provide any assurance that these factors will not have a material adverse effect on
our financial condition or results of operations in the future.

23

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# Our manufacturing
operations may be materially affected by weather-related risks

We manufacture and assemble a
significant portion of our products in Puerto Rico. Our ability to perform these
activities may be significantly affected by weather-related risks beyond our control. We
believe that if the Puerto Rico facility were significantly affected by adverse weather,
we could relocate to an alternative facility within a reasonable period of time; however,
we cannot provide any assurance that we would be able to relocate that facility without a
material adverse impact on our financial condition or results of operations.

# We may be materially
affected by restructuring activities

We have recognized significant
restructuring charges in the past and it is possible that changes in our business,
industry, or in the global economy may necessitate restructuring activities in the future.
The necessity for restructuring activities may result in expenses that adversely affect
our financial condition and results of operations and may require incremental cash
payments.

# ITEM 3 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required under this
Item 3 is included in the section above entitled MARKET RISK MANAGEMENT.

# ITEM 4  CONTROLS
AND PROCEDURES

Under the supervision and with the
participation of management, including the principal executive officer and principal
financial officer, we conducted an evaluation of our disclosure controls and procedures
(as defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934) as
of September 26, 2003, the end of the period covered by this report. Based on their
evaluation, the principal executive officer and principal financial officer concluded that
our disclosure controls and procedures are effective.

During the fiscal quarter ended
September 26, 2003, there has been no change in our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that
has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

24

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# PART II

# ITEM 1  LEGAL
PROCEEDINGS

For information regarding legal
proceedings, see Note 5 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS,
included in Part 1, Item 1, of this Form 10-Q, which information is incorporated by
reference into this Part II, Item 1.

# ITEM 6  EXHIBITS
AND REPORTS ON FORM 8-K

(a)    
          Exhibits:

The exhibits listed below are filed
as part of this Quarterly Report on Form 10-Q or are incorporated by reference into this
Quarterly Report on Form 10-Q:

|3.1 |  | Restated Certificate of Incorporation of Storage Technology Corporation dated July 28,
1987 (previously filed as Exhibit 3.1 to the Companys Annual Report on Form 10-K for
the fiscal year ended December 29, 2000, filed on February 21, 2001, and incorporated
herein by reference)
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 |  | Certificate of Amendment dated May 22, 1989, to the Restated Certificate of Incorporation
dated July 28, 1987 (previously filed as Exhibit 3.2 to the Companys Annual Report
on Form 10-K for the fiscal year ended December 29, 2000, filed on February 21, 2001, and
incorporated herein by reference)
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.3 |  | Certificate of Second Amendment dated May 28, 1992, to the Restated Certificate of
Incorporation dated July 28, 1987 (previously filed as Exhibit 3.3 to the Companys
Annual Report on Form 10-K for the fiscal year ended December 29, 2000, filed on February
21, 2001, and incorporated herein by reference)
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.4 |  | Certificate of Third Amendment dated May 21, 1999, to the Restated Certificate of
Incorporation dated July 28, 1987 (previously filed as Exhibit 3.1 to the Companys
Quarterly Report on Form 10-Q for the fiscal quarter ended June 25, 1999, filed on August
9, 1999, and incorporated herein by reference)
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.5 |  | Restated Bylaws of Storage Technology Corporation, as amended through November 16, 2002
(previously filed as Exhibit 3.5 to the Companys Annual Report on Form 10-K for the
fiscal year ended December 27, 2002, filed on March 7, 2003, and incorporated herein by
reference)
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.1 |  | Specimen Certificate of Common Stock, $0.10 par value of Registrant (previously filed as
Exhibit (c)(2) to the Companys Current Report on Form 8-K dated June 2, 1989, and
incorporated herein by reference)
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 |  | Storage Technology Corporation Amended and Restated 1987 Employee Stock Purchase Plan, as
amended through May 21, 2003 (previously filed as Exhibit 4.6 to the Companys
Registration Statement on Form S-8 (Registration No. 333-106930) filed on July 10, 2003,
and incorporated herein by reference)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.21,2 |  | Storage Technology Corporation Amended and Restated 1995 Equity Participation Plan,
as amended through December 2001
|------- |  | --------------------------------------------------------------------------------------------------------------------

25

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|10.31 |  | Storage Technology Corporation Management by Objective Bonus Plan (previously filed as
Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended March 30, 2001, filed on May 14, 2001, and incorporated herein by reference)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.41 |  | Storage Technology Corporation Amended and Restated Stock Option Plan for Non-Employee
Directors (previously filed as Exhibit 10.2 to the Companys Quarterly Report on Form
10-Q for the fiscal quarter ended June 28, 1996, filed on August 12, 1996, and
incorporated herein by reference)
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.51 |  | Storage Technology Corporation Flexible Option Plan, dated December 2001 (previously filed
as Exhibit 10.5 to the Companys Annual Report on Form 10-K for the fiscal year ended
December 28, 2001, filed on March 4, 2002, and incorporated herein by reference)
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.61 |  | Agreement between the Company and Gary Francis, dated August 19, 1997 (previously filed as
Exhibit 10.25 to the Companys Annual Report on Form 10-K for the fiscal year ended
December 26, 1997, filed on March 6, 1998, and incorporated herein by reference)
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.71 |  | Severance Agreement, dated as of July 1, 2001, between the Company and Robert S. Kocol
(previously filed as Exhibit 10.9 to the Companys Quarterly Report on Form 10-Q for
the fiscal quarter ended September 28, 2001, filed on November 8, 2001, and incorporated
herein by reference)
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.81 |  | Restricted Stock Award Agreement, dated as of September 27, 2001, by and between the
Company and Robert S. Kocol (previously filed as Exhibit 10.9 to the Companys Annual
Report on Form 10-K for the fiscal year ended December 28, 2001, filed on March 4, 2002,
and incorporated herein by reference)
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.91 |  | Offer Letter, dated May 10, 2001, from the Company to Michael McLay (previously filed as
Exhibit 10.17 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended June 29, 2001, filed on August 9, 2001, and incorporated herein by reference)
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.101 |  | Offer Letter, dated February 9, 2001, from the Company to Jill F. Kenney (previously filed
as Exhibit 10.19 to the Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended March 30, 2001, filed on May 14, 2001, and incorporated herein by reference)
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.111 |  | Offer Letter, dated February 9, 2001, from the Company to Roger Gaston (previously filed
as Exhibit 10.20 to the Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended March 30, 2001, filed on May 14, 2001, and incorporated herein by reference)
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.121 |  | Promissory Note, dated May 11, 2001, from Michael McLay to the Company, in the principal
amount of $390,000 (previously filed as Exhibit 10.23 to the Companys Quarterly
Report on Form 10-Q for the fiscal quarter ended June 29, 2001, filed on August 9, 2001,
and incorporated herein by reference)
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.131 |  | Promissory Note, dated May 11, 2001, from Michael McLay to the Company, in the principal
amount of $160,000 (previously filed as Exhibit 10.24 to the Companys Quarterly
Report on Form 10-Q for the fiscal quarter ended June 29, 2001, filed on August 9, 2001,
and incorporated herein by reference)
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

26

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|10.141 |  | Form of LEAP Participation Agreement, dated April 30, 2001 (previously filed as Exhibit
10.25 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended
June 29, 2001, filed on August 9, 2001, and incorporated herein by reference)
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.151 |  | Offer Letter, dated July 16, 2001, from the Company to Roy Perry (previously filed as
Exhibit 10.28 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended September 28, 2001, filed on November 8, 2001, and incorporated herein by reference)
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.161 |  | Offer Letter, dated June 27, 2001, from the Company to Angel Garcia (previously filed as
Exhibit 10.29 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended September 28, 2001, filed on November 8, 2001, and incorporated herein by reference)
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.17 |  | Credit Agreement, dated as of October 10, 2001, among the Company, the several financial
institutions thereto, Bank of America, N.A., as letter of credit issuing bank and sole
administrative agent for the Banks, Key Corporate Capital, Inc. as Documentation Agent,
Fleet National Bank as Syndication Agent, and Banc of America Securities LLC as sole lead
arranger and sole book manager (previously filed as Exhibit 10.13 to the Companys
Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2001, filed on
November 8, 2001, and incorporated herein by reference)
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.18 |  | Security Agreement, dated as of October 10, 2001, by and among the Company, Bank of
America, N.A., as Collateral Agent for itself and other Secured Parties referred to
therein (previously filed as Exhibit 10.14 to the Companys Quarterly Report on Form
10-Q for the fiscal quarter ended September 28, 2001, filed on November 8, 2001, and
incorporated herein by reference)
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.19 |  | Guaranty, dated as of October 10, 2001, by StorageTek Holding Corporation, in favor of the
Banks party to a certain Credit Agreement and Bank of America, N.A., as Agent and Issuing
Bank and Collateral Agent (previously filed as Exhibit 10.15 to the Companys
Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2001, filed on
November 8, 2001, and incorporated herein by reference)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.201 |  | Form of Executive Severance Agreement (previously filed as Exhibit 10.32 to the
Companys Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2002,
filed on May 13, 2002, and incorporated herein by reference)
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.21 |  | Master Services Agreement (MSA), between each of the Company, Electronic Data Systems
Corporation, and EDS Information Services L.L.C., dated as of April 1, 2002 (previously
filed as Exhibit 10.33 to the Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended March 29, 2002, filed on May 13, 2002, and incorporated herein by reference)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.22 |  | Authorization Letter #1 pursuant to the MSA, dated April 1, 2002 (previously filed as
Exhibit 10.34 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended March 29, 2002, filed on May 13, 2002, and incorporated herein by reference)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.23 |  | Authorization Letter #2 pursuant to the MSA, dated April 1, 2002 (previously filed as
Exhibit 10.35 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended March 29, 2002, filed on May 13, 2002, and incorporated herein by reference)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

27

---

|10.24 |  | Master Secondary Storage Services Agreement, between the Company and Electronic Data
Systems Corporation, dated March 29, 2002 (previously filed as Exhibit 10.36 to the
Companys Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2002,
filed on May 13, 2002, and incorporated herein by reference)
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.251 |  | Offer Letter, dated June 25, 2002, between the Company and Mark Roellig (previously filed
as Exhibit 10.28 to the Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended June 28, 2002, filed on August 12, 2002, and incorporated herein by
reference)
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.261 |  | Form of Indemnification Agreement, dated as of November 22, 2002, between the Company and
each director (previously filed as Exhibit 10.31 to the Companys Annual Report on
Form 10-K for the fiscal year ended December 27, 2002, filed on March 7, 2003, and
incorporated herein by reference)
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.271 |  | Storage Technology Corporation 1993 Non-Statutory Stock Option Plan (previously filed as
Exhibit 10.32 to the Companys Annual Report on Form 10-K for the fiscal year ended
December 27, 2002, filed on March 7, 2003, and incorporated herein by reference)
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.281 |  | Offer Letter, dated November 12, 2002, between the Company and Pierre Cousin (previously
filed as Exhibit 10.33 to the Companys Annual Report on Form 10-K for the fiscal
year ended December 27, 2002, filed on March 7, 2003, and incorporated herein by
reference)
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.291 |  | Agreement, dated December 1, 2002, between the Company and Pierre Cousin (previously filed
as Exhibit 10.34 to the Companys Annual Report on Form 10-K for the fiscal year
ended December 27, 2002, filed on March 7, 2003, and incorporated herein by reference)
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.301 |  | Amended and Restated CEO Employment Agreement, dated March 27, 2003, between the Company
and Patrick J. Martin (previously filed as Exhibit 10.36 to the Companys Quarterly
Report on Form 10-Q for the fiscal quarter ended March 28, 2003, filed on May 9, 2003, and
incorporated herein by reference)
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.311 |  | Form of Executive Agreement, dated as of February 12, 2003, between the Company and each
executive officer (previously filed as Exhibit 10.37 to the Companys Quarterly
Report on Form 10-Q for the fiscal quarter ended March 28, 2003, filed on May 9, 2003, and
incorporated herein by reference)
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.32 |  | Letter, dated July 24, 2003, from the Company to Bank of America, N.A. (previously filed
as Exhibit 10.32 to the Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended June 27, 2003, filed on August 8, 2003, and incorporated herein by
reference)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.12 |  | Certification  Pursuant to Exchange Act Rules 13a-14 and 15d-14,
as Adopted  Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------

|31.22 |  | Certification  Pursuant to Exchange Act Rules 13a-14 and 15d-14,
as Adopted  Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------

28

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|32.12 |  | Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|----- |  | ----------------------------------------------------------------------------------------------------------------------

|32.22 |  | Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|----- |  | ----------------------------------------------------------------------------------------------------------------------

_________________

1  Contract or compensatory plan or
arrangement in which directors and/or officers participate 
2  Indicates exhibit filed with his Quarterly Report on Form 10-Q

(b)    
          Reports on Form 8-K.

Current report on Form 8-K, filed on
July 23, 2003, relating to an Item 9, Regulation FD Disclosure, regarding the announcement
of our results of operations for the fiscal quarter ended June 27, 2003, including a copy
of the script of the prepared remarks of the Chief Executive Officer and Chief Financial
Officer from a conference call regarding such results of operations.

29

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# SIGNATURES

Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.

|November 7, 2003(Date)
November 7, 2003(Date) |  | STORAGE TECHNOLOGY CORPORATION(Registrant)    /s/ ROBERT S. KOCOL
Robert S. KocolCorporate Vice Presidentand Chief Financial Officer(Principal Financial Officer)
/s/ THOMAS G. ARNOLD
Thomas G. ArnoldVice President and Corporate Controller(Principal Accounting Officer)
|------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

30