Form 10-Q
==============================================================================


                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

         [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                       SECURITIES EXCHANGE ACT OF 1934
                 For the Quarterly Period Ended June 30, 2000
                                      OR
         [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                       SECURITIES EXCHANGE ACT OF 1934

              For the transition period from _______ to ________


                         ---------------------------

                        Commission File Number 1-7534

                         --------------------------



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

               Delaware                                        84-0593263
    (State or other jurisdiction of                         (I.R.S. Employer
    incorporation or organization)                       Identification Number)

   One StorageTek Drive, Louisville,                           80028-4309
               Colorado
    (Address of principal executive                            (Zip Code)
               offices)



       Registrant's Telephone Number, including area code: (303) 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. /X/ YES / / NO

                     APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock as of the latest practicable date.

Common stock ($.10 Par Value) - 101,561,011  shares  outstanding at August 11,
2000.

<PAGE>
                               Form 10-Q, Page 2





               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                              INDEX TO FORM 10-Q
                                June 30, 2000

                                                                          PAGE

PART I - FINANCIAL INFORMATION

      Item 1 - Financial Statements

              Consolidated Balance Sheet                                    3

              Consolidated Statement of Operations                          4

              Consolidated Statement of Cash Flows                          5

              Notes to Consolidated Financial Statements                    6

      Item 2 - Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                       11

      Item 3 - Quantitative and Qualitative Disclosures about Market Risk  25


PART II - OTHER INFORMATION

      Item 1 - Legal Proceedings                                           26

      Item 4 - Submission of Matters to a Vote of Security Holders         27

      Item 6 - Exhibits and Reports on Form 8-K                            28

      Signatures                                                           30

      Exhibit Index                                                        31

<PAGE>
                               Form 10-Q, Page 3





                STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEET
                          (In Thousands of Dollars)



                                                           6/30/00    12/31/99
                                                       -----------------------
                                                       (Unaudited)

ASSETS

Current assets:

  Cash and cash equivalents                             $  248,135  $  215,421
  Accounts receivable                                      484,112     627,435
  Inventories (Note 2)                                     223,238     260,642
  Deferred income tax assets                               123,707     124,588
                                                         ---------   ---------
     Total current assets                                1,079,192   1,228,086



Property, plant and equipment, net                         272,528     322,061
Spare parts for maintenance, net                            47,361      41,995
Deferred income tax assets                                  41,236      40,882
Other assets                                               115,808     102,451
                                                         ---------   ---------
     Total assets                                       $1,556,125  $1,735,475
                                                         =========   =========



LIABILITIES

Current liabilities:

  Credit facilities (Note 3)                            $  189,557  $  286,152
  Current portion of long-term debt                          6,047      13,943
  Accounts payable                                          78,246     111,253
  Accrued liabilities                                      305,985     303,110
  Income taxes payable                                      70,662      72,865
                                                         ---------   ---------
     Total current liabilities                             650,497     787,323
Long-term debt                                              13,107      28,953
                                                         ---------   ---------
     Total liabilities                                     663,604     816,276
                                                         ---------   ---------


Commitments and contingencies (Note 4)


STOCKHOLDERS' EQUITY

Common stock, $.10 par value, 300,000,000 shares authorized;
  101,570,297 shares issued at June 30, 2000, and
  100,825,390 shares issued at December 31, 1999            10,157      10,083
Capital in excess of par value                             841,112     830,780
Retained earnings                                           45,817      84,704
Treasury stock                                              (2,334)     (2,334)
Unearned compensation                                       (2,231)     (4,034)
                                                         ---------   ---------
     Total stockholders' equity                            892,521     919,199
                                                         ---------   ---------
                                                        $1,556,125  $1,735,475
                                                         =========   =========





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

<PAGE>
                               Form 10-Q, Page 4




               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENT OF OPERATIONS
                                 (Unaudited)

                   (In Thousands, Except Per Share Amounts)




                                      Quarter Ended         Six Months Ended
                                   -------------------     --------------------
                                   06/30/00   06/25/99     06/30/00   06/25/99
                                   -------------------     --------------------
 Revenue
   Storage products               $348,895   $484,769     $650,007   $  841,796
   Storage services                163,582    169,633      322,139      330,109
                                   -------    -------      -------    ---------
      Total revenue                512,477    654,402      972,146    1,171,905
                                   -------    -------      -------    ---------

Cost of revenue
   Storage products                202,494    269,493      399,248      469,216
   Storage services                100,251    114,467      208,613      208,830
                                   -------    -------      -------    ---------
      Total cost of revenue        302,745    383,960      607,861      678,046
                                   -------    -------      -------    ---------

  Gross profit                     209,732    270,442      364,285      493,859

Research and product
  development costs                 64,302     72,624      129,482      146,100
Selling, general, administrative
  and other income
  and expense, net                 132,857    151,702      266,977      289,561
Litigation expense (Note 4)                    82,308                    82,308
Restructuring expense (Note 5)      12,358     20,246       23,800       20,246
                                   -------    -------      -------    ---------
  Operating profit (loss)              215    (56,438)     (55,974)     (44,356)

Interest income                      4,725      1,091        6,401        2,021
Interest expense                    (3,939)    (4,733)     (10,264)      (8,632)
                                   -------    -------      -------    ---------
  Income (loss) before income
    taxes                            1,001    (60,800)     (59,837)     (50,967)
Benefit (provision) for
  income taxes                        (350)    21,600       20,950       18,300
                                   -------    -------      -------    ---------
  Net income (loss)               $    651   $(38,480)    $(38,887)  $  (32,667)
                                   =======    =======      =======    =========


EARNINGS (LOSS) PER COMMON SHARE (Note 8)

Basic earnings (loss) per share   $   0.01   $  (0.38)    $  (0.39)  $    (0.33)
                                   =======    =======      =======    =========
Weighted-average shares            100,906    100,081      100,657       99,931
                                   =======    =======      =======    =========


Diluted earnings (loss) per share $   0.01   $  (0.38)    $  (0.39)  $    (0.33)
                                   =======    =======      =======    =========
Weighted-average and dilutive
  potential shares                 101,281    100,081      100,657       99,931
                                   =======    =======      =======    =========



  The accompanying  notes are an integral part of the
        consolidated financial statements.
<PAGE>
                               Form 10-Q, Page 5





               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (Unaudited)
                          (In Thousands of Dollars)

                                                        Six Months Ended
                                                     ------------------------
                                                     06/30/00        06/25/99
                                                     ------------------------
OPERATING ACTIVITIES
Cash received from customers                         $1,111,965   $ 1,136,902
Cash paid to suppliers and employees                   (928,629)   (1,154,289)
Cash paid for restructuring activities (Note 5)         (22,327)       (1,770)
Interest received                                         6,401         2,021
Interest paid                                            (9,467)       (7,531)
Income tax refunded, net                                 20,119         6,535
                                                      ---------    ----------
   Net cash provided by (used in)
     operating activities                               178,062       (18,132)
                                                      ---------    ----------

INVESTING ACTIVITIES
Purchases of property, plant and equipment, net         (34,000)      (59,438)
Business acquisitions, net                                             (6,400)
Other assets, net                                        (1,787)       (2,272)
                                                      ---------    ----------
Net cash used in investing activities                   (35,787)      (68,110)
                                                      ---------    ----------

FINANCING ACTIVITIES
Proceeds from (repayments of) credit
  facilities, net                                       (96,595)      116,022
Repayments of other debt, net                           (15,871)       (1,331)
Repurchases of common stock                                           (26,080)
Proceeds from employee stock plans                        8,567        14,346
                                                      ---------    ----------
   Net cash provided by (used in)
     financing activities                              (103,899)      102,957
                                                      ---------    ----------

   Effect of exchange rate changes on cash               (5,662)      (15,657)
                                                      ---------    ----------

Increase in cash and cash equivalents                    32,714         1,058
   Cash and cash equivalents
     - beginning of the period                          215,421       231,985
                                                      ---------    ----------
Cash and cash equivalents - end of the period        $  248,135   $   233,043
                                                      =========    ==========


RECONCILIATION OF NET LOSS TO NET CASH
   PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net loss                                             $  (38,887)  $   (32,667)
Depreciation and amortization expense                    73,268        62,475
Inventory write downs                                    54,838        15,353
Non-cash litigation expense (Note 4)                                   82,308
Non-cash restructuring expense (Note 5)                   4,566        18,476
Translation loss                                         14,144        11,499
Other non-cash adjustments to income                      3,953       (12,237)
(Increase) decrease in accounts receivable              146,957       (32,148)
Increase in inventories, net                            (13,333)      (87,027)
Increase in spare parts                                 (19,359)      (10,881)
(Increase) decrease in deferred income
   tax assets, net                                          184        (6,660)
Decrease in accounts payable
  and accrued liabilities                               (46,230)      (20,077)
Decrease in income taxes payable                         (2,039)       (6,546)
                                                      ---------    ----------
   Net cash provided by (used in)
     operating activities                            $  178,062   $   (18,132)
                                                      =========    ==========

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

<PAGE>
                               Form 10-Q, Page 6



               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (Unaudited)


NOTE 1 - BASIS OF PREPARATION
-----------------------------
The  accompanying   consolidated  financial  statements  of  Storage  Technology
Corporation and its subsidiaries  (StorageTek or the Company) have been prepared
in accordance with the Securities and Exchange Commission (SEC) requirements for
Form  10-Q.  In  the  opinion  of  management,   these  statements  reflect  all
adjustments  necessary  for the fair  presentation  of results  for the  periods
presented,  and such adjustments are of a normal,  recurring nature. For further
information,  refer  to the  consolidated  financial  statements  and  footnotes
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1999.

NOTE 2 - INVENTORIES
--------------------
Inventories,  net of the  associated  reserves,  consist  of the  following  (in
thousands of dollars):

                                              06/30/00          12/31/99
                                             ---------------------------
      Raw materials                          $  52,246         $  59,141
      Work-in-process                           38,009            45,717
      Finished goods                           132,983           155,784
                                               -------           -------
                                              $223,238          $260,642
                                               =======           =======

NOTE 3 - DEBT AND FINANCING ARRANGEMENTS
----------------------------------------
The Company has a financing  agreement with a bank that provides for the sale of
promissory  notes in the principal amount of up to $120,000,000 at any one time.
The agreement,  which expires in January 2001,  provides for  commitments by the
bank to purchase  the  Company's  promissory  notes  denominated  in a number of
foreign  currencies.  As of June 30, 2000, the Company had  promissory  notes of
$63,557,000  outstanding  under this  financing  agreement  and had committed to
borrowings between July 2000 and January 2001 in the cumulative principal amount
of  approximately  $194,004,000.  The notes must be repaid only to the extent of
future  revenue.  Obligations  under the  agreement  are not  cancelable  by the
Company or the bank. Gains and losses  associated with changes in the underlying
foreign  currencies are deferred during the commitment  period and recognized as
an adjustment to the revenue  supporting the note repayment at the time the bank
purchases the  promissory  notes.  The promissory  notes,  together with accrued
interest,  are payable in U.S. dollars within 40 days from the date of issuance.
The  weighted  average  interest  rate  associated  with  the  promissory  notes
outstanding  as of June 30, 2000,  was 8.62%.  Under the terms of the agreement,
the Company is required to comply with  certain  covenants  and,  under  certain
circumstances,  may be required to maintain a collateral account, including cash
and qualifying  investments,  in an amount up to the outstanding  balance of the
promissory notes.


See the  Company's  1999  Form 10-K for  additional  information  regarding  the
Company's debt and financing arrangements.

<PAGE>
                               Form 10-Q, Page 7



NOTE 4 - LITIGATION
-------------------
In January 1994,  Stuff Technology  Partners II, a Colorado Limited  Partnership
(Stuff),  filed suit in Boulder County,  Colorado,  District Court (the District
Court) against the Company and certain  subsidiaries.  The suit alleged that the
Company  breached  a  1990  settlement   agreement  that  had  resolved  earlier
litigation  between  the  parties  concerning  an  optical  disk  drive  storage
development  project entered into in 1981 which was  unsuccessful and terminated
in 1985.  The suit  sought  injunctive  relief and damages in the amount of $2.4
billion.  On December 28, 1995, the District Court granted the Company's  motion
for summary  judgment and dismissed the complaint.  Stuff appealed the dismissal
to the Colorado  Court of Appeals (the "Court of Appeals").  In March 1997,  the
Court of Appeals reversed the District Court's judgment and remanded the case to
the District Court for further proceedings. On July 15, 1999, the District Court
again  dismissed,  with  prejudice,  all of Stuff's  material claims against the
Company.  On August 30,  1999,  Stuff  filed a notice of appeal with the Appeals
Court seeking to overturn the decision of the District Court. Subsequently,  the
parties have filed various appellate  briefs.  Oral arguments before the Appeals
Court  occurred on August 8, 2000 with no action taken at that time. The Company
continues to believe that Stuff's claims are wholly without merit and intends to
defend vigorously any further actions arising from this complaint.

On June 29, 1995,  Odetics,  Inc. filed a patent  infringement  suit against the
Company alleging  infringement of various patents.  During the second quarter of
1999, the Company recognized a pre-tax expense of $82,308,000 in connection with
the resolution of this litigation.

The Company is also involved in various other less  significant  legal  actions.
While the Company currently  believes that the amount of any ultimate  potential
loss would not be material to the Company's financial  position,  the outcome of
these  actions is  inherently  difficult to predict.  In the event of an adverse
outcome, the ultimate potential loss could have a material adverse effect on the
Company's  financial  position or reported results of operations in a particular
quarter.  An unfavorable  decision,  particularly  in patent  litigation,  could
require material  changes in production  processes and products or result in the
Company's  inability  to ship  products  or  components  found to have  violated
third-party patent rights.

NOTE 5 - RESTRUCTURING
----------------------
On October  28,  1999,  the  Company  announced  a broad  restructuring  program
intended  to  return  the  Company  to   profitability.   Key  elements  of  the
restructuring plan include:

o  an anticipated  reduction of  approximately  1,200 to 1,400  positions,  with
   approximately  550  positions  eliminated  during  fiscal  year  1999 and the
   remaining positions eliminated by the end of the third quarter of 2000;

o  a reduction in investment in certain businesses,  including  consulting and
   integration services and managed storage services;

o  a recommitment  to the Company's core strengths of tape  automation,  virtual
   storage and open storage area networks  (including  related  maintenance  and
   professional services);

o  modifications  to the sales  model in North  America  intended  to  improve
   productivity and increase account coverage and growth;
<PAGE>
                               Form 10-Q, Page 8


o  other   organizational   and  operational   changes   intended  to  improve
   efficiency and competitiveness.

The  elements  of  the  restructuring   included  an  involuntary  reduction  in
headcount,  the  elimination  of a  significant  number  of  temporary  employee
positions,  and managing the replacement of terminating  employees due to normal
attrition. The headcount reductions were targeted in all areas of the Company.

During the second quarter and six months of 2000, the Company  incurred  pre-tax
expenses  of  $12,358,000  and   $23,800,000,   respectively,   related  to  the
restructuring.  The  following  table  summarizes  the activity in the Company's
restructuring reserves during the six months of 2000 (in thousands of dollars):

                                  Employee      Asset     Other Exit
                                 Severance     Writedowns   Costs      Total
                                 ----------    ---------- ----------   ------
  Balances, December 31, 1999     $  3,917                           $  3,917
  Restructuring expense             18,981     $ 4,430     $   389     23,800
  Cash payments                    (22,074)                   (253)   (22,327)
  Asset writedowns                              (4,430)       (136)    (4,566)
                                   -------      ------      ------    -------
 Balances, June 30, 2000          $    824     $     0     $     0   $    824
                                   =======      ======      ======    =======

Employee  severance  expense of $18,981,000 was recognized during the six months
of 2000 in  connection  with the  restructuring.  This  expense is  comprised of
separation charges related to the fixed and determinable severance payments owed
to approximately  1,100 employees who were  involuntarily  terminated during the
six months of 2000 in connection with the  restructuring.  Substantially  all of
the $824,000 of employee  severance charges  incurred,  but not paid, as of June
30, 2000, relate to severance  payments which are expected to be paid within the
next three months.

Asset writedowns of $4,430,000 were recognized  during the six months of 2000 in
connection  with the  restructuring.  The  asset  writedowns  are  comprised  of
$2,957,000  related  to the  impairment  writedown  of assets  at the  Company's
manufacturing  facility  in  Toulouse,  France  and  $1,473,000  related  to the
spin-off of the Company's  managed storage  services  business.  The Company has
engaged  in  activities  to sell this  facility  and the  impairment  charge was
required to reflect  the  Company's  estimate of the fair value of the  Toulouse
facility upon its anticipated sale.

Other  exit costs of  $389,000  were  recognized  during the six months of 2000.
Other  exit costs are  comprised  of  $253,000  associated  with legal  expenses
incurred  in  connection  with the  spin-off  of the  managed  storage  services
business and $136,000 related to excess lease space in Canada.

The Company incurred  pre-tax expenses of $20,246,000  during the second quarter
and six months of 1999, in connection with a restructuring  program announced on
April 15,  1999,  which  provided  for a reduction  in  headcount as well as the
elimination of certain lower priority research and development programs.

NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENTS
-----------------------------------------
In June 1998, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial  Accounting  Standards  (SFAS) No. 133,  "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires all derivatives to be
recognized as either assets or liabilities on the Consolidated  Balance Sheet at
their fair  value.  The  corresponding  change in fair  value of the  derivative
instrument  will  be  recognized   either  in  the  Consolidated   Statement  of
Operations,  net of any change in fair value of the related hedged item, or as a
component  of   comprehensive   income  depending  upon  the  intended  use  and
designation.
<PAGE>
                               Form 10-Q, Page 9


In June  1999,  the FASB  issued  SFAS No.  137,  "Accounting  for  Derivative
Instruments  and Hedging  Activities -- Deferral of the Effective  Date of FASB
Statement No. 133 -- an amendment of FASB  Statement No. 133." SFAS No. 137 has
the effect of  delaying  the  required  adoption  date of SFAS No. 133 for the
Company  until  January  2001.  In June  2000,  the FASB  issued  SFAS No. 138
"Accounting   for  Certain   Derivative   Instruments   and  Certain   Hedging
Activities"  -- an amendment of SFAS No. 133.  SFAS No. 138  addresses a number
of   implementation   issues   associated  with  SFAS  No.  133.  The  Company
anticipates  it will  adopt SFAS No.  133 and its  associated  interpretations
effective on January 1, 2001. The adoption of these new  accounting  standards
for derivatives is not currently  anticipated to have a material impact on the
Company's financial position or results of operations.

In December  1999, the  Securities  and Exchange  Commission  (SEC) staff issued
Staff Accounting Bulletin No. 101 (SAB 101),  "Revenue  Recognition in Financial
Statements." SAB 101 provides guidance  regarding the recognition,  presentation
and  disclosure of revenue in financial  statements  filed with the SEC. In June
2000,  the SEC  issued  SAB 101B that has the effect of  delaying  the  required
adoption  of SAB 101 for the  Company  until the  fourth  quarter  of 2000.  The
Company is currently evaluating the impact, if any, of adopting SAB 101.

In March 2000, the FASB issued  Interpretation  No. 44 (FIN 44)  "Accounting for
Certain  Transactions  involving  Stock  Compensation  -- an  Interpretation  of
Accounting  Principles  Board  Opinion  No. 25 (APB 25)." FIN 44  clarifies  the
application of APB 25 and is effective  July 1, 2000. The Company  believes that
FIN 44 will not have a material  effect on the financial  position or results of
operations.

NOTE 7 - OPERATIONS OF BUSINESS SEGMENTS
----------------------------------------
In the first quarter of 2000,  the Company  changed its  reportable  segments to
reflect  changes in its business  operations  resulting  from its  restructuring
activities.  The Company is now organized into two reportable  segments based on
the  definitions  of segments  provided under SFAS No. 131,  "Disclosures  about
Segments of an Enterprise and Related Information": storage products and storage
services.  The  principal  effect of this  change  was the  reclassification  of
storage management  software from a separate reportable segment to its inclusion
within  the  storage  products  segment,  and the  reclassification  of  storage
integration  products from the storage  services segment to the storage products
segment.  The 1999  quarterly  segment data has been  restated to conform to the
current year presentation.

The storage products segment sells tape, disk,  network,  and other products for
the enterprise and client-server  computing  environments.  The storage products
segment includes  products designed for storage area networks (SAN) and software
tools and applications for improving storage product performance and simplifying
information   storage   management.   The  storage   services  segment  provides
maintenance  services for the  Company's  and third party  products,  as well as
storage  consulting   services  associated  mainly  with  SAN,  virtual  storage
technologies and software solutions.

The  Company  does not have  any  intersegment  revenue  and  evaluates  segment
performance  based on gross profit.  The sum of the segment gross profits equals
the  consolidated  gross profit and the Company  does not allocate  research and
product development costs; selling, general, administrative and other income and
expense; interest expense; interest income; or provision for income taxes to the
segments.
<PAGE>
                               Form 10-Q, Page 10


The  revenue  and gross  profit by  segment  are as  follows  (in  thousands  of
dollars):

                               Quarter Ended               Six Months Ended
                          -----------------------       ---------------------
                           06/30/00      06/25/99       06/30/00     06/25/99
                          -----------------------       ---------------------
Revenue:
Storage products           $348,895      $484,769       $650,007    $  841,796
Storage services            163,582       169,633        322,139       330,109
                            -------       -------        -------     ---------
     Total revenue         $512,477      $654,402       $972,146    $1,171,905
                            =======       =======        =======     =========

Gross profit:
  Storage products         $146,401      $215,276       $250,759    $  372,580
  Storage services           63,331        55,166        113,526       121,279
                            -------       -------        -------     ---------
     Total gross profit    $209,732      $270,442       $364,285    $  493,859
                            =======       =======        =======     =========

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


                               Quarter Ended             Six Months Ended
                          -----------------------     -----------------------
                           06/30/00      06/25/99     06/30/00       06/25/99
                          -----------------------     -----------------------
Tape products               $278,483    $321,930      $512,151       $573,363
Disk products                 40,338     122,080        72,166        210,266
Network and other products    30,074      40,759        65,690         58,167
                             -------     -------       -------        -------
     Total storage
       products revenue     $348,895    $484,769      $650,007       $841,796
                             =======     =======       =======        =======

NOTE 8 - EARNINGS (LOSS) PER SHARE
----------------------------------
The  following  table  presents the  calculation  of basic and diluted  earnings
(loss) per share (in thousands, except per share amounts):

                               Quarter Ended             Six Months Ended
                          -----------------------     -----------------------
                           06/30/00      06/25/99       06/30/00     06/25/99
                          -----------------------     -----------------------

Net income (loss)          $    651      $(38,480)     $(38,887)    $(32,667)
                            =======       =======       =======      =======
Denominator:
Basic weighted-average
  shares                    100,906       100,081       100,657       99,931
Effect of dilutive shares       375
                            -------       -------       -------      -------
Diluted weighted-average and
 dilutive potential shares  101,281       100,081       100,657       99,931
                            =======       =======       =======      =======
Basic earnings (loss)
  per share                $   0.01      $  (0.38)     $  (0.39)    $  (0.33)
                            =======       =======       =======      =======
Diluted earnings (loss)
  per share                $   0.01      $  (0.38)     $  (0.39)    $  (0.33)
                            =======       =======       =======      =======

Stock options to purchase  12,213,611  shares of common stock were excluded from
the  computation  of diluted  earnings per share for the quarter  ended June 30,
2000, as the exercise  price of the options was greater than the average  market
price of the Company's common stock. Stock options to purchase 12,295,680 shares
of common stock were excluded from the computation of diluted earnings per share
for the six months ended June 30, 2000, as these options are  antidilutive  as a
result of the net loss incurred.

<PAGE>
                               Form 10-Q, Page 11



               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                JUNE 30, 2000


All  assumptions,  anticipations,  expectations  and forecasts  contained in the
following  discussion regarding the Company's future product and business plans,
financial results,  performance and events are forward-looking statements within
the  meaning  of the  Private  Securities  Litigation  Reform  Act of 1995.  The
Company's 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.  The  forward-looking
statements  contained herein represent a good-faith  assessment of the Company's
future  performance for which management  believes there is a reasonable  basis.
The  Company  disclaims  any  obligation  to update  forward-looking  statements
contained herein, except as may be otherwise required by law.

GENERAL
-------
The Company  reported net income for the second  quarter ended June 30, 2000, of
$651,000  on revenue of $512.5  million,  compared  to a net loss for the second
quarter in 1999 of $38.5  million on  revenue of $654.4  million.  A net loss of
$38.9  million  was  reported  for the six  months of 2000 on  revenue of $972.1
million,  compared to a net loss of $32.7  million for the six months of 1999 on
revenue of $1.17 billion.  The Company's reported results for the second quarter
and six months of 2000 include  one-time  pre-tax  expenses of $12.4 million and
$38.7 million,  respectively,  associated with  restructuring  and other related
charges. Excluding the one-time pre-tax expenses the Company would have earned a
net income of $8.7  million  and a net loss of $13.8  million  during the second
quarter and six months of 2000, respectively. The Company's reported results for
the second quarter and six months of 1999 include  one-time  pre-tax expenses of
$82.3 million and $20.2 million  associated with  litigation and  restructuring,
respectively.  Excluding the one-time pre-tax expenses during the second quarter
and six  months of 1999,  the  Company  would  have  earned  net income of $27.2
million and $33.0 million, respectively.

Many of the Company's  customers  undertake detailed  procedures relating to the
evaluation, testing, implementation and acceptance of the Company's products and
services.  This evaluation  process results in a variable sales cycle, and makes
it  difficult  to predict if or when  revenue  will be  earned.  Further,  gross
margins may be adversely  impacted in an effort to complete the sales cycle. The
Company's  financial results may be adversely  impacted in future periods by its
variable sales cycle,  particularly during the remainder of 2000 as it completes
the  implementation  of  changes  to the sales  model in North  America.  Future
financial  results are also dependent  upon the Company's  ability to manage its
costs and  operating  expenses  in line with  revenue;  the timely  development,
manufacture and introduction of new products and services; successfully managing
the  development of new direct and indirect sales channels;  the  implementation
and execution of its storage area network (SAN)  strategy;  and the execution of
ongoing activities  associated with its restructuring  plan. For a discussion of
these and other risk  factors,  see "Factors  That May Affect  Future  Results,"
below.

In April 1999, the Company first announced plans to restructure its business. In
October  1999,  the Company  announced  more broad  restructuring  plans.  These
restructuring  activities were intended to return the Company to  profitability.
The Company's  sales  revenue  during the second half of 2000 may continue to be
adversely  affected by  disruptions to its sales and service  organizations  and
customers  associated with its restructuring  activities.  The Company estimates
annual  savings of  approximately  $40 million  will be realized  during 2000 in
connection with the April 1999  restructuring.  The Company  anticipates  annual
savings  of  approximately  $150  million  will  result  from the  restructuring
activities
<PAGE>
                               Form 10-Q, Page 12


initiated in October 1999. Because the restructuring  activities were
implemented in stages throughout the first half of 2000, the Company anticipates
the  realized  savings  for the year  2000  will be  slightly  in excess of $100
million.  There can be no assurance that the restructuring  activities described
above will be  successful  or  sufficient  to allow the  Company to realize  the
expected annualized savings or that additional  restructuring activities may not
be required in future periods. See "Restructuring," below for further discussion
of the restructuring activities.

The Company's  operating  activities  provided cash of $178.1 million during the
six months of 2000 compared to cash of $18.1  million used in operations  during
the same period in 1999. The increase in cash generated from  operations  during
the six months of 2000,  compared to the same period in 1999,  was primarily the
result of progress in the Company's  efforts to more effectively  manage working
capital.  Benefits  were  realized  during the six months of 2000 in the form of
reductions in accounts  receivable days sales  outstanding and inventory levels.
See  "Liquidity  and  Capital  Resources  --  Working  Capital"  for  additional
discussion of working capital.  Cash used in investing activities decreased from
$68.1  million  during  the six months of 1999 to $35.8  million  during the six
months of 2000 primarily due to efforts to control capital spending on property,
plant and equipment.  Cash used in financing activities of $103.9 million during
the six months of 2000 reflects  debt  repayments  of $112.5  million  offset by
proceeds received from employee stock purchase plans.

The  following  table,  stated  as  a  percentage  of  total  revenue,  presents
Consolidated Statement of Operations information and revenue by segment:


                                   Quarter Ended        Six Months Ended
                                  -----------------    -------------------
                                  06/30/00 06/25/99     06/30/00  06/25/99
                                  -----------------    -------------------
Storage products:
   Tape products                     54.3%    49.2%        52.7%     48.9%
   Disk products                      7.9     18.7          7.4      17.9
   Network and other products         5.9      6.2          6.8       5.0
                                    -----    -----        -----     -----
     Total storage products          68.1     74.1         66.9      71.8
Storage services                     31.9     25.9         33.1      28.2
                                    -----    -----        -----     -----
     Total revenue                  100.0    100.0        100.0     100.0
Cost of revenue                      59.1     58.7         62.5      57.9
                                    -----    -----        -----     -----
     Gross profit                    40.9     41.3         37.5      42.1
Research and product
  development costs                  12.6     11.1         13.3      12.5
Selling, general, administrative
  and other income and expense, net  25.9     23.2         27.5      24.7
Litigation expense                            12.5                    7.0
Restructuring expense                 2.4      3.1          2.5       1.7
                                    -----    -----        -----     -----
     Operating profit (loss)          0.0     (8.6)        (5.8)     (3.8)
Interest income (expense), net        0.2     (0.6)        (0.4)     (0.6)
                                    -----    -----        -----     -----
     Income (loss) before income
       taxes                          0.2     (9.2)        (6.2)     (4.4)
Benefit (provision) for income
  taxes                              (0.1)     3.3          2.2       1.6
                                    -----    -----        -----     -----
     Net income (loss)                0.1%    (5.9)%       (4.0)%    (2.8)%
                                    =====    =====        =====     =====
<PAGE>
                               Form 10-Q, Page 13


REVENUE
-------
STORAGE PRODUCTS

The Company's storage products revenue includes sales of tape, disk, and network
and other products for the enterprise and client-server markets, including SANs.
Revenue generated from storage products  decreased 28% and 23% during the second
quarter and six months of 2000,  respectively,  compared to the same  periods in
1999.

Tape Products

Tape product  revenue  decreased  14% and 11% during the second  quarter and six
months of 2000,  respectively,  compared to the same periods in 1999,  primarily
due  to  decreased  revenue  from  TimberLine(R)   9490,  a  36-track  cartridge
subsystem;  PowderHorn(R) 9310, an automated cartridge system library; and other
earlier generation  enterprise tape products.  The decrease in revenue for these
products reflects both lower selling prices and decreases in the number of units
sold. These revenue declines also reflect the continued shift in the marketplace
from enterprise to  client-server  tape products.  These declines were partially
offset by  increased  sales of the 9840  high-performance  tape drive (9840) and
Virtual Storage  Manager(R)  (VSM). VSM is a data storage software  solution for
the  enterprise   tape  market  designed  to  improve   performance,   cartridge
utilization,  and overall  management  of data  storage.  Sales of the Company's
recently introduced L-180 and L-700 tape libraries during the six months of 2000
offset  declines in the sale of earlier  generation  Timberwolf  automated  tape
products.

Future  revenue growth from tape products is dependent  upon  increasing  market
acceptance  of VSM,  9840,  L-series  tape  libraries,  as  well  as the  timely
introduction  of new tape  products  and  enhancements  which are in the design,
preliminary engineering or engineering validation testing phase. Because the VSM
is a complex solution it is difficult to predict the timing and extent that VSM,
9840,  L-series tape libraries,  or new tape products and enhancements will gain
further market  acceptance.  There can be no assurances that the Company will be
successful in increasing market acceptance for these products,  or that new tape
products and  enhancements  will be introduced in a timely manner.  See "Factors
That May Affect Future Results - New Products and Services;  Emerging  Markets,"
for a discussion of the risks associated with the introduction of new products.

Disk Products

Disk product  revenue  decreased  67% and 66% during the second  quarter and six
months of 2000,  respectively,  compared to the same periods in 1999,  primarily
due to a decrease in OEM sales to International  Business  Machines  Corporation
(IBM) of disk storage products and software designed for the enterprise  market.
The Company does not anticipate any significant  sales revenue from IBM in 2000.
Sales of OPENstorage(TM)  Disk products also decreased during the second quarter
and six months of 2000 as the Company transitioned to its new client server disk
offerings,  the 9175 and 9176.  These decreases were partially  offset by direct
sales of the Company's 9500 Shared  Virtual Array (SVA) disk products,  the next
generation of SVA disk products which became  available in February 2000.  There
can be no assurance  that the Company will not continue to experience  decreased
sales of disk  products  as it  shifts  emphasis  to direct  sales,  or that the
Company's   current  and  future  disk  products  will  gain  additional  market
acceptance.
<PAGE>
                               Form 10-Q, Page 14


Network and Other Products

Network and other  product  revenue  decreased  26% and increased 13% during the
second  quarter  and six  months  of 2000,  respectively,  compared  to the same
periods in 1999. The majority of the network and other  products  revenue during
the second quarter of 2000 related to networking and  integration  products that
drive SAN solutions.

Future revenue growth in the Company's storage products segment is significantly
dependent  upon the  continued  demand  for its  client-server  tape  automation
products and the Company's  ability to successfully  distribute  these products,
successfully  replacing  OEM sales of disk  products to IBM with direct sales of
disk  products,  and the timely  development  and  introduction  of SAN hardware
products.  There can be no  assurances  that the Company will be  successful  in
these  endeavors.  See "Factors That May Affect Future  Results -- New Products,
Markets and Distribution  Channels;  Emerging  Markets," for a discussion of the
risks  associated  with the  introduction  and  manufacture  of new products and
distribution channels.

STORAGE SERVICES

The Company's  storage services revenue  primarily  includes revenue  associated
with the maintenance of the Company's and third party storage products,  as well
as storage consulting and integration services revenue. Storage services revenue
decreased  4% and  2%  during  the  second  quarter  and  six  months  of  2000,
respectively,  compared  to the  same  periods  in  1999,  primarily  due to the
Company's exit from managed storage services and certain lower margin consulting
and integration service activities in connection with the restructuring.

There can be no  assurance  that  storage  service  revenue  will not decline in
future periods as a result of a decline in  maintenance  revenue as the customer
base continues to shift to the client-server  marketplace and the Company places
increased emphasis on indirect  distribution  channels.  Maintenance revenue may
also be  adversely  affected  in future  periods  to the extent  older  products
currently  under  maintenance  contracts  are  replaced by newer  products  with
extended warranties.

GROSS PROFIT
------------
Gross profit margins remained unchanged at 41% for the second quarter of 2000 as
compared to the same period in 1999.  Gross profit margins  decreased to 37% for
the six months of 2000  compared to 42% for same  period in 1999,  respectively,
primarily as a result of declines in the profit margin from the product segment.
Gross profit margins for the Company's products segment decreased to 42% and 39%
during the second quarter and six months of 2000, respectively,  compared to 44%
for the same  periods in 1999.  This decline  reflects  decreases in the selling
prices for disk products and earlier  generation tape products;  increased sales
of tape cartridges for use in the 9840;  increased sales of third-party  network
products which have lower profit margins; a decline in sales of disk products to
IBM;   and   unfavorable   manufacturing   variances   associated   with  excess
manufacturing capacity.  Gross profit margins for the services segment increased
to 39% for the second  quarter of 2000  compared  to 33% for the same  period in
1999,   primarily  as  a  result  of  reduced  headcount,   the  elimination  of
unprofitable  integration  businesses,  improvement in consulting  margin, and a
overall  reduction in maintenance  costs.  Gross profit margins for the services
segment decreased to 35% for the six months of 2000 compared to 37% for the same
period in 1999, primarily as a result of increased  maintenance costs associated
with certain tape products and losses  associated  with storage  consulting  and
integration service activities.

The markets for the Company's products and services are subject to intense price
competition. The Company anticipates that price competition for its products and
services will continue to have an impact
<PAGE>
                               Form 10-Q, Page 15


on the Company's  gross profit margins. The  Company's  ability to sustain or
improve  gross  margins is dependent  upon gaining   operational   efficiencies
in  connection   with  the   restructuring activities,   achieving  cost
improvements  associated  with  the  sourcing  of production materials,  the
implementation of internal pricing controls and asset management  disciplines,
and driving improved  profitability from the Company's continuing consulting
services and integration activities. Storage product gross margins may be
affected in future  periods by inventory  reserves and writedowns resulting
from  rapid  technological   changes  or  delays  in  gaining  market
acceptance for products.

RESEARCH AND PRODUCT DEVELOPMENT
--------------------------------
Research  and  product  development  expenses  decreased  11%  during the second
quarter and six months of 2000,  respectively,  compared to the same  periods in
1999,  due to the  elimination  of several lower  priority  research and product
development  programs  in  connection  with  the  restructuring.  As part of the
restructuring,  the Company is focusing  research and development  activities on
the  core  businesses  of tape and  automation,  virtual  technologies,  and SAN
implementations. See "Restructuring," below, for discussion of the restructuring
activities.

SELLING, GENERAL, ADMINISTRATIVE AND OTHER
------------------------------------------
Selling,  general,  administrative and other income and expense (SG&A) decreased
12% and 8% during  the  second  quarter  and six  months of 2000,  respectively,
compared  to the same  periods  in 1999,  primarily  as a  result  of  headcount
reductions   and  efforts  to  streamline   business   processes.   General  and
administrative  expenses  decreased  during the second quarter of 2000 primarily
due  to  reduced   headcount  and  increased   control  and  the  management  of
expenditures.  Selling expenses decreased during the second quarter of 2000 as a
result of reduced spending on product marketing  activities,  as well as reduced
bonus and commission  expenses.  The decrease in bonus and commissions  reflects
reduced U.S. sales revenue as well as benefits  associated with modifications in
these plans in connection with the  restructuring.  The decreases were partially
offset by increased  selling  expenses from  international  operations  due to a
shift from OEM sales to IBM during the first half of 1999 to direct sales during
the first half of 2000 which require associated bonus and commission payments.

LITIGATION
----------
In January 1994,  Stuff Technology  Partners II, a Colorado Limited  Partnership
(Stuff),  filed suit in Boulder County,  Colorado,  District Court (the District
Court) against the Company and certain  subsidiaries.  The suit alleged that the
Company  breached  a  1990  settlement   agreement  that  had  resolved  earlier
litigation  between  the  parties  concerning  an  optical  disk  drive  storage
development  project entered into in 1981 which was  unsuccessful and terminated
in 1985.  The suit  sought  injunctive  relief and damages in the amount of $2.4
billion.  On December 28, 1995, the District Court granted the Company's  motion
for summary  judgment and dismissed the complaint.  Stuff appealed the dismissal
to the Colorado  Court of Appeals (the "Court of Appeals").  In March 1997,  the
Court of Appeals reversed the District Court's judgment and remanded the case to
the District Court for further proceedings. On July 15, 1999, the District Court
again  dismissed,  with  prejudice,  all of Stuff's  material claims against the
Company.  On August 30,  1999,  Stuff  filed a notice of appeal with the Appeals
Court seeking to overturn the decision of the District Court. Subsequently,  the
parties have filed various appellate  briefs.  Oral arguments before the Appeals
Court  occurred on August 8, 2000 with no action taken at that time. The Company
continues to believe that Stuff's claims are wholly without merit and intends to
defend vigorously any further actions arising from this complaint.
<PAGE>
                               Form 10-Q, Page 16


On June 29, 1995,  Odetics,  Inc.  (Odetics)  filed a patent  infringement  suit
against the Company alleging infringement of various patents.  During the second
quarter of 1999,  the Company  recognized a pre-tax  expense of  $82,308,000  in
connection with the resolution of this litigation.

The Company is also involved in various other less  significant  legal  actions.
While the Company currently  believes that the amount of any ultimate  potential
loss would not be material to the Company's financial  position,  the outcome of
these  actions is  inherently  difficult to predict.  In the event of an adverse
outcome, the ultimate potential loss could have a material adverse effect on the
Company's  financial  position or reported results of operations in a particular
quarter.  An unfavorable  decision,  particularly  in patent  litigation,  could
require material  changes in production  processes and products or result in the
Company's  inability  to ship  products  or  components  found to have  violated
third-party patent rights.

RESTRUCTURING
-------------
On October  28,  1999,  the  Company  announced  a broad  restructuring  program
intended  to  return  the  Company  to   profitability.   Key  elements  of  the
restructuring plan include:

o  an anticipated  reduction of  approximately  1,200 to 1,400  positions,  with
   approximately  550  positions  eliminated  during  fiscal  year  1999 and the
   remaining positions eliminated by the end of the third quarter of 2000;

o  a reduction in investment in certain businesses,  including  consulting and
   integration services and managed storage services;

o  a recommitment  to the Company's core strengths of tape  automation,  virtual
   storage and open storage area networks  (including  related  maintenance  and
   professional services);

o  modifications  to the sales  model for North  America  intended  to improve
   productivity and increase account coverage and growth;

o  other   organizational   and  operational   changes   intended  to  improve
   efficiency and competitiveness.

The  elements  of  the  restructuring   included  an  involuntary  reduction  in
headcount,  the  elimination  of a  significant  number  of  temporary  employee
positions,  and managing the replacement of terminating  employees due to normal
attrition. The headcount reductions were targeted in all areas of the Company.

During the second quarter and six months of 2000, the Company  incurred  pre-tax
expenses  of $12.4  million  and $23.8  million,  respectively,  related  to the
restructuring.  The  following  table  summarizes  the activity in the Company's
restructuring reserves during the six months of 2000 (in thousands of dollars):

                                    Employee      Asset     Other Exit
                                 Severance     Writedowns   Costs      Total
                                 ----------    ---------- ----------   ------
  Balances, December 31, 1999     $  3,917                           $  3,917
  Restructuring expense             18,981     $ 4,430     $   389     23,800
  Cash payments                    (22,074)                   (253)   (22,327)
  Asset writedowns                              (4,430)       (136)    (4,566)
                                   -------      ------      ------    -------
 Balances, June 30, 2000          $    824     $     0     $     0   $    824
                                   =======      ======      ======    =======

Employee severance expense of $19.0 million was recognized during the six months
of 2000 in  connection  with the  restructuring.  This  expense is  comprised of
separation charges related to the fixed


<PAGE>
                               Form 10-Q, Page 17


and determinable severance payments owed to approximately  1,100 employees who
were  involuntarily  terminated during the six months of 2000 in connection
with the  restructuring.  Substantially  all of the $824,000 of employee
severance charges  incurred,  but not paid, as of June 30, 2000, relate to
severance  payments which are expected to be paid within the next three months.

Asset  writedowns of $4.4 million were recognized  during the six months of 2000
in connection with the restructuring. The asset writedowns are comprised of $3.0
million  related  to  the  impairment  writedown  of  assets  at  the  Company's
manufacturing  facility  in  Toulouse,  France and $1.4  million  related to the
spin-off of the Company's  managed storage  services  business.  The Company has
engaged  in  activities  to sell this  facility  and the  impairment  charge was
required to reflect  the  Company's  estimate of the fair value of the  Toulouse
facility upon its anticipated sale.

Other  exit costs of  $389,000  were  recognized  during the six months of 2000.
Other  exit costs are  comprised  of  $253,000  associated  with legal  expenses
incurred  in  connection  with the  spin-off  of the  managed  storage  services
business and $136,000 related to excess lease space in Canada.

The Company incurred pre-tax expenses of $20.2 million during the second quarter
and six months of 1999, in connection with a restructuring  program announced on
April 15,  1999,  which  provided  for a reduction  in  headcount as well as the
elimination of certain lower priority research and development programs.

The Company  currently  anticipates  it will incur an  additional  $5 million in
restructuring  charges  during  the  third  quarter  of 2000 at  which  time the
Company's  activities  associated  with its  restructuring  plans  announced  in
October  1999 are expected to be  complete.  The  majority of these  charges are
expected to relate to employee severance payments.

The Company has now reached its goal of reducing 1,200 to 1,400 positions. A net
reduction of approximately 1,250 positions was achieved through a combination of
involuntary severances, limiting the replacement of terminating employees due to
normal attrition,  and eliminating certain contractors,  temporary employees and
other non-permanent positions. The Company has now implemented substantially all
of its planned restructuring activities.

The Company  estimates  annual  savings of  approximately  $40  million  will be
realized  during  2000 in  connection  with the April  1999  restructuring.  The
Company  anticipates  annual savings of  approximately  $150 million will result
from the  restructuring  activities  initiated  in  October  1999.  Because  the
restructuring activities were implemented in stages throughout the first half of
2000,  the Company  anticipates  the realized  savings for the year 2000 will be
slightly in excess of $100 million. The Company does not anticipate any material
incremental operating expenses will be incurred on an on-going basis.

The Company has  restructured  its  business in the past in order to realign its
business  with its  product  and market  strategies,  or  establish  a more cost
efficient business  structure.  There can be no assurance that the restructuring
activities described above will be successful or sufficient to allow the Company
to generate improved  operating  results in future periods.  It is possible that
additional  changes in the Company's business or in its industry may necessitate
additional  restructuring  expense in the future.  The necessity for  additional
restructuring  activities may result in expenses that adversely  affect reported
results of  operations  in the period the  restructuring  plan is  adopted,  and
require incremental cash payments.
<PAGE>
                               Form 10-Q, Page 18


INTEREST INCOME AND EXPENSE
---------------------------
Interest expense decreased $794,000 and increased $1.6 million during the second
quarter and six months of 2000,  respectively,  compared to the same  periods in
1999.  The  decrease  during  the  second  quarter  of 2000 is due to  decreased
borrowings  under the Company's  debt and financing  arrangements.  The increase
during  the six  months  of 2000 is due to  higher  interest  rates  and  higher
outstanding debt balances  compared to the same period in 1999.  Interest income
increased $3.6 million and $4.4 million during the second quarter and six months
of 2000,  respectively,  compared to the same  periods in 1999,  primarily  as a
result of approximately  $3.0 million of interest  received related to an income
tax refund.

INCOME TAXES
------------
The Company's  effective tax rate  decreased from 36% for the second quarter and
six months of 1999, to 35% for the second quarter and six months of 2000.

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,
management  has  determined  that the Company  will more likely than not realize
$164.9 million of deferred  income tax assets as of June 30, 2000. The Company's
valuation  allowance of approximately $14.3 million as of June 30, 2000, relates
principally to net deductible  temporary  differences,  tax credit carryforwards
and net operating  loss  carryforwards  associated  with the  Company's  foreign
subsidiaries.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Available Financing Lines

The Company has a revolving credit facility (the Primary Revolver) which expires
in October 2001. The credit limit available under the Primary  Revolver  ($262.5
million as of June 30,  2000) is reduced by $12.5  million on the last  business
day of each  calendar  quarter.  The interest  rates under the Primary  Revolver
depend upon the  repayment  period of the  advance  selected  and the  Company's
rolling four quarter  Total Debt to Earnings  before  Interest  Expense,  Taxes,
Depreciation  and  Amortization   (EBITDA)  ratio.  Depending on the term of the
outstanding  borrowing, the  rate  ranges  from  the applicable  LIBOR  plus
2.0% to 2.5% or the agent  bank's  base rate plus 0% to 0.50%.  The weighted
average interest  rate on the  advances as of June 30, 2000,  was 9.3%.  The
Company had borrowings  of $126.0  million  and issued  letters of credit for
approximately $50,000 under the Primary Revolver as of June 30, 2000. The
remaining  available credit under the Primary Revolver as of June 30, 2000, was
approximately  $136.5 million. Borrowings under the Primary Revolver are secured
by the Company's U.S. accounts  receivable and U.S.  inventory.  The Primary
Revolver contains certain financial  and  other  covenants,  including
restrictions  on  payment  of cash dividends on the Company's common stock.

The Company has also entered into a $150 million  revolving credit facility (the
Supplemental  Revolver)  which expires in January 2001. The interest rates under
the  Supplemental  Revolver  depend  upon the  repayment  period of the  advance
selected and the  Company's  EBITDA ratio.  Depending on the term of the
outstanding borrowing, the rate ranges from the  applicable LIBOR plus 2.0% to
2.5% or the agent bank's base rate plus 0% to 0.50%.  The  Company  had no
borrowings outstanding  under the  Supplemental  Revolver  as of June 30,  2000.
Available credit under the Supplemental  Revolver as of June 30, 2000, was
$150.0 million. The Supplemental  Revolver is secured by the Company's U.S.
accounts  receivable and U.S.  inventory.  The Supplemental  Revolver  contains
certain financial and other covenants,  including restrictions on the payment of
cash dividends on the Company's common stock.
<PAGE>
                               Form 10-Q, Page 19


The Company has a financing  agreement with a bank that provides for the sale of
promissory  notes in the principal amount of up to $120 million at any one time.
The agreement,  which expires in January 2001,  provides for  commitments by the
bank to purchase  the  Company's  promissory  notes  denominated  in a number of
foreign  currencies.  As of June 30, 2000, the Company had  promissory  notes of
$63.6 million  outstanding  under this financing  agreement and had committed to
borrowings between July 2000 and January 2001 in the cumulative principal amount
of approximately  $194.0 million. The notes must be repaid only to the extent of
future  revenue.  Obligations  under the  agreement  are not  cancelable  by the
Company or the bank. Gains and losses  associated with changes in the underlying
foreign  currencies are deferred during the commitment  period and recognized as
an adjustment to the revenue  supporting the note repayment at the time the bank
purchases the  promissory  notes.  The promissory  notes,  together with accrued
interest,  are payable in U.S. dollars within 40 days from the date of issuance.
The  weighted  average  interest  rate  associated  with  the  promissory  notes
outstanding  as of June 30, 2000,  was 8.62%.  Under the terms of the agreement,
the Company is required to comply with  certain  covenants  and,  under  certain
circumstances,  may be required to maintain a collateral account, including cash
and qualifying  investments,  in an amount up to the outstanding  balance of the
promissory notes.

Working Capital

The Company believes it has adequate working capital and financing  capabilities
to meet its  anticipated  operating  and  capital  requirements  for the next 12
months.  Over the longer term,  the Company may choose to fund these  activities
through the issuance of  additional  equity or debt  financing.  The issuance of
equity or convertible  debt securities could result in dilution to the Company's
stockholders. There can be no assurance that any additional long-term financing,
if required, can be completed on terms acceptable to the Company.

Total Debt-to-Total Capitalization

The  Company's  total  debt-to-capitalization  ratio  decreased  from  26% as of
December 31, 1999,  to 19% as of June 30, 2000,  primarily due to a net decrease
in  borrowings  of $96.6 million  under the  Company's  credit  facilities.  See
"Working Capital," above, for discussion of cash sources and uses.

INTERNATIONAL OPERATIONS
------------------------
During  the second  quarter  and six  months of 2000,  approximately  52% of the
Company's  revenue was generated by its  international  operations,  compared to
approximately  39% for the second  quarter  and six months of 1999.  The Company
also sells products through domestic  indirect  distribution  channels that have
end-user  customers located outside the United States.  The Company expects that
it  will  continue  to  generate  a  significant  portion  of its  revenue  from
international   operations  in  the  future.   The  majority  of  the  Company's
international   operations  involve   transactions   denominated  in  the  local
currencies of countries within Western Europe,  principally Germany,  France and
the United  Kingdom;  Japan;  Canada and Australia.  An increase in the exchange
value of the U.S.  dollar reduces the value of revenue and profits  generated by
the Company's international operations. As a result, the Company's operating and
financial results can be materially affected by fluctuations in foreign currency
exchange  rates.  In an attempt  to  mitigate  the  impact of  foreign  currency
fluctuations,  the  Company  employs a foreign  currency  hedging  program.  See
"Market Risk Management/Foreign Currency Exchange Risk," below.

The  Company's  international  business  may be  affected  by  changes in demand
resulting from global and localized economic, business and political conditions.
The Company is subject to the risks of  conducting  business  outside the United
States,  including  changes in, or  impositions  of,  legislative  or regulatory
requirements,   tariffs,  quotas,   difficulty  in  obtaining  export  licenses,
potentially  adverse  taxes,  the burdens of complying with a variety of foreign
laws,  and  other  factors  outside  the  Company's  control.  There  can
<PAGE>
                               Form 10-Q, Page 20


be no assurances  these  factors  will  not  have a  material  adverse  effect
on the Company's business or financial results in the future.

MARKET RISK MANAGEMENT/FOREIGN CURRENCY EXCHANGE RISK
-----------------------------------------------------
The  market  risk  inherent  in  the  Company's  financial  instruments  relates
primarily to changes in foreign currency  exchange rates. To mitigate the impact
of foreign  currency  fluctuations,  the Company seeks  opportunities  to reduce
exposures  through  financing  activities.  Foreign currency options and forward
exchange  contracts  are also used to reduce  foreign  currency  exposures.  All
foreign  currency  options and forward  exchange  contracts are  authorized  and
executed  pursuant  to the  Company's  policies.  Foreign  currency  options and
forward  exchange  contracts  that are  designated  as and  qualify  as  hedging
transactions  are subject to hedge  accounting  treatment.  The Company does not
hold or  issue  derivatives  or any  other  financial  instruments  for  trading
purposes.

The Company has a financing  agreement with a bank that provides for commitments
by the bank to  purchase  promissory  notes  denominated  in a number of foreign
currencies.  Gains and losses associated with changes in the underlying  foreign
currencies  are  deferred  during the  commitment  period and  recognized  as an
adjustment  to the revenue  supporting  the note  repayment at the time the bank
purchases  the  promissory  notes.  See  "Liquidity  and  Capital  Resources  --
Available Financing Lines" for a description of the financing agreement.

The Company  periodically  utilizes  foreign  currency  options,  generally with
maturities  of less  than  one  year,  to hedge a  portion  of its  exposure  to
exchange-rate  fluctuations  in  connection  with  anticipated  revenue from its
international  operations.  Gains and losses  associated  with the  options  are
deferred and recognized as an adjustment to the underlying revenue transactions.
To the extent an option is terminated or ceases to be effective as a hedge,  any
gains and losses as of that date are deferred and recognized as an adjustment to
the underlying revenue transaction.

The Company also utilizes forward exchange contracts,  generally with maturities
of less than two months,  to hedge its  exposure to  exchange-rate  fluctuations
associated with monetary assets and liabilities  held in foreign  currencies and
anticipated revenue from its international  operations.  The carrying amounts of
these forward  exchange  contracts  equal their fair values as the contracts are
adjusted at each  balance  sheet date for changes in exchange  rates.  Gains and
losses on the  forward  exchange  contracts  used to hedge  monetary  assets and
liabilities are recognized as incurred within SG&A on the Consolidated Statement
of Operations as  adjustments  to the foreign  exchange  gains and losses on the
translation of net monetary  assets.  Gains and losses on the forward  contracts
used to hedge  anticipated  revenue are recognized as incurred as adjustments to
revenue.

A  hypothetical  10% adverse  movement in foreign  exchange rates applied to the
Company's foreign currency  exchange rate sensitive  instruments held as of June
30, 2000, and as of December 31, 1999,  would result in a  hypothetical  loss of
approximately $45.4 million and $54.9 million, respectively. The decrease in the
hypothetical  loss for the second quarter of 2000 is primarily due to a decrease
in outstanding  commitments under the financing  agreement.  These  hypothetical
losses do not take into  consideration  the Company's  underlying  international
operations.  The Company  anticipates that any hypothetical loss associated with
the Company's  foreign  currency  exchange rate sensitive  instruments  would be
offset by gains associated with its underlying international operations.
<PAGE>
                               Form 10-Q, Page 21


The  Company had  outstanding  borrowings  under its Primary  Revolver of $126.0
million as of June 30, 2000. The interest rate on these  borrowings is dependent
on the LIBOR,  which is sensitive to interest rate changes.  A hypothetical  10%
adverse  movement  in the  LIBOR  applied  to the  borrowings  would  not have a
material adverse effect on the Company's  results of operations,  cash flows, or
financial position in 2000.

FACTORS THAT MAY AFFECT FUTURE RESULTS
--------------------------------------
New Products and Services; Emerging Markets

The Company's  results of operations and  competitive  strength  depend upon its
ability to successfully develop,  manufacture and market innovative new products
and  services.  Short  product life cycles are  inherent in the  high-technology
market.  The Company must devote  significant  resources to research and product
development  projects and  effectively  manage the risks inherent in new product
transitions.  Developing  new  technology,  products and services is complex and
involves  uncertainties.  Delays in product  development,  manufacturing,  or in
customer  evaluation  and  purchasing  decisions  may make  product  transitions
difficult.  The manufacture of new products involves integrating complex designs
and processes,  collaborating with sole source suppliers for key components, and
increasing  manufacturing  capacities to accommodate  demand. A design flaw, the
failure to obtain  sufficient  quantities of key  components,  or  manufacturing
constraints  could  adversely  affect  the  Company's  operating  and  financial
results. The Company has experienced product development delays in the past that
adversely  affected the Company's  financial  results and competitive  position.
There can be no assurance  that the Company will be able to manage  successfully
the development and introduction of new products and services in the future.

The  Company's  future  financial  results  are  significantly   dependent  upon
successfully  competing in the rapidly growing emerging  client-server  and SANs
markets  and  replacing  its  earlier  generation  products  in  the  enterprise
environment with new technologies.  The Company currently is making  significant
investments in developing new products for these  markets,  particularly  in the
internet and e-commerce  businesses.  There can be no assurance that the Company
will be  successful  in these  activities.  The SANs  market is new and  rapidly
evolving.  The  Company's  operating  and  financial  results  may be  adversely
impacted  in the event the SANs  market  develops  slower  than  expected or the
Company's  products  fail  to gain  acceptance  in this  market.  The  Company's
traditional  maintenance  revenue base may be adversely  impacted as a result of
the shift from the enterprise to the client-server marketplace.

Competition

The markets for the Company's  products and services are  intensely  competitive
and are subject to continuous,  rapid  technological  change,  frequent  product
performance improvements, short product life cycles, and aggressive pricing. The
Company believes that its ability to remain competitive involves factors such as
price and cost of the  Company's and its  competitors'  product  offerings,  the
timing and success of new products and offerings,  new product  introductions by
competitors,  and the ability to establish more effective distribution channels.
This competitive  environment  gives rise to aggressive  pricing  strategies and
puts pressure on gross profit margins. The Company's competitors include,  among
others, Compaq Computer Corporation,  EMC Corporation,  Hewlett-Packard Company,
Hitachi Ltd., IBM, Quantum Corporation,  and Sun Microsystems,  Inc. A number of
the  Company's  competitors  have  significantly  greater name  recognition  and
financial  resources than the Company.  In the highly competitive  client-server
market,  a number of the  Company's  competitors  are able to offer  customers a
bundled  server and storage  product,  which may provide them with a competitive
advantage.  The Company expects to address these  competitive  issues,  in part,
through its SAN strategy.
<PAGE>
                               Form 10-Q, Page 22


From  time-to-time,  two or more of the Company's  competitors may form business
alliances that compete with the Company.  For example,  during the third quarter
of 1999,  EMC  Corporation  acquired Data  General,  a supplier of the Company's
OPENstorage  Disk  products.   The  alliance  of  two  of  the  Company's  major
competitors could adversely affect the Company's ability to compete. A number of
the Company's  competitors  have formed  alliances with the stated  objective of
developing  interoperable SAN solutions.  In addition, the Company competes with
vendors with which it has established  relationships,  including Legato Systems,
Inc. and VERITAS Software Corporation. The Company also anticipates that it will
continue to establish distribution alliances with other equipment manufacturers,
software vendors and service providers to address competitive factors. There can
be no assurances that the Company will be able to compete  successfully  against
other companies in these markets.

Significant Personnel Changes

The  Company  has  experienced  significant  changes  in  its  management  team,
including  the hiring,  resignation  and  retirement of members of its executive
sales and  marketing  management.  The Company  announced in February  2000 that
David E.  Weiss,  the  Company's  Chairman  of the Board of  Directors  (Board),
President and Chief  Executive  Officer,  recommended  that the Board ask him to
resign from all positions.  The Board accepted Mr. Weiss' proposal and asked him
to resign from all such  positions  upon the  election of a successor or at such
earlier date as the Board deemed appropriate. In February 2000, the Company also
announced significant changes to its operating management, including the planned
departure of Victor Perez, the Company's Chief Operating Officer.

On July 11, 2000, the Board announced that Patrick J. Martin was selected as the
new Chairman of the Board, President and Chief Executive Officer. The Board also
accepted the resignation of Mr. Weiss from the same positions  immediately prior
to Mr. Martin's  appointment.  The Company  anticipates it will incur charges of
approximately  $7.5 million during the third quarter of 2000 in connection  with
the  resignation  of Mr.  Weiss  and  hiring  of Mr.  Martin.  The  Company  may
experience a delay between the time the  management  team is formed and the time
the team becomes fully productive.

The Company has also  experienced  changes in the remainder of its employee base
during  1999  and  the  first  half of 2000 as a  result  of the  voluntary  and
involuntary  severance programs implemented in connection with its restructuring
activities,  as well as  increased  levels of  employee  attrition.  The  future
success of the Company  depends in large part on its ability to attract,  retain
and motivate highly skilled employees. The Company faces significant competition
for  individuals  with the skills  required to deliver the products and services
offered to its  customers.  An inability to  successfully  deliver  products and
services   required  by  its  customers,   or  an  inability  to  implement  the
restructuring  activities while the Company completes the significant  personnel
changes  currently  underway,  could have an adverse effect on future  operating
results.

Changes in Sales Model for North America

The Company  historically  has  emphasized  the use of its direct sales force in
North America,  complemented by indirect  distribution  channels,  such as OEMs,
value-added  resellers and  value-added  distributors.  In  connection  with its
restructuring activities, the Company has implemented changes to its sales model
for North  America that the Company  expects will  improve  market  penetration,
increase sales  profitability,  reduce sales expense,  and expand the use of the
indirect  sales  channel.  This new sales model is  intended  to provide  better
coverage for new and existing end user customers, as well as enhancing reseller,
distributor and OEM alliances.  The Company has also reorganized its field sales
organizations  with the objective of better  serving  Fortune 500 customers with
enterprise-level product and service requirements.  A new sales organization was
also  formed  to  address  the needs of small and  medium-sized  customers  with
particular emphasis on internet and e-commerce businesses. There is no
<PAGE>
                               Form 10-Q, Page 23


assurance that the Company will not encounter  short term  disruptions  to its
sales as it completes the implementation of this new sales model or that the
new emphasis on indirect sales channels will result in increased sales or
productivity  over the long-term.  The  Company's  operating  and  financial
results may be  adversely affected by reduced  margins on sales  typically
experienced  in indirect sales channels.

Ability to Develop and Protect Intellectual Property Rights

The Company relies heavily upon its ability to develop new intellectual property
rights  that do not  infringe  upon the  rights  of  others  in order to  remain
competitive and develop and  manufacture  products that are competitive in terms
of technology and cost.  There is no assurance that the Company will continue to
be able to develop such new intellectual property.

The Company relies upon a combination of U.S. patent,  copyright,  trademark and
trade secret laws to protect its intellectual  property rights.  With respect to
certain of the Company's international operations,  the Company does file patent
applications with foreign  governments.  However,  many foreign countries do not
have as  well-developed  laws as the United  States in  protecting  intellectual
property.  The Company enters into  confidentiality  agreements  relating to its
intellectual  property  with its  employees and  consultants.  In addition,  the
Company includes  confidentiality  provisions in most license and  non-exclusive
sales agreements with its indirect distributors and its customers.

Despite  all of the  Company's  efforts to  protect  its  intellectual  property
rights,  unauthorized parties may attempt to copy or otherwise obtain or use the
Company's  intellectual  property.   Monitoring  the  unauthorized  use  of  the
Company's  intellectual  property  rights is difficult,  particularly in foreign
countries.  There is no  assurance  that the Company will be able to protect its
intellectual property rights, particularly in foreign countries.

Sole Source Suppliers

The Company  generally  uses standard  parts and components for its products and
believes  that,  in most  cases,  there are a number of  alternative,  competent
vendors  for most of those parts and  components.  Many  non-standard  parts are
obtained from a single source or a limited  group of suppliers.  However,  there
are other vendors who could produce these parts in satisfactory quantities after
a period of  pre-qualification  and product ramping.  Certain key components and
products are purchased from single source  suppliers  that the Company  believes
are currently the only manufacturers of the particular  components that meet the
Company's  qualification  requirements  and  other  specifications  or for which
alternative sources of supply are not readily available.  Imation Corporation is
a single  source  supplier  for the 9840  tape  cartridges  and the  Company  is
dependent on Imation to economically  produce large volumes of high-quality tape
cartridges  for the 9840  product at a cost  acceptable  to the  Company and its
customers.  IBM is a single  source  supplier  for the disk  drives  used in the
Company's SVA disk product.

Certain  suppliers have  experienced  occasional  technical,  financial or other
problems  in the past that have  delayed  deliveries,  but  without  significant
effect on the Company.  An unanticipated  failure of any sole source supplier to
meet the  Company's  requirements  for an extended  period,  or the inability to
secure comparable  components in a timely manner,  could result in a shortage of
key  components,  longer lead times,  and reduced  control over  production  and
delivery  schedules.  These  factors  could  have a material  adverse  effect on
revenue and operating results. In the event a sole source supplier was unable or
unwilling to continue to supply  components,  the Company would need to identify
and qualify  other  acceptable  suppliers.  This process  could take an extended
period,  and no assurance can be given that any  additional  source would become
available or would be able to satisfy production  requirements on a timely basis
or at a price acceptable to the Company.
<PAGE>
                               Form 10-Q, Page 24


The Company is dependent  upon a sole sub  contractor,  Herald  Datanetics  LTD.
(HDL),  to  manufacture a key component  used in certain tape  products.  HDL is
located in the People's  Republic of China (PRC).  To date,  the Company has not
experienced any material  problems with HDL. The Company's  dependence on HDL is
subject to additional  risks beyond those  associated with other sole 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,  such as whether the PRC is admitted
to the World Trade Organization.

Manufacturing

Significant  portions of the Company's  products are  manufactured in facilities
located in Puerto Rico.  The  Company's  ability to  manufacture  product may be
impacted by weather  related  risks  beyond the control of the  Company.  If the
Puerto Rico  manufacturing  facility was impacted by such an event,  the Company
may not have an alternative  source to meet the demand for its products  without
substantial  delays  and  disruption  to its  operations.  The  Company  carries
business  interruption  insurance  to  mitigate  some of the  risk.  There is no
assurance  that the Company  could  obtain  sufficient  alternate  manufacturing
sources or repair the  facilities  in a timely  manner to satisfy the demand for
its products.  Failure to fulfill manufacture demands could adversely affect the
Company's operating and financial results in the future.

The  Company,  along with the  computer  industry  as a whole,  has  experienced
delivery  delays  and  increased  lead  times  in  ordering  both  standard  and
non-standard  parts and  components  for its  products.  These longer lead times
could  result in a shortage  of parts and key  components  and result in reduced
control over  production  and delivery  schedules.  These  factors  could have a
material adverse effect on revenue and operating results.

Information Systems and Business Process Transitions

The Company replaced many of its internal information systems outside the United
States during 1999 with new  information  systems.  The Company also  introduced
significant  new  business  processes  in  conjunction  with these new  systems,
particularly  within  its  European  operations.  The  implementation  of  these
information  systems and  business  processes  has been complex and has affected
numerous operational,  transactional,  financial,  and reporting processes.  The
establishment  of  processes  and  training  associated  with these  information
systems  are  continuing  and involve a number of risks and  uncertainties.  The
Company  must  successfully  manage the  business  process  changes and employee
training  programs.  There can be no assurance  that the  transition  to the new
information   systems  and   business   processes   will  not  cause  delays  or
interruptions  in the Company's  business.  Failure to  successfully  manage the
transition could adversely affect the Company's  operating and financial results
in the future.

Volatility of Stock Price/Earnings Fluctuations

The Company's  common stock is subject to  significant  fluctuations  in trading
price.  The Company's  stock price may be impacted if the  Company's  revenue or
earnings  fail  to  meet  the  expectations  of the  investment  community.  The
Company's  stock price may also be affected by broad economic and market trends,
which are unrelated to the Company's performance.

The  Company's  financial and  operating  results may fluctuate  from quarter to
quarter due to a number of reasons.  In the past,  the  Company's  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  portion  of the total  product  sales is
recognized  in the last weeks and days of the  quarter.  These  factors make the
forecasting  of revenue  inherently  difficult.  Because the  Company  plans

<PAGE>
                               Form 10-Q, Page 25


its operating  expenses based on expected revenue,  a shortfall in revenue may
cause earnings to be below  expectations in that period. A number of factors
may cause revenue to fall below expectations,  such as product and technology
transitions announced by the Company or its  competitors;  delays in the
availability of new products;  changes in the  purchasing  patterns of the
Company's  customers and distribution  partners;  the timing of customers'
acceptance of products;  rapid price erosion; or adverse global economic
conditions. The mix of sales among the Company's  business  segments and sales
concentration in particular  geographic regions may carry  different  gross
profit  margins and may cause the  Company's operating margins to fluctuate and
impact earnings.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------
The  information  required  under this Item 3 is included  in the section  above
entitled "Market Risk Management / Foreign Currency Exchange Rate."
<PAGE>
                               Form 10-Q, Page 26







               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                         PART II - OTHER INFORMATION


ITEM 1 - LEGAL PROCEEDINGS
--------------------------
See Part I,  Item 3 - Legal  Proceedings,  of the  Company's  Form  10-K for the
fiscal year ended  December 31,  1999,  filed with the  Commission  on March 10,
2000.

In January 1994,  Stuff Technology  Partners II, a Colorado Limited  Partnership
(Stuff),  filed suit in Boulder County,  Colorado,  District Court (the District
Court) against the Company and certain  subsidiaries.  The suit alleged that the
Company  breached  a  1990  settlement   agreement  that  had  resolved  earlier
litigation  between  the  parties  concerning  an  optical  disk  drive  storage
development  project entered into in 1981 which was  unsuccessful and terminated
in 1985.  The suit  sought  injunctive  relief and damages in the amount of $2.4
billion.  On December 28, 1995, the District Court granted the Company's  motion
for summary  judgment and dismissed the complaint.  Stuff appealed the dismissal
to the Colorado  Court of Appeals (the "Court of Appeals").  In March 1997,  the
Court of Appeals reversed the District Court's judgment and remanded the case to
the District Court for further proceedings. On July 15, 1999, the District Court
again  dismissed,  with  prejudice,  all of Stuff's  material claims against the
Company.  On August 30,  1999,  Stuff  filed a notice of appeal with the Appeals
Court seeking to overturn the decision of the District Court. Subsequently,  the
parties have filed various appellate  briefs.  Oral arguments before the Appeals
Court  occurred on August 8, 2000 with no action taken at that time. The Company
continues to believe that Stuff's claims are wholly without merit and intends to
defend vigorously any further actions arising from this complaint.

In December  1999,  the Company  filed suit in the U.S.  District  Court for the
Western District of Wisconsin against Cisco Systems,  Inc.  ("Cisco"),  alleging
that Cisco infringed upon a certain patent of the Company that Cisco used in its
products.  The Company filed an amended complaint on December 30, 1999, in which
the Company  alleged that Cisco had  infringed  upon a second patent used in its
products.  Cisco filed an answer in January 2000 denying the  Company's  claims,
alleging that the Company's  patents are invalid and asserting  that a microchip
used in one of the Company's  network  security  products  infringed upon one of
Cisco's  patents.  Cisco is seeking  unspecified  compensatory  damages  that it
asserts should be trebled,  along with injunctive  relief. The Company purchases
the alleged  infringing  microchip from Level One ("Level One"), a subsidiary of
Intel Corporation.  In March 2000, the case was transferred to the U.S. District
Court for the Northern  District of California.  Level One has been added to the
lawsuit as an additional  defendant to Cisco's  counterclaim.  A case management
conference  was  held  on  August  4,  2000,  at  which  the  date  for a  claim
construction  hearing  was set for  April 9,  2001 and a trial  date was set for
March 4, 2002. The Company continues to believe that it has valid claims against
Cisco and valid defenses against Cisco's counterclaim.

The Company is also involved in various other less  significant  legal  actions.
While the Company currently  believes that the amount of any ultimate  potential
loss would not be material to the Company's financial  position,  the outcome of
these  actions is  inherently  difficult to predict.  In the event of an adverse
outcome, the ultimate potential loss could have a material adverse effect on the
Company's  financial  position or reported results of operations in a particular
quarter.  An unfavorable  decision,  particularly  in patent  litigation,  could
require material  changes in production  processes and products or result in the
Company's  inability  to ship  products  or  components  found to have  violated
third-party patent rights.

<PAGE>
                               Form 10-Q, Page 27



ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
The Company's Annual Meeting of Stockholders  (the "Annual Meeting") was held on
May 18, 2000. A total of 91,177,606  shares of common stock,  par value $.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 five proposals  specifically set forth in
the  Company's  definitive  Proxy  Statement,  dated  April 11, 2000 (the "Proxy
Statement"),  along  with one  proposal  brought  from the  floor of the  Annual
Meeting.

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

Nominee                       For           Withheld
-------                 ----------------    --------
James R. Adams                89,660,739    1,516,867
William L. Armstrong          89,656,387    1,521,219
William R. Hoover             89,658,300    1,519,306
William T. Kerr               89,658,744    1,518,862
Robert E. La Blanc            89,656,434    1,521,172
Robert E. Lee                 89,653,536    1,524,070
Richard C. Steadman           89,655,668    1,521,938
David E. Weiss                89,636,097    1,541,509

The second  proposal  related  to an  amendment  to the  Company's  1995  Equity
Participation  Plan, as amended  (Plan),  to increase in the number of shares of
Common Stock  authorized to be granted  thereunder by 10,000,000  shares and was
adopted by a vote of  48,151,009 in favor to  25,502,160  against,  with 302,427
abstentions and 17,222,010  broker  non-votes.  The third proposal related to an
amendment  to the Plan to increase  the number of stock  options and  restricted
stock that may be granted in any one year and to provide a greater  amount to be
granted  to a  participant  in the Plan in the  first  year such  person  became
eligible to participate.  The third proposal was adopted by a vote of 72,124,340
in  favor  to  18,698,225  against,  with  355,041  abstentions  and  no  broker
non-votes.    The   fourth   proposal    related   to   the    ratification   of
PricewaterhouseCoopers LLP as the Company's independent auditors and was adopted
by a vote of 90,740,048 in favor to 324,681  against,  with 112,877  abstentions
and no broker non-votes.  The fifth proposal was made by several stockholders of
the Company and would have required  that  directors and officers of the Company
hold  Common  Stock  received  under  the Plan for a  certain  period  after the
exercise  thereof,  subject to certain  exceptions and was rejected by a vote of
4,710,386  in  favor to  68,189,175  against,  with  1,053,863  abstentions  and
17,224,182 broker non-votes. A stockholder made a proposal from the floor of the
Annual  Meeting,  prior to the voting upon the five  proposals  set forth in the
Proxy  Statement and described  above,  to have the Annual Meeting  adjourned as
having been improperly  called,  which was rejected by a vote of 56,571 in favor
to 91,121,035 against, with no abstentions and no broker non-votes.

<PAGE>
                               Form 10-Q, Page 28



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

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

 3.1        Restated   Certificate  of  Incorporation   of  Storage   Technology
            Corporation dated July 28, 1987 (filed as Exhibit 3 to the Company's
            Quarterly  Report on Form 10-Q for the quarter  ended  September 25,
            1987, and as Exhibit  3.1(ii) to the Company's  Quarterly  Report on
            Form 10-Q,  for the  quarter  ended  September  29,  1995,  filed on
            November 13, 1995, and incorporated herein by reference).

 3.2        Certificate  of  Amendment  dated  May  22,  1989,  to the  Restated
            Certificate of  Incorporation  dated July 28, 1987 (filed as Exhibit
            (c)(1) to the  Company's  Current  Report on Form 8-K dated  June 2,
            1989, and incorporated herein by reference).

 3.3        Certificate of Second  Amendment dated June 2, 1992, to the Restated
            Certificate of Incorporation dated July 28, 1987 (filed as Exhibit 3
            to the Company's Quarterly Report on Form 10-Q for the quarter ended
            June 26, 1992, and incorporated herein by reference).

 3.4        Restated  Bylaws  of  Storage  Technology  Corporation,  as  amended
            through  November  11, 1998  (filed as Exhibit 3.1 to the  Company's
            Current Report on Form 8-K dated November 19, 1998, and incorporated
            herein by reference).

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

 4.2        Rights  Agreement  dated as of  August  20,  1990,  between  Storage
            Technology  Corporation  and First Fidelity Bank,  N.A., New Jersey,
            Rights Agent (filed as Exhibit 4.1 to the Company's  Current  Report
            on Form 8-K  dated  August  20,  1990,  and  incorporated  herein by
            reference).

 4.3        Certificate  of  Designations  of  Series  B  Junior   Participating
            Preferred  Stock (filed as Exhibit A to Exhibit 4.1 to the Company's
            Current  Report on Form 8-K dated August 8, 1990,  and  incorporated
            herein by reference).

10.1 (1)(2) CEO  Employment  Agreement,  dated  July  11,  2000,  between  the
            Company and Patrick J. Martin.

10.2 (1)(2) Release  dated as of July 10, 2000,  between the Company and David
            E. Weiss.

10.3 (1)(2) Amended and Restated 1995 Equity Participation Plan.

10.4 (1)(2) Extension of  Retention  Agreement,  dated July 31, 2000,  between
            the Company and Robert S. Kocol.

<PAGE>
                               Form 10-Q, Page 29



27.1 (2)    Financial Data Schedule.


(b) Reports on Form 8-K.
    --------------------
On July 19, 2000,  the Company filed a current report on Form 8-K dated July 18,
2000, pursuant to Item 5, disclosing the appointment of Patrick J. Martin as the
new  Chairman of the Board,  President  and Chief  Executive  Officer to succeed
David E. Weiss whom the Board of Directors asked to resign from such positions.


-----------------------------------------------------------------------------
(1) Contract or  compensatory  plan or  arrangement  in which  directors
    and/or officers participate.

(2) Indicates exhibits filed with this Quarterly Report on Form 10-Q.



<PAGE>
                               Form 10-Q, Page 30



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.


                                           STORAGE TECHNOLOGY CORPORATION
                                                    (Registrant)




       August 11, 2000                          /s/ ROBERT S. KOCOL
-------------------------------      ------------------------------------------
            (Date)                                   Robert S. Kocol
                                                 Corporate Vice President
                                               and Chief Financial Officer
                                              (Principal Financial Officer)






       August 11, 2000                         /s/ THOMAS G. ARNOLD
-------------------------------      ------------------------------------------
            (Date)                                   Thomas G. Arnold
                                         Vice President and Corporate Controller
                                              (Principal Accounting Officer)





<PAGE>
                               Form 10-Q, Page 31



                                EXHIBIT INDEX
                                -------------

(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 (filed as Exhibit 3 to the Company's
            Quarterly  Report on Form 10-Q for the quarter  ended  September 25,
            1987, and as Exhibit  3.1(ii) to the Company's  Quarterly  Report on
            Form 10-Q,  for the  quarter  ended  September  29,  1995,  filed on
            November 13, 1995, and incorporated herein by reference).

 3.2        Certificate  of  Amendment  dated  May  22,  1989,  to the  Restated
            Certificate of  Incorporation  dated July 28, 1987 (filed as Exhibit
            (c)(1) to the  Company's  Current  Report on Form 8-K dated  June 2,
            1989, and incorporated herein by reference).

 3.3        Certificate of Second  Amendment dated June 2, 1992, to the Restated
            Certificate of Incorporation dated July 28, 1987 (filed as Exhibit 3
            to the Company's Quarterly Report on Form 10-Q for the quarter ended
            June 26, 1992, and incorporated herein by reference).

 3.4        Restated  Bylaws  of  Storage  Technology  Corporation,  as  amended
            through  November  11, 1998  (filed as Exhibit 3.1 to the  Company's
            Current Report on Form 8-K dated November 19, 1998, and incorporated
            herein by reference).

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

 4.2        Rights  Agreement  dated as of  August  20,  1990,  between  Storage
            Technology  Corporation  and First Fidelity Bank,  N.A., New Jersey,
            Rights Agent (filed as Exhibit 4.1 to the Company's  Current  Report
            on Form 8-K  dated  August  20,  1990,  and  incorporated  herein by
            reference).

 4.3        Certificate  of  Designations  of  Series  B  Junior   Participating
            Preferred  Stock (filed as Exhibit A to Exhibit 4.1 to the Company's
            Current  Report on Form 8-K dated August 8, 1990,  and  incorporated
            herein by reference).

10.1 (1)(2) CEO  Employment  Agreement,  dated  July  11,  2000,  between  the
            Company and Patrick J. Martin

10.2 (1)(2) Release  dated as of July 10, 2000,  between the Company and David
            E. Weiss.

10.3 (1)(2) Amended and Restated 1995 Equity Participation Plan.

10.4 (1)(2) Extension of  Retention  Agreement,  dated July 31, 2000,  between
            the Company and Robert S. Kocol.

<PAGE>
                               Form 10-Q, Page 32



27.1 (2)    Financial Data Schedule.

(b) Reports on Form 8-K.
    --------------------
Current Report on Form 8-K, filed on July 18, 2000, relating to an Item 5, Other
Matter,  consisting  of a press  release  relating to the election of Patrick J.
Martin as Chairman of the Board,  President and Chief  Executive  Officer of the
Company and the resignation of David E. Weiss from those positions.



------------------------------------------------------------------------------
(1) Contract or  compensatory  plan or arrangement in which  directors  and/or
    Officers participate.

(2) Indicates exhibits filed with this Quarterly Report on Form 10-Q.