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UNITED STATES 
SECURITIES AND EXCHANGE COMMISSIONWashington, 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 April 1, 2005
|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 107,315,018 shares
of common stock outstanding as of May 2, 2005.

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# STORAGE TECHNOLOGY
CORPORATION 
INDEX TO FORM 10-Q 
April 1, 2005

|                                                                                                                         | PAGE
|------------------------------------------------------------------------------------------------------------------------ | ----
|PART I - FINANCIAL INFORMATION                                                                                           |     
|Item 1 - Financial Statements                                                                                            |     
|Consolidated Balance Sheets                                                                                              |     
|Consolidated Statements of Operations                                                                                    |     
|Consolidated Statements of Cash Flows                                                                                    |     
|Consolidated Statements of Changes in Stockholders' Equity                                                               |     
|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 2 - Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities                               |     
|Item 4 - Submission of Matters to a Vote of Security Holders                                                             |     
|Item 6 - Exhibits                                                                                                        |     
|Signatures                                                                                                               |     

2

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

|                                                              | 04/01/05 |  | 12/31/04 |          
|------------------------------------------------------------- | -------- |  | -------- | ---------
|
|ASSETS                                                        |          |  |          |          
|Current assets:                                               |          | 
|Cash and cash equivalents                                     |          |  | $        | 1,000,403
|Short-term investments                                        |          |  |          | 105,117  
|Accounts receivable                                           |          |  |          | 432,027  
|Inventories                                                   |          |  |          | 134,369  
|Deferred income tax assets                                    |          |  |          | 166,840  
|Other current assets                                          |          |  |          | 4,425    
|                                                              |          |  |          |          
|Total current assets                                          |          |  |          | 1,843,181
|                                                              |          |  |         
|Long-term investments                                         |          |  |          | 45,591   
|Property, plant, and equipment                                |          |  |          | 180,720  
|Spare parts for maintenance                                   |          |  |          | 50,309   
|Deferred income tax assets                                    |          |  |          | 46,475   
|Other assets                                                  |          |  |          | 142,170  
|                                                              |          |  |          |          
|Total assets                                                  |          |  | $        | 2,308,446
|                                                              |          |  |          |          
|LIABILITIES                                                   |          | 
|Current liabilities:                                          |          | 
|Current portion of long-term debt                             |          |  | $        | 1,318    
|Accounts payable                                              |          |  |          | 105,950  
|Accrued liabilities                                           |          |  |          | 486,106  
|Income taxes payable                                          |          |  |          | 231,617  
|Other current liabilities                                     |          |  |          | 22,715   
|                                                              |          |  |          |          
|Total current liabilities                                     |          |  |          | 847,706  
|                                                              |          |  |          |          
|Long-term debt                                                |          |  |          | 10,263   
|                                                              |          |  |          |          
|Total liabilities                                             |          |  |          | 857,969  
|                                                              |          |  |          |          
|Commitments and contingencies (Note 4 and 8)                  |          | 
|                                                              |          |  |         
|STOCKHOLDERS' EQUITY                                          |          | 
|Common stock, $0.10 par value, 300,000,000 shares authorized; |          | 
|114,621,988 shares issued at April 1, 2005, and               |          | 
|112,875,937 shares issued at December 31, 2004                |          |  |          | 11,462   
|Capital in excess of par value                                |          |  |          | 1,065,479
|Retained earnings                                             |          |  |          | 623,520  
|Accumulated other comprehensive loss                          |          |  |          | (27,374  
|Treasury stock, 7,214,516 shares at April 1, 2005,            |          | 
|and 5,448,350 shares at December 31, 2004, at cost            |          |  |          | (190,718 
|Unearned compensation                                         |          |  |          | (31,892  
|                                                              |          |  |          |          
|Total stockholders' equity                                    |          |  |          | 1,450,477
|                                                              |          |  |          |          
|Total liabilities and stockholders' equity                    |          |  | $        | 2,308,446
|                                                              |          |  |          |          

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 | 
|-------------------------------------------- | ------------- | 
|
|Revenue:                                     |               | 
|Storage products                             |               | 
|Storage services                             |               | 
|                                             |               | 
|Total revenue                                |               | 
|                                             |               | 
|Cost of revenue:                             |               | 
|Storage products                             |               | 
|Storage services                             |               | 
|                                             |               | 
|Total cost of revenue                        |               | 
|                                             |               | 
|Gross profit                                 |               | 
|                                             |               | 
|Research and development costs               |               | 
|Selling, general, and administrative expense |               | 
|                                             |               | 
|Operating profit                             |               | 
|                                             |               | 
|Interest income                              |               | 
|Interest expense                             |               | 
|                                             |               | 
|Income before income taxes                   |               | 
|                                             |               | 
|Provision for income taxes                   |               | 
|                                             |               | 
|Net income                                   |               | 
|                                             |               | 
|EARNINGS PER COMMON SHARE                    |               | 
|                                             |               | 
|Earnings per share:                          |               | 
|                                             |               | 
|Basic                                        |               | 
|                                             |               | 
|Diluted                                      |               | 
|                                             |               | 
|Weighted average shares:                     |               | 
|                                             |               | 
|Basic                                        |               | 
|                                             |               | 
|Diluted                                      |               | 
|                                             |               | 

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)

|                                                     | Quarter Ended | 
|---------------------------------------------------- | ------------- | 
|
|OPERATING ACTIVITIES                                 |               | 
|Cash received from customers                         |               | 
|Cash paid to suppliers and employees                 |               | 
|Interest received                                    |               | 
|Interest paid                                        |               | 
|Income taxes paid                                    |               | 
|                                                     |               | 
|Net cash provided by operating activities            |               | 
|                                                     |               | 
|INVESTING ACTIVITIES                                 |               | 
|Purchases of investments                             |               | 
|Proceeds from sale of investments                    |               | 
|Purchases of property, plant, and equipment          |               | 
|Proceeds from sale of property, plant, and equipment |               | 
|Other assets                                         |               | 
|                                                     |               | 
|Net cash provided (used in) investing activities     |               | 
|                                                     |               | 
|                                                     |               | 
|FINANCING ACTIVITIES                                 |               | 
|Repurchases of common stock                          |               | 
|Proceeds from employee stock plans                   |               | 
|Proceeds from other debt                             |               | 
|Repayments of other debt                             |               | 
|                                                     |               | 
|Net cash 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 loss                                     |               | 
|Other non-cash adjustments to income                 |               | 
|(Increase) decrease in assets:                       |               | 
|Accounts receivable                                  |               | 
|Inventories                                          |               | 
|Other current assets                                 |               | 
|Spare parts                                          |               | 
|Deferred income tax assets                           |               | 
|Increase (decrease) in liabilities:                  |               | 
|Accounts payable                                     |               | 
|Accrued liabilities                                  |               | 
|Other current liabilities                            |               | 
|Income taxes payable                                 |               | 
|                                                     |               | 
|Net cash provided by operating activities            |               | 
|                                                     |               | 

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

5

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# STORAGE TECHNOLOGY CORPORATION 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY 
(Unaudited) 
(In Thousands)

|                                |  |  |  |         | Accumulated |   |        |   |  
|------------------------------- |  |  |  | ------- | ----------- | - | ------ | - | -
|
|
|
|Balances, December 31, 2004     |  |  |  | 112,876 |             | $ | 11,288 |   | $
|                                |  |  |  |         |             |   |        |   |  
|Components of comprehensive     |  |  |  |         |             |   |        |  
|income:                         |  | 
|Net income                      |  |  |  | --      |             |   | --     |   |  
|Other comprehensive income      |  |  |  | --      |             |   | --     |   |  
|                                |  |  |  |         |             |   |        |   |  
|Total comprehensive income      |  |  |  | --      |             |   | --     |   |  
|                                |  |  |  |         |             |   |        |   |  
|Shares  issued upon exercise of |  | 
|stock options                   |  |  |  | 1,237   |             |   | 124    |   |  
|Shares  repurchased under stock |  |  |  |         |             |   |        |   |  
|repurchase program              |  |  |  | --      |             |   | --     |   |  
|Restricted stock activity       |  |  |  | 570     |             |   | 57     |   |  
|Other                           |  |  |  | (61     | )           |   | (7     | ) |  
|                                |  |  |  |         |             |   |        |   |  
|Balances, April 1, 2005         |  |  |  | 114,622 |             | $ | 11,462 |   | $
|                                |  |  |  |         |             |   |        |   |  

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

6

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

|                                                                           | Quarter Ended | 
|-------------------------------------------------------------------------- | ------------- | 
|
|Net income                                                                 |               | 
|                                                                           |               | 
|Other comprehensive income:                                                |               | 
|Foreign currency hedging contracts:                                        |               | 
|Net gain on  foreign  currency  cash flow  hedges,  net of tax  expense of |               | 
|$4,111 and $583                                                            |               | 
|Reclassification  adjustment for net losses included in net income, net of |               | 
|tax benefit of $3,315 and $3,457                                           |               | 
|Unrealized gain (loss) on marketable securities:                           |               | 
|Holding gain (loss), net of tax expense (benefit) of $(147) and $142       |               | 
|Reclassification  adjustment for net gains included in net income,  net of |               | 
|tax expense of $78 and $415                                                |               | 
|                                                                           |               | 
|Other comprehensive income                                                 |               | 
|                                                                           |               | 
|Comprehensive income                                                       |               | 
|                                                                           |               | 

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

7

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# 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 our wholly owned subsidiaries
(collectively referred to as StorageTek, we, our, and us) have been prepared on
substantially the same basis as our annual consolidated financial statements and should be
read in conjunction with our Annual Report on Form 10-K for the year ended December 31,
2004. In our opinion, 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. These reclassifications include
our presentation of auction rate securities. We have made reclassifications to our
consolidated statements of cash flows to reflect the gross purchases and sales of these
securities as investing activities rather than as a component of cash and cash
equivalents. As a result of these reclassifications, net cash used in investing activities
increased $48.0 million for the first quarter of 2004. This change in reclassification
does not affect previously reported cash flows from operations, cash flows from financing
activities, or consolidated statements of operations for any period.

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

NOTE 2  STOCK-BASED
COMPENSATION PLANS

We account 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 reflected in net
income is related to restricted stock.

The following table illustrates the
pro forma effect on net income and earnings per share if we 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 | 
|------------------------------------------------- | ------------- | 
|
|Net income, as reported                           |               | 
|                                                  |               | 
|Add: Stock-based compensation expense included in |               | 
|reported net income, net of related tax effects   |               | 
|                                                  |               | 
|Deduct: Total stock-based compensation expense    |               | 
|determined under fair value based method for all  |               | 
|awards, net of related tax effects                |               | 
|                                                  |               | 
|Pro forma net income                              |               | 
|                                                  |               | 
|                                                  |               | 
|Earnings per share:                               |               | 
|Basic, as reported                                |               | 
|Basic, pro forma                                  |               | 
|                                                  |               | 
|Diluted, as reported                              |               | 
|Diluted, pro forma                                |               | 

8

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# NOTE 3  INVENTORIES

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

|                | 04/01/05 |  | 03/26/04 |        
|--------------- | -------- |  | -------- | -------
|Raw materials   |          |  | $        | 28,985 
|Work-in-process |          |  |          | 27,770 
|Finished goods  |          |  |          | 77,614 
|                |          |  |          |        
|                |          |  | $        | 134,369
|                |          |  |          |        

# NOTE 4  LITIGATION

In August 2002, Ted Marx, a former
StorageTek employee who was terminated in 2001, filed suit in California State Superior
Court (Los Angeles) against us. The complaint contained claims for wrongful termination,
wrongful termination in violation of the California Labor Code, breach of the covenant not
to terminate without good reason, breach of contract, breach of the covenant of good faith
and fair dealing, failure to pay wages under the California Labor Code, and intentional
infliction of emotional distress. In September 2003, we filed a motion for summary
judgment. In December 2003, the court ruled in our favor on the claim of breach of the
covenant not to terminate without good reason. The trial commenced in May 2004. In June
2004, the jury awarded approximately $2.9 million in compensatory damages and $9.0 million
in punitive damages to the plaintiff. In addition, in the first quarter of 2005, the trial
court awarded approximately $1.0 million in attorney fees and costs to the plaintiff. We
are vigorously seeking to overturn and/or reduce these awards. We have not accrued the
damages or the attorney fees for this case, as we do not believe that these amounts
represent a loss contingency that meets the definition of probable under SFAS No. 5,
Accounting for Contingencies.

We are also involved in a number of
other pending legal proceedings that have come up in the ordinary course of business. We
believe that any liability as a result of adverse outcomes in such proceedings would not
have a material adverse effect on our financial condition 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 our financial
condition or 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 inability to ship products or components found to have
violated third-party patent rights.

9

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# NOTE 5  CREDIT FACILITIES

We have a $75.0 million unsecured
revolving credit facility (the Revolver) that expires in October 2008. The interest rates
for borrowing under the Revolver are based upon our Consolidated Leverage Ratio, which is
the ratio of Consolidated Funded Indebtedness to rolling four quarter Consolidated
Earnings Before Interest Expense, Taxes, Depreciation, and Amortization (EBITDA). The rate
ranges from the applicable LIBOR plus 1.00% to 2.00% or the agent banks base rate
plus 0.00% to 1.00%. We pay an annual commitment fee of 0.175% or 0.200% on any unused
borrowings based upon the Consolidated Leverage Ratio. The Revolver contains certain
financial and other covenants, including limitations on the payment of cash dividends. We
had no outstanding borrowings under the Revolver as of April 1, 2005. However, we had
letters of credit totaling approximately $850,200 under the Revolver as of April 1, 2005.

# NOTE 6  OPERATIONS OF BUSINESS SEGMENTS

StorageTek 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.

We do 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 we do not
allocate research and development costs; selling, general, and administrative expense;
interest income; interest expense; or provision for income taxes to the segments. The
following table shows revenue and gross profit by segment (in thousands):

|                   | Quarter Ended | 
|------------------ | ------------- | 
|
|Revenue:           |               | 
|Storage products   |               | 
|Storage services   |               | 
|                   |               | 
|Total revenue      |               | 
|                   |               | 
|Gross profit:      |               | 
|Storage products   |               | 
|Storage services   |               | 
|                   |               | 
|Total gross profit |               | 
|                   |               | 

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

|                               | Quarter Ended | 
|------------------------------ | ------------- | 
|
|Tape products                  |               | 
|Disk products                  |               | 
|Network products               |               | 
|Other                          |               | 
|                               |               | 
|Total storage products revenue |               | 
|                               |               | 

10

---

# NOTE 7  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 | 
|------------------------------------------- | ------------- | 
|
|Net income                                  |               | 
|                                            |               | 
|Weighted average common shares outstanding: |               | 
|Basic                                       |               | 
|Effect of dilutive common stock equivalents |               | 
|                                            |               | 
|Diluted                                     |               | 
|                                            |               | 
|Earnings per common share:                  |               | 
|Basic                                       |               | 
|Diluted                                     |               | 

For the quarters ended April 1, 2005,
and March 26, 2004, options to purchase 259,702 and 3,633,948 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 our common
stock, and therefore, the effect would have been antidilutive.

# NOTE 8  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.

In the normal course of business, we
are party to a variety of agreements under which we may be obligated to indemnify the
other party for certain matters. These obligations typically arise in contracts where we
customarily agree 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. We also have indemnification
obligations to our officers and directors. The duration of these indemnifications varies,
and in certain cases, is indefinite. In each of these circumstances, payment by us depends
upon the other party making an adverse claim according to the procedures outlined in the
particular agreement, which procedures generally allow us to challenge the other
partys claims. In certain instances, we may have recourse against third parties for
payments that we make.

We are 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. We have not recorded any liability for these indemnifications in the
accompanying consolidated balance sheets; however, we accrue losses for any known
contingent liability, including those that may arise from indemnification provisions, when
future payment is both probable and reasonably estimable.

We provide warranties associated with
the sale of our products. Our 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, we may also be responsible
for refunding the purchase price of the product if we cannot remedy the product failure.
We establish a warranty liability for the estimated cost of warranty-related claims at the
time revenue is recognized. The following table summarizes information related to our
warranty reserves (in thousands):

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

11

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# NOTE 9  RECENT
ACCOUNTING PRONOUNCEMENTS

In November 2004, the Financial
Accounting Standards Board (FASB) issued SFAS No. 151, Inventory Costs  an
amendment of ARB No. 43, Chapter 4. This statement amends the guidance in ARB No.
43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material (spoilage).
This statement requires that the above items be recognized as current-period charges,
regardless of whether they meet the criterion of abnormal. Additionally, SFAS No. 151
requires that the allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. SFAS No. 151 is effective
for fiscal years beginning after June 15, 2005, and is required to be adopted by us
in the first quarter of fiscal 2006. We do not expect SFAS No. 151 to have a material
impact on our financial condition or results of operations.

In December 2004, the FASB issued
Statement No. 123R, Share-Based Payment, which requires companies to measure
and recognize compensation expense for all stock-based payments at fair value. In April
2005, the SEC approved a delay in the effective date of SFAS 123R. As a result of this
delay, we are required to adopt SFAS No.123R no later than the first quarter of
fiscal 2006. We are currently evaluating the impact of SFAS No. 123R on our financial
position and results of operations, as well as the timing and method of adoption of SFAS
No. 123R. In addition, we have not determined whether the adoption of SFAS No. 123R
will result in amounts that are similar to the current pro forma disclosures under SFAS
123. See Stock-Based Compensation Plans above for information related to the
pro forma effects on our net income and earnings per share if we had applied the fair
value recognition provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.

In December 2004, the FASB issued two
Staff Positions (FSPs) that provide accounting guidance on how companies should account
for the effects of the American Jobs Creation Act of 2004 (the Act) that was signed into
law on October 22, 2004. The Act could affect how companies report their deferred income
tax balances. The first FSP is FSP FAS 109-1 (FSP 109-1); the second is FSP FAS 109-2 (FSP
109-2). In FSP 109-1, the FASB concludes that the tax relief from the Act associated with
a special tax deduction for domestic manufacturing should be accounted for as a
special deduction instead of a tax rate reduction. FSP 109-2 gives a company
additional time to evaluate the effects of the Act on any plan for reinvestment of
repatriation of foreign earnings for purposes of applying SFAS No. 109, Accounting
for Income Taxes. However, a company must provide certain disclosures if it chooses
to utilize the additional time granted by the FASB. We are evaluating the impact, if any,
these FSPs may have on our consolidated financial statements.

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
typically 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, whether as a result of new information,
future events, or otherwise, except as may be otherwise required by law.

FIRST QUARTER 2005
FINANCIAL OVERVIEW

Financial Results

While we grew net income on a
year-over-year basis, this was not the quarter that we expected to deliver. Our $499.3
million of total revenue for the quarter was down 3% compared to the same period last
year, and down 6% after adjusting to reflect constant currencies. Our product revenues
were down 10%, offset by a 6% increase in service revenue. Within services, our product
support and multi-vendor support grew 4% on a year-over-year basis. Professional services
grew approximately 15% compared to the first quarter of 2004, continuing a trend of
increasing contribution to total service revenue. We experienced revenue declines in all
of our geographies except for Latin America, where we saw a 29% increase in revenue. Our
North America revenues decreased 8%, European revenues decreased 1%, and Asia-Pacific
revenues decreased 8%. We believe most of the revenue shortfall we experienced was due to
direct sales transactions that have been pushed out into subsequent quarters. We had solid
gross profit margins in both storage products and storage services, and operating expenses
were relatively flat to last year. Our operating profit decreased 16%, and net income was relatively flat to last year.

Financial Position and Liquidity

We maintained a strong balance sheet
during the first quarter of 2005. Total cash and investments were approximately $1.2
billion. We repurchased another $56.6 million of stock in the first quarter through our
stock repurchase program, and we generated $51.9 million in cash flows from operations.
Days sales outstanding for the first quarter of 2005 was 79 days, a 6-day improvement
compared to the first quarter of 2004. Our inventory levels increased to $134.4 million
during the quarter, primarily due to inventory build associated with the sales transactions that were pushed out into subsequent quarters. Our
operations continue to be self-funded and our debt-to-capitalization ratio remains
constant at 1%.

FINANCIAL OUTLOOK

Our primary challenge is to grow
revenue in order to increase operating margins and profitability. In the first quarter, we
found that the IT market continued to be unstable, as it has been for the past few years.
Consequently, we now believe that our revenue growth for the full year 2005 will be in the
2 to 4% range as compared to 2004. Although our indirect channel sales as a percent of total sales rose to 57% for the current quarter, we believe
that the indirect channel sales percentage will decrease back to the normal 45 to 50% range for the year.

Our storage products gross profit
margins were better than we expected for the first quarter of 2005. We believe that the
combination of new product offerings aimed at the small and medium library markets and an
expected increase in the indirect channel sales mix will result in an annualized product
margin similar to or perhaps slightly below the 2004 level. With respect to storage
services gross profit margins, we expect professional services to become a larger
percentage of total services revenue in 2005, and these services typically do not carry
the same level of gross profit margin as product support services. Accordingly, our total
storage services gross profit margin may be negatively impacted by further success in
growing our professional services revenue, although we believe that service margins for
2005 will be relatively flat to 2004.

We believe that research and
development expenditures will be approximately $50.0 million per quarter for the rest of
2005, and we expect that selling, general, and administrative expense (SG&A) as a
percentage of total revenue will be approximately 28% for 2005. Based on current
estimates, we believe that our effective tax rate in 2005 will be approximately 21%,
slightly better than we had previously anticipated. We anticipate that we can generate
pre-tax income of approximately $260 million during 2005 and increase earnings per share
during 2005 by close to 10% over the prior year.

We believe that our strong balance
sheet and cash flows will continue to be a competitive advantage for us throughout 2005.
Based on these strengths, as well as the key product launches we have planned for 2005, we
believe that we are firmly positioned to take advantage of the opportunities created by
the ever increasing storage demands placed on our customers.

For a discussion of some of the risks
and uncertainties that impact our business, see FACTORS THAT MAY AFFECT FUTURE
RESULTS in this Item 2.

13

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SELECTED CONSOLIDATED STATEMENT OF OPERATIONS DATA

The following table presents
Consolidated Statements of Operations data stated as a percentage of total revenue, except
for segment gross profit, which is stated as a percentage of the applicable segment
revenue. The table also presents the percentage change based on the dollar amounts of each
of the items.

|                                              |  |  | Percentage |      
|--------------------------------------------- |  |  | ---------- | -----
|
|
|
|
|
|Storage products                              |  |  |            | 53.3 
|Storage services                              |  |  |            | 46.7 
|                                              |  |  |            |      
|Total revenue                                 |  |  |            | 100.0
|                                              |  |  |            |      
|Gross profit:                                 |  | 
|Storage products                              |  |  |            | 50.6 
|Storage services                              |  |  |            | 42.8 
|                                              |  |  |            |      
|Total gross profit                            |  |  |            | 47.0 
|                                              |  |  |           
|Operating expenses:                           |  | 
|Research and development costs                |  |  |            | 9.5  
|Selling, general, and administrative expenses |  |  |            | 33.0 
|                                              |  |  |            |      
|Operating profit                              |  |  |            | 4.5  
|                                              |  |  |           
|Interest income                               |  |  |            | 1.4  
|Interest expense                              |  |  |            | (0.0 
|                                              |  |  |            |      
|Income before income taxes                    |  |  |            | 5.9  
|                                              |  |  |           
|Provision for income taxes                    |  |  |            | 1.2  
|                                              |  |  |            |      
|Net income                                    |  |  |            | 4.7  
|                                              |  |  |            |      

The following table presents
supplemental data for storage products revenue stated as a percentage of total storage
products revenue, and the percentage change based on the dollar amounts of each of the
items.

|                                             |  |  | Percentage |      
|-------------------------------------------- |  |  | ---------- | -----
|
|
|
|
|Supplemental data - storage products revenue |  |  |            |      
|Tape products                                |  |  |            | 79.6 
|Disk products                                |  |  |            | 12.2 
|Network products                             |  |  |            | 4.8  
|Other                                        |  |  |            | 3.4  
|                                             |  |  |            |      
|Total storage products revenue               |  |  |            | 100.0
|                                             |  |  |            |      

14

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RESULTS OF OPERATIONS

Storage
ProductsRevenue and Gross Profit Margin

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 decreased in
the first quarter of 2005, compared to the same period in 2004, primarily due to a
decrease in tape and disk product sales. A number of customer orders were delayed at the
end of the quarter, including some of our Information Lifecycle Management (ILM)
solutions. An increase in tape automation sales was more than offset by lower sales of tape drives. We believe the
tape drive revenue decrease was primarily due to the migration of existing drives to new
libraries. We expect that tape drive revenue will begin to increase once the migration has
occurred and as customers look to upgrade their existing drives to newer technology.

Storage products gross profit margin
increased in the first quarter of 2005, compared to the same period in 2004, primarily due
to a shift in product mix toward our tape automation and virtual software products, which
typically sell at higher margins than our disk and network products. Operational
efficiencies and ongoing cost reduction activities further contributed to the improved
product margins. Product mix, channel mix, and further operational efficiencies are key
factors that affect our storage products gross profit margin.

Storage
ServicesRevenue and Gross Profit Margin

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 in
the first quarter of 2005, compared to the same period in 2004, primarily due to a 4%
increase in maintenance and support services revenue. We also had continued strong revenue
growth from professional service offerings. Professional services revenue accounted for
approximately 12% of total storage services revenue in the first quarter of 2005, compared
to 11% for the same period in 2004.

Storage services gross profit margin
remained largely unchanged in the first quarter of 2005, compared to the same period in
2004. We believe that the mix of services will continue to shift to more professional
services. If professional services become a greater portion of our service revenue, we
expect that the resulting change in our services mix would adversely impact our storage
services gross profit margin, as professional services typically carry lower margins than
our traditional maintenance offerings.

RESEARCH AND DEVELOPMENT

Research and development costs
decreased in the first quarter of 2005, compared to the first quarter of 2004, partly due
to minimal prototype material for new product launches. With significant product launch
activity on the forefront, we anticipate that research and development costs will increase
to approximately $50.0 million per quarter for the remainder of 2005. We continue to focus
on improving research and development productivity, increasing strategic alignment to
support our ILM strategy, and reducing non-essential spending.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE

Selling, general, and administrative
expense (SG&A) was similar to last years levels, with the increase primarily due
to the additional investments we made in sales personnel as part of our ongoing efforts to
increase revenue. As we make investments in sales resources with a focus on revenue
growth, we also continue to evaluate our expenses to identify opportunities where we can
become more efficient and effective. We believe that SG&A expense for the full year of
2005 will be approximately 28%, consistent with the 2004 level.

INTEREST INCOME AND EXPENSE

Net interest income for the first
quarter of 2005 increased significantly compared to the same period in 2004, primarily due
to increases in interest rates and a higher cash and investments balance. See
LIQUIDITY AND CAPITAL RESOURCES for further discussion of our debt and
financing arrangements.

15

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INCOME TAXES

Our effective tax rate was 20.6% for
the first quarter of 2005, compared to 21.7% for the same period in 2004. The decrease was
primarily due to a shift in the anticipated income projections attributable to different
taxing jurisdictions that have varying tax rates. We continue to recognize significant tax
benefits associated with our manufacturing operations in Puerto Rico.

We expect the effective tax rate in
the first quarter of 2005 to be in effect for the full year based on currently available
information. Our effective tax rate may be impacted by a variety of factors, including the
overall effectiveness of our global manufacturing strategies, tax legislation, and changes
in our estimates regarding the resolution of open tax matters. As described below, we are
in the process of evaluating whether to repatriate foreign earnings pursuant to the
repatriation provision of the American Jobs Creation Act of 2004 (AJCA). If we decide to
repatriate foreign earnings, we expect that our effective tax rate for 2005 would
increase.

The AJCA, enacted on October 22,
2004, provides for a temporary 85% dividends received deduction on certain foreign
earnings repatriated during a one-year period. The deduction would result in an
approximate 5.25% federal tax rate on the repatriated earnings. To qualify for the
deduction, the repatriated foreign earnings must be reinvested in the United States
pursuant to a domestic reinvestment plan established by a companys chief executive
officer and approved by the companys board of directors. Certain other criteria in
the AJCA must be satisfied as well. For us, the one-year period during which the
qualifying distributions can be made is fiscal 2005.

We are in the process of evaluating
whether to repatriate foreign earnings pursuant to the repatriation provision of the AJCA.
As of today, uncertainty remains as to how to interpret many of those provisions. As such,
we do not expect to be able to complete our evaluation until after Congress or the
Treasury Department has provided additional clarifying language on key elements of those
provisions. We expect to complete the evaluation of the effects of the repatriation
provision within a reasonable period of time following the publication of the additional
clarifying language. The range of reasonably possible amounts of unremitted earnings that
we are currently considering for repatriation pursuant to the AJCA is from $0 to $500
million. The related potential range of income tax expense which would result from
repatriation is currently estimated to be between $0 and $2.6 million. These amounts
exclude amounts that have been previously recognized in the financial statements.

We are subject to regular audits by
federal, state, and foreign tax authorities. These audits may result in proposed
assessments that may result in additional tax liabilities. We recognize liabilities for
anticipated tax audit issues based on our estimate of whether, and the extent to which,
additional taxes will be due. Our income taxes payable balance as reported on the
Consolidated Balance Sheet is comprised primarily of tax contingencies that we believe are
both probable and reasonably estimable.

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 $213.3
million of deferred income tax assets as of April 1, 2005. Our valuation allowance of
approximately $22.6 million as of April 1, 2005, relates principally to foreign net
operating loss carryforwards.

CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

Our critical accounting estimates and
assumptions are disclosed in our Annual Report on Form 10-K for the year ended December
31, 2004. We have made no material changes to those policies during the three months ended
April 1, 2005.

16

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LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

The following table summarizes our
cash flows from continuing operations (in thousands):

|                     | Quarter Ended
|-------------------- | -------------
|
|Operating activities |              
|Investing activities |              
|Financing activities |              

Our cash and cash equivalents balance
increased $147 million during the first quarter of 2005, primarily due to an increase
in cash provided by investing activities. This increase was primarily due to the net sale
of approximately $176 million of auction rate securities during the quarter.

We believe the decrease in operating
cash flows as compared to the prior year is largely due to inventory build associated with sales transactions that were pushed
out into subsequent quarters.
 Our financing activities
for the first quarter of 2005 include the use of $56.6 million of cash to purchase shares
of our stock under the publicly announced share repurchase program, which was partially
offset by $23.9 million of proceeds from employee stock plans.

Future Sources and Uses
of Cash

We expect that cash flows from
operations will continue to serve as our principal source of liquidity, and we believe
that we have adequate working capital and financing capabilities to meet our anticipated
operating and capital requirements for the next 12 months. However, 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.

Over the longer term, we may choose
to fund our operations through the issuance of additional equity or debt financing. The
issuance of equity or convertible debt securities could result in dilution to our
stockholders, and we cannot provide any assurance that such additional long-term
financing, if required, could be completed on favorable terms.

If we decide to repatriate foreign
earnings under the AJCA, our liquidity in the United States would increase, although use
of the additional liquidity would be restricted by the domestic reinvestment plan required
under the AJCA. There would be a corresponding reduction in liquidity in our foreign
subsidiaries.

Our stock repurchase program allows
us to acquire up to $500.0 million of our common stock. As of April 1, 2005, we had $309.3
million available to repurchase shares under the program. At the current pace of our
common stock repurchases, we would exhaust the current repurchase authorization near the
middle of next year. We intend to fund future purchases of our common stock under our
share repurchase program through cash on hand and cash flows from operations. We continue
to review and evaluate alternative uses for our cash, including additional stock
repurchases, potential acquisitions, and investments in our business.

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 a difficult 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 maximizing the current capacities of their data
storage equipment. These factors continued to persist during the first quarter of 2005 and
contributed to a shortfall in revenue and profits relative to our expectations. We expect
this global economic trend to continue, and we are sustaining our cost-saving measures to
help mitigate the adverse effects of this trend on our business. We cannot provide any
assurance that a prolonged weakness in information technology spending 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

During the first quarter of 2005,
approximately 80% 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. For a discussion of risk associated with new products,
see We may be materially affected by risks associated with new product
development, below. If overall demand for tape storage products declines, or if we
lose significant 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 price of disk storage. The price of disk storage continues to
decrease rapidly due to competition and decreasing manufacturing costs associated with new
disk drive technologies such as ATA disk. 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.

We may be materially affected by
competition and by our ability to execute our ILM strategy

The data storage industry is highly
competitive, and customers make their decisions based on a number of competitive factors.
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.

Our principal strategy for growing
revenue and addressing the competition is our ILM strategy. Our ILM strategy is intended
to capitalize on our ability to deliver complete storage solutions that satisfy customer
storage requirements around data archive, data protection, and primary storage. These
solutions comprise tape, disk, networking, software, and services. We have achieved some
initial success in our ILM strategy; however, we must continue to develop and deliver on
this strategy in the future in order to grow revenue. 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
with a competitive advantage in the data storage industry.

18

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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 technologies
- 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 our 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.

We introduced significant new
products in 2004 and we plan to introduce a number of other significant new products
during 2005, including virtual tape products targeted for both the enterprise and
open-systems markets. 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

Sales of our new products may replace
some of the sales of our existing products, and there may be a decline in sales of
existing products in the periods leading up to new product introductions. In addition,
sales of new products may result in lower service revenues if new products under warranty
replace older products being serviced under maintenance agreements. We cannot provide any
assurance that we will be able to successfully manage the development, introduction, or
transition of new products in the future.

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

Services continue to contribute an
increasing amount of our total revenue. Growth in services has partially been driven by
service offerings such as storage consulting services, implementation services, and
storage management services. The development and delivery of these services are critical
to the success of our plan to deliver complete storage solutions to our customers. We must
ensure that storage service professionals have the necessary skill sets, experience,
tools, and training to support these service offerings. Revenue growth from these 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 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
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. We continued to experience these trends during the first
quarter of 2005. 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 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. If actual demand is
less than predicted demand, we may have excess inventory or an underutilized employee
base. 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
software and services. Our products and services contribute varying gross profit margins,
and the gross margin on a customers total solution is dependent on the amounts and
types of products or services involved. Gross profit margins may also be impacted by early
start-up manufacturing costs associated with new products. 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.

We sell a number of third-party
products, and our gross profit margin may be adversely affected if 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.

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 channel sales contributed approximately 57% of our total product revenue during
the first quarter of 2005, compared to 48% in the same period in 2004. Increasing our
sales through these indirect channels is critical to expanding our reach into new accounts
and 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 products gross profit margins may be adversely
impacted to the extent we continue to receive a larger portion of our sales through our
indirect channels in the future. Maintenance revenue may also 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.

20

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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 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         
|Engenio Information Technologies, Inc |  | Certain FlexLine disk products                                                     
|Fujitsu Electronics America           |  | Application-specific integrated circuits (ASICs) for various tape and disk products
|Austria Microsystems                  |  | ASICs for various tape products                                                    
|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.

21

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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.

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 one of our suppliers to meet 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.

Since we operate in a lean
manufacturing environment, we are 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
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.

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 all of 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 by the
risks associated with litigation

We are involved in a number of
pending legal proceedings that have come up in the ordinary course of business. We believe
that any liability as a result of adverse outcomes in such proceedings would not have a
material adverse effect on our financial condition. 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 our financial condition or 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 an inability to ship products or components found to have violated third-party patent
rights.

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

Our future success depends in large part
on our ability to attract and retain our key employees. During the past year, several
changes were made with respect to the executive management team and their organizational
responsibilities. 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. Furthermore, there may be a delay between when organizational
announcements are made and when the organizations are fully effective.

22

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

International operations accounted
for approximately 58% of our revenue in the first quarter of 2005, compared to 57% in the
same period in 2004. We also sell products through U.S. indirect channel partners that
have some of their 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.

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
- Foreign currency fluctuations
- Other factors outside our control

We expect these risks to increase in
the future as we expand our operations in foreign countries. 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.

We may be materially affected by
regulatory requirements

The European Union (EU) has finalized
the Waste Electrical and Electronic Equipment (WEEE) directive and the Restriction on the
Use of Certain Hazardous Substances in Electrical and Electronic Equipment (RoHs)
directive. WEEE regulates the collection, recovery, and recycling of waste from electrical
and electronic products. Under WEEE, we will be responsible for financing operations for
the collection, treatment, disposal, and recycling of past and future covered products.
RoHs bans the use of certain hazardous materials including lead, mercury, cadmium,
chromium, and two brominated flame-retardants (PBB and PBDE). The EU member states are
responsible for determining the specific legal requirements relating to these directives,
and since they have not yet finalized their requirements, we are presently unable to
reasonably estimate the amount of any costs that may be necessary in order to comply with
WEEE or RoHs. We cannot provide any assurance that compliance with WEEE and RoHS will not
have a material adverse effect on our financial condition or results of operations.

We are subject to various other
regulatory requirements, including the Sarbanes-Oxley Act of 2002. Section 404 of the
Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our
internal control over financial reporting. Because of inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

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 facilities 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 to 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

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. The majority of our international operations involve
transactions denominated in the euro, Pound Sterling, and Japanese yen. 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 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 April 1, 2005, and as of December 31, 2004, would result in a
hypothetical loss in fair value of approximately $43.2 million and $55.4 million,
respectively. The decrease in the hypothetical loss is primarily due to a decrease in net
outstanding derivatives. 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.

24

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Interest Rate Risk

Changes in interest rates primarily
affect interest income earned on our cash and short-term investments. A hypothetical 10%
adverse movement in interest rates applied to our cash and short-term investments 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 equivalents, investments, foreign currency options and forwards, and
trade receivables. We do not believe that our cash equivalents, investments, or 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 one counterparty. Substantially all trade receivable
balances are unsecured. The concentration of credit risk with respect to 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 ongoing credit evaluations of our customers and maintain an allowance for
potential credit losses.

# 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 April 1, 2005, 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 first quarter of 2005, we
implemented a new maintenance billing system for all end-user customers within the United
States. This system is designed to allow more timely updates to our installed maintenance
base and streamline our existing service billing process. We maintained existing key
internal controls over the service billing process in the first quarter to support a
successful implementation, and will gradually replace the existing controls with new
controls during the next 12 months. There were no other changes in our internal control
over financial reporting for the quarter ended April 1, 2005, that have materially
affected, or are reasonably likely to materially affect, our internal control over
financial reporting.

25

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PART II

# ITEM 1 
LEGAL PROCEEDINGS

For information regarding legal
proceedings, see Note 4 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 2  CHANGES IN SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

The following table summarizes our
purchases of our equity securities during the first quarter of 2005:

| |                     |  |  |           |  |   | Total Number of |     | Approximate Dollar Value of
| | ------------------- |  |  | --------- |  | - | --------------- | --- | ---------------------------
|
|
|
| | 01/01/05 - 02/04/05 |  |  | 857,200   |  | $ | 31              | .77 |                            
| | 02/05/05 - 03/04/05 |  |  | 482,900   |  |   | 31              | .68 |                            
| | 03/05/05 - 04/01/05 |  |  | 426,066   |  |   | 32              | .95 |                            
| |                     |  |  |           |  |  
| | Total               |  |  | 1,766,166 |  | $ | 32              | .03 |                            
| |                     |  |  |           |  |  

(1)    
          Excludes shares withheld to satisfy minimum tax withholding requirements
          associated with restricted stock lapses. 
         (2)    
          On July 8, 2004 our Board of Directors authorized a stock repurchase program to acquire up to $500 million of common stock.
          Purchases under this repurchase program may be made from time-to-time, in the open market, through block trades or otherwise,
          and in privately negotiated transactions.  There is no fixed termination date for this repurchase program.

ITEM 4  SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS

Our Annual Meeting of Stockholders (the
Annual Meeting) was held on April 27, 2005. A total of 96,182,096 shares of common stock,
par value $0.10 per share (the Common Stock), were present at the Annual Meeting, either
in person or by proxy, constituting a quorum. The matters voted upon at the Annual Meeting
by the stockholders consisted of the four proposals set forth in our definitive Proxy
Statement, dated March 21, 2005.

The first proposal related to the
election of seven persons to serve on our Board of Directors. The Boards nominees
were each elected and received, respectively, the following votes:

|Director          |  | For        |  | Withheld   | 
|----------------- |  | ---------- |  | ---------- | 
|James R. Adams    |  | 91,878,795 |  | 4,303,301  | 
|Charles E. Foster |  | 92,684,631 |  | 3,497,465  | 
|Mercedes Johnson  |  | 95,202,654 |  | 979,442    | 
|William T. Kerr   |  | 77,185,589 |  | 18,996,507 | 
|Robert E. Lee     |  | 63,455,266 |  | 32,726,830 | 
|Patrick J. Martin |  | 95,053,999 |  | 1,128,097  | 
|Judy C. Odom      |  | 95,733,332 |  | 448,764    | 

The second proposal related to ratifying the selection of  PricewaterhouseCoopers  LLP as our independent  registered public accounting
firm for fiscal year 2005. This proposal was approved as detailed below.

The third proposal was a stockholder  proposal regarding  cumulative  voting. The fourth proposal was a stockholder  proposal regarding
counting of abstentions. These two proposals were rejected as detailed below.

|Proposal   |  | For        |  | Against    |  | Abstentions |  | Broker Non-Votes | 
|---------- |  | ---------- |  | ---------- |  | ----------- |  | ---------------- | 
|Proposal 2 |  | 91,982,291 |  | 4,148,894  |  | 50,911      |  | --               | 
|Proposal 3 |  | 42,509,977 |  | 36,001,925 |  | 9,175,421   |  | 8,494,773        | 
|Proposal 4 |  | 31,803,393 |  | 55,652,713 |  | 231,217     |  | 8,494,773        | 

26

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ITEM 6  EXHIBITS

(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 our 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 our 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 our 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 our 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 our Current Report on Form 8-K dated June 2, 1989, and incorporated
herein by reference)
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

27

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|10.1 1 |  | Storage Technology Corporation Amended and Restated 1987 Employee Stock Purchase
               Plan, as amended through May 21, 2003 (previously filed as Exhibit 4.6 to our
               Registration Statement on Form S-8 (Registration No. 333-106930) filed on July
               10, 2003, and incorporated herein by reference)
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 1 |  | Storage Technology Corporation Amended and Restated 1995 Equity Participation Plan, as amended through May 20, 2004 (previously filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended Junde 25, 2004, filed on August 2, 2004, and incorporated herein by reference)
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 1 |  | Storage Technology Corporation 2004 Long Term Incentive Plan (previously filed
               as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the fiscal quarter
               ended June 25, 2004, filed on August 3, 2004, and incorporated herein by
               reference)
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 1 |  | Storage Technology Corporation Management by Objective Bonus Plan (previously
               filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the fiscal
               quarter ended March 30, 2001, filed on May 14, 2001, and incorporated herein by
               reference)
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 1 |  | Storage Technology Corporation 2004 Performance-Based Incentive Plan (previously
               filed as Exhibit 10.5 to our Quarterly Report on Form 10-Q for the fiscal
               quarter ended June 25, 2004, filed on August 3, 2004, and incorporated herein by
               reference)
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6 1 |  | Storage Technology Corporation Amended and Restated Stock Option Plan for
               Non-Employee Directors (previously filed as Exhibit 10.2 to our Quarterly Report
               on Form 10-Q for the fiscal quarter ended June 28, 1996, filed on August 12,
               1996, and incorporated herein by reference)
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 1 |  | Storage Technology Corporation Flexible Option Plan, dated December 2001
               (previously filed as Exhibit 10.5 to our Annual Report on Form 10-K for the
               fiscal year ended December 28, 2001, filed on March 4, 2002, and incorporated
               herein by reference)
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.8 1 |  | Severance Agreement, dated as of July 1, 2001, between StorageTek and Robert S.
               Kocol (previously filed as Exhibit 10.9 to our Quarterly Report on Form 10-Q for
               the fiscal quarter ended September 28, 2001, filed on November 8, 2001, and
               incorporated herein by reference)
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9 1 |  | Offer Letter, dated May 10, 2001, from StorageTek to Michael McLay (previously
               filed as Exhibit 10.17 to our 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 StorageTek to Roger Gaston
               (previously filed as Exhibit 10.20 to our 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 July 16, 2001, from StorageTek to Roy Perry (previously
               filed as Exhibit 10.28 to our Quarterly Report on Form 10-Q for the fiscal
               quarter ended September 28, 2001, filed on November 8, 2001, and incorporated
               herein by reference)
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.121 |  | Offer Letter, dated June 27, 2001, from StorageTek to Angel Garcia (previously
               filed as Exhibit 10.29 to our Quarterly Report on Form 10-Q for the fiscal
               quarter ended September 28, 2001, filed on November 8, 2001, and incorporated
               herein by reference)
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

28

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|10.131 |  | Form of Executive Severance Agreement (previously filed as Exhibit 10.32 to our
               Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2002, filed
               on May 13, 2002, and incorporated herein by reference)
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.14 |  | Master Services Agreement (MSA), between each of StorageTek, Electronic Data Systems
Corporation, and EDS Information Services L.L.C., dated as of April 1, 2002 (previously
filed as Exhibit 10.33 to our Quarterly Report on Form 10-Q for the fiscal quarter ended
March 29, 2002, filed on May 13, 2002, and incorporated herein by reference)
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.15 |  | Authorization Letter #1 pursuant to the MSA, dated April 1, 2002 (previously filed as
Exhibit 10.34 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29,
2002, filed on May 13, 2002, and incorporated herein by reference)
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.16 |  | Authorization Letter #2 pursuant to the MSA, dated April 1, 2002 (previously filed as
Exhibit 10.35 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29,
2002, filed on May 13, 2002, and incorporated herein by reference)
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.17 |  | Master Secondary Storage Services Agreement, between StorageTek and Electronic Data
Systems Corporation, dated March 29, 2002 (previously filed as Exhibit 10.36 to our
Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2002, filed on May
13, 2002, and incorporated herein by reference)
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.181 |  | Offer Letter, dated June 25, 2002, between StorageTek and Mark Roellig
               (previously filed as Exhibit 10.28 to our Quarterly Report on Form 10-Q for the
               fiscal quarter ended June 28, 2002, filed on August 12, 2002, and incorporated
               herein by reference)
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.191 |  | Form of Indemnification Agreement, dated as of November 22, 2002, between
               StorageTek and each director (previously filed as Exhibit 10.31 to our Annual
               Report on Form 10-K for the fiscal year ended December 27, 2002, filed on March
               7, 2003, and incorporated herein
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.201 |  | Offer Letter, dated November 12, 2002, between StorageTek and Pierre Cousin
               (previously filed as Exhibit 10.33 to our Annual Report on Form 10-K for the
               fiscal year ended December 27, 2002, filed on March 7, 2003, and incorporated
               herein by reference)
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.211 |  | Agreement, dated December 1, 2002, between StorageTek and Pierre Cousin
               (previously filed as Exhibit 10.34 to our Annual Report on Form 10-K for the
               fiscal year ended December 27, 2002, filed on March 7, 2003, and incorporated
               herein by reference)
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.221 |  | Amended and Restated CEO Employment Agreement, dated March 27, 2003, between
               StorageTek and Patrick J. Martin (previously filed as Exhibit 10.36 to our
               Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 2003, filed
               on May 9, 2003, and incorporated herein by reference)
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.231 |  | Form of Executive Agreement, dated as of February 12, 2003, between StorageTek
               and each executive officer (previously filed as Exhibit 10.37 to our Quarterly
               Report on Form 10-Q for the fiscal quarter ended March 28, 2003, filed on May 9,
               2003, and incorporated herein by reference)
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

29

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|10.24 |  | Letter, dated July 24, 2003, from StorageTek to Bank of America, N.A. (previously filed as
Exhibit 10.32 to our Quarterly Report on Form 10-Q for the fiscal quarter ended June 27,
2003, filed on August 8, 2003, and incorporated herein by reference)
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.251 |  | Offer Letter, dated December 12, 2003, between StorageTek and Mark Ward
               (previously filed as Exhibit 10.30 to our Quarterly Report on Form 10-Q for the
               fiscal quarter ended March 26, 2004, filed on May 5, 2004, and incorporated
               herein by reference)
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.261 |  | Offer Letter, dated March 1, 2004, between StorageTek and Eula Adams (previously
               filed as Exhibit 10.31 to our Quarterly Report on Form 10-Q for the fiscal
               quarter ended March 26, 2004, filed on May 5, 2004, and incorporated herein by
               reference)
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.271 |  | Credit Agreement, dated as of October 15, 2004, among StorageTek, the several
               financial institutions thereto, Bank of America, N.A., as L/C Issuer and
               Administrative Agent for the Banks, and Banc of America Securities LLC as Sole
               Lead Arranger and Sole Book Manager (previously filed in our Quarterly Report on
               Form 10-Q for the fiscal quarter ended September 24, 2004, filed on November 1,
               2004 and incorporated herein by reference)
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.281 |  | Amended and Restated form of Stock Option Agreement for use in connection with
               the Amended and Restated 1995 Equity Participation Plan (previously filed as
               Exhibit 10.1 to our Current Report on Form 8-K, filed on December 21, 2004 and
               incorporated herein by reference)
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.291 |  | Amended and Restated form of Restricted Stock Agreement for use in connection
               with the Amended and Restated 1995 Equity Participation Plan (previously filed
               as Exhibit 10.2 to our Current Report on Form 8-K, filed on December 21, 2004
               and incorporated herein by reference)
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.301 |  | Amended and Restated form of Stock Option Agreement for use in connection with
               StorageTeks 2004 Long Term Incentive Plan (previously filed as Exhibit
               10.3 to our Current Report on Form 8-K, filed on December 21, 2004 and
               incorporated herein by reference)
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.311 |  | Amended and Restated form of Restricted Stock Agreement for use in connection
               with StorageTeks 2004 Long Term Incentive Plan (previously filed as
               Exhibit 10.4 to our Current Report on Form 8-K, filed on December 21, 2004 and
               incorporated herein by reference)
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.321 |  | Amended and Restated form of the Restricted Stock Unit Agreement for use in
               connection with StorageTeks 2004 Long Term Incentive Plan (previously
               filed as Exhibit 10.5 to our Current Report on Form 8-K, filed on December 21,
               2004 and incorporated herein by reference)
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.331 |  | Offer Letter, dated January 27, 2005, between StorageTek and Brenda Zawatski
               (previously filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on
               February 2, 2005, and incorporated herein by reference)
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.341 |  | Amended and Restated form of Restricted Stock Agreement for use in connection
               with the Amended and Restated 1995 Equity Participation Plan (previously filed
               as Exhibit 10.1 to our Current Report on Form 8-K, filed on February 14, 2005,
               and incorporated herein by reference)
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

30

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|10.351 |  | Amended and Restated form of Restricted Stock Agreement for use in connection
               with StorageTeks 2004 Long Term Incentive Plan (previously filed as
               Exhibit 10.2 to our Current Report on Form 8-K, filed on February 14, 2005, and
               incorporated herein by reference)
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.361 |  | Transition Agreement, between StorageTek and certain executive officers of
               StorageTek (previously filed as Exhibit 10.1 to our Current Report on Fort 8-K,
               filed March 30, 2005, and incorporated herein by reference)
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.371 |  | Offer Letter, dated March 14, 2005, between StorageTek and Nigel Dessau
               (previously filed as Exhibit 10.1 to our Current Report on Fort 8-K, filed April
               4, 2005, and incorporated herein by reference)
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.1 2 |  | Certification Pursuant to Exchange Act Rules 13a-14 and 15d-14, as Adopted
               Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

|31.2 2 |  | Certification Pursuant to Exchange Act Rules 13a-14 and 15d-14, as Adopted
               Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

|32.1 2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
               906 of the Sarbanes-Oxley Act of 2002
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------

|32.2 2 |  | 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 this Quarterly Report on Form 10-Q

31

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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.

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.

|May 10, 2005(Date)
May 10, 2005(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)
|----------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

32

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