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 25, 1999
                                       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) - 100,179,257 shares outstanding at July 30, 1999.

<PAGE>
                               Form 10-Q, Page 2





                      STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                               INDEX TO FORM 10-Q
                                  June 25, 1999

                                                                          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

PART II - OTHER INFORMATION

      Item 1 - Legal Proceedings                                           25

      Item 3 - Quantitative and Qualitative Disclosures about Market Risk  26

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

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

      Exhibit Index                                                        30


<PAGE>
                               Form 10-Q, Page 3






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



                                                          06/25/99    12/25/98
                                                       -----------------------
                                                         (Unaudited)

ASSETS
Current assets:
  Cash and cash equivalents                            $   233,043 $   231,985
  Accounts receivable                                      766,749     755,931
  Inventories (Note 2)                                     348,166     261,808
  Deferred income tax assets                               117,061     114,715
                                                        ----------  ----------
     Total current assets                                1,465,019   1,364,439

Property, plant and equipment, net                         336,318     320,946
Spare parts for maintenance, net                            36,558      33,395
Deferred income tax assets                                  16,205      15,875
Other assets                                               121,748     108,289
                                                        ----------  ----------
                                                        $1,975,848  $1,842,944
                                                        ==========  ==========


LIABILITIES
Current liabilities:
  Credit facilities                                    $   390,140 $   276,673
  Current portion of long-term debt                         12,211       1,722
  Accounts payable                                         125,454     136,555
  Accrued liabilities                                      403,515     332,758
  Income taxes payable                                      66,908      78,400
                                                       ----------- -----------
     Total current liabilities                             998,228     826,108
Long-term debt                                              20,491      17,260
                                                       ----------- -----------
     Total liabilities                                   1,018,719     843,368
                                                       ----------- -----------


Commitments and contingencies (Note 4)


STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 300,000,000 shares authorized;
  100,279,772 shares issued at June 25, 1999, and
  100,338,353 shares issued at December 25, 1998            10,027      10,034
Capital in excess of par value                             824,343     834,778
Retained earnings                                          126,587     159,254
Treasury stock of 113,774 shares at June 25, 1999,
  and 117,271 shares at December 25, 1998                   (2,334)     (2,409)
Unearned compensation                                       (1,494)     (2,081)
                                                      ------------ -----------
     Total stockholders' equity                            957,129     999,576
                                                      ------------ -----------
                                                        $1,975,848  $1,842,944
                                                      ============ ===========


   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
                                  ---------------------------------------------
                                  06/25/99   06/26/98     06/25/99   06/26/98
                                  ---------------------------------------------
Revenue                           $654,402   $542,306   $1,171,905 $1,027,197
Cost of revenue                    383,960    284,746      678,046    538,135
                                   -------    -------    ---------  ---------
  Gross profit                     270,442    257,560      493,859    489,062

Research and product development
  costs                             72,624     54,947      146,100    110,920
Selling, general, administrative
  and other income and
  expense, net                     151,702    118,041      289,561    232,863
Litigation expense (Note 4)         82,308                  82,308
Restructuring expense (Note 5)      20,246                  20,246
                                   -------    -------    ---------  ---------
  Operating profit (loss)          (56,438)    84,572      (44,356)   145,279

Interest expense                    (4,733)    (1,320)      (8,632)    (2,449)
Interest income                      1,091      4,578        2,021     10,370
                                   -------    -------    ---------- ---------
  Income (loss) before income
    taxes                          (60,080)    87,830      (50,967)   153,200

Benefit (provision) for income
  taxes                             21,600    (33,400)      18,300    (58,200)
                                   -------    -------    ---------  ---------
  Net income (loss)               $(38,480)  $ 54,430   $  (32,667)$   95,000
                                   =======    =======    =========  =========



EARNINGS (LOSS) PER COMMON SHARE

Basic earnings (loss) per share   $ (0.38)   $   0.51   $    (0.33)$     0.89
                                   =======    =======    =========  =========
Weighted-average shares            100,081    106,945       99,931    106,777
                                   =======    =======    =========  =========



Diluted earnings (loss) per share $  (0.38)  $   0.50   $    (0.33)$     0.87
                                   =======    =======    =========  =========
Weighted-average and dilutive
  potential shares                 100,081    109,939       99,931    109,650
                                   =======    =======    =========  =========





    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
                                                    ------------------------
                                                       06/25/99    06/26/98
                                                    ------------------------
OPERATING ACTIVITIES
Cash received from customers                        $ 1,136,902  $1,065,374
Cash paid to suppliers and employees                 (1,156,059)   (907,386)
Interest received                                         2,021      10,370
Interest paid                                            (7,531)     (1,878)
Income tax refunded (paid), net                           6,535     (81,379)
                                                     ----------   ---------
   Net cash provided by (used in) operating
     activities                                         (18,132)     85,101
                                                     ----------   ---------

INVESTING ACTIVITIES
Short-term investments, net                                          56,271
Purchases of property, plant and equipment, net         (59,438)    (44,140)
Business acquisitions, net                               (6,400)
Other assets, net                                        (2,272)     (3,541)
                                                     ----------   ---------
    Net cash provided by (used in) investing
      activities                                        (68,110)      8,590
                                                     ----------   ---------

FINANCING ACTIVITIES
Proceeds from credit facilities, net                    116,022
Repayments of other debt, net                            (1,331)     (2,841)
Repurchases of common stock                             (26,080)   (118,561)
Proceeds from employee stock plans                       14,346      21,713
                                                     ----------   ---------
    Net cash provided by (used in) financing
      activities                                        102,957     (99,689)
                                                     ----------   ---------

   Effect of exchange rate changes on cash              (15,657)     (2,771)
                                                     ----------   ---------

Increase (decrease) in cash and cash equivalents          1,058      (8,769)
   Cash and cash equivalents - beginning
     of the period                                      231,985     256,319
                                                     ----------   ---------
Cash and cash equivalents - end of the period       $   233,043  $  247,550
                                                     ==========   =========


RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
   PROVIDED BY OPERATING ACTIVITIES
Net income (loss)                                   $   (32,667) $   95,000
Depreciation and amortization expense                    62,475      62,016
Translation loss                                         11,499       5,178
Litigation expense                                       82,308
Restructuring                                            16,008
Other non-cash adjustments to income                      5,584      (3,922)
(Increase) decrease in accounts receivable              (32,148)     38,799
Increase in inventories                                 (87,027)    (43,517)
Increase in spare parts, net                            (10,881)    (10,593)
(Increase) decrease in deferred income tax
  assets, net                                            (6,660)     14,091
Decrease in accounts payable and accrued
  liabilities                                           (20,077)    (32,181)
Decrease in income taxes payable                         (6,546)    (39,770)
                                                     ----------   ---------
   Net cash provided by (used in)
     operating activities                           $   (18,132) $   85,101
                                                     ==========   =========



   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 / SIGNIFICANT ESTIMATES

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  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 25, 1998.

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the  reported  amounts  of assets  and  liabilities,  the  disclosure  of
contingent  assets and  liabilities as of the date of the financial  statements,
and the reported amounts of revenue and expenses during the periods. Significant
estimates  have been made by management in several areas  including the possible
outcome of outstanding litigation (see Note 4) and future obligations associated
with the Company's  restructuring  activities (see Note 5). Actual results could
differ  materially  from these  estimates  making it reasonably  possible that a
change in these estimates could occur in the near term.

NOTE 2 - INVENTORIES

Inventories consist of the following (in thousands of dollars):

                                              06/25/99          12/25/98
                                             ---------         ---------
      Raw materials                           $ 77,397          $ 46,672
      Work-in-process                           77,349            76,839
      Finished goods                           193,420           138,297
                                               -------           -------
                                              $348,166          $261,808
                                               =======           =======

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 $140,000,000 at any one time.
The agreement,  which expires in January 2000,  provides for  commitments by the
bank to purchase promissory notes denominated in a number of foreign currencies.
As of June 25, 1999, the Company had outstanding borrowings of $80,140,000 under
this financing  agreement and had committed to borrowings  between July 1999 and
December 1999 in the cumulative principal amount of approximately  $212,074,000.
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 and bear interest at rates no less than
the LIBOR plus 0.35%  (approximately 5.52%
<PAGE>
                               Form 10-Q, Page 7


as of June 25, 1999). 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  not less  than the
outstanding promissory notes.

See the Company's 1998 Form 10-K and "Liquidity and Capital Resources  Available
Financing  Lines" of this Form 10-Q,  for additional  information  regarding the
Company's debt and financing arrangements.

NOTE 4 - LITIGATION

In January 1994,  Stuff Technology  Partners II, a Colorado Limited  Partnership
(Stuff),  filed suit in Boulder  County,  Colorado,  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  $2,400,000,000.  On December 28,
1995, the court granted the Company's  motion for summary judgment and dismissed
the complaint. Stuff appealed the dismissal to the Colorado 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 dismissed with prejudice Stuff's claims relating to the
Company's  alleged use of the optical disk  technology,  and  dismissed  without
prejudice all of the remaining claims. The only course of legal action available
to Stuff with respect to the claims dismissed with prejudice is to appeal to the
Court of Appeals for a second  time.  While it is unclear  what course of action
Stuff  intends to take in this case,  the Company  continues to believe  Stuff's
claims are wholly  without  merit and intends to  vigorously  defend any further
actions arising from this complaint.

On December 8, 1995, Odetics, Inc. (Odetics) filed a patent infringement suit in
the U.S.  District  Court for the  Eastern  District  of  Virginia  against  the
Company.  The complaint  alleges that the "cartridge  access port" in certain of
the Company's  tape library  products  infringes  U.S.  Patent No.  4,779,151 as
further  described in the Odetics  litigation dated June 29, 1995, below in this
section. The complaint seeks injunctive relief, treble damages in an unspecified
amount,  and an award of  attorney's  fees and costs.  This case has been stayed
pending the outcome of the June 29, 1995 Odetics litigation.

On October 3, 1995,  certain  former  employees of the Company filed suit in the
U.S.  District  Court for the  District of Colorado  against  the  Company.  The
amended suit alleges  violations of the Age  Discrimination  in  Employment  Act
(ADEA) and the  Employee  Retirement  Income  Security  Act (ERISA)  between the
period of April 13, 1993, and December 31, 1996. On November 26, 1997, the Court
granted the plaintiffs' request to proceed as a class action on the ADEA claims.
On November 9, 1998, the Court granted the  plaintiffs'  request to proceed as a
class on the ERISA  claims.  On March 1, 1999,  the Court  denied the  Company's
appeal on the certification of the ERISA class.  Approximately 1,300 persons are
eligible members of the ERISA class, which includes approximately 400 members of
the ADEA class. The plaintiffs seek, among other things, compensatory damages in
an  unspecified   amount,   including  the  value  of  back  pay  and  benefits;
reinstatement  as employees or  alternatively  the value of future  earnings and
benefits;  and exemplary or liquidated damages.  The Company has filed an answer
denying both the ADEA and ERISA claims.  The case is in the discovery phase. The
Company  has filed a number of motions  which are  pending  before the court.  A
trial date has been set for October 1999.
<PAGE>
                               Form 10-Q, Page 8


The Company  believes it has adequate legal defenses with respect to each of the
actions cited above and intends to  vigorously  defend  against  these  actions.
However,  it is reasonably  possible that these actions could result in outcomes
unfavorable  to the Company.  The Company is also involved in various other less
significant legal actions.  While the Company currently believes that the amount
of the ultimate potential loss would not be material to the Company's  financial
position,  the  outcome  of all 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.

On June 29, 1995, Odetics filed a patent  infringement suit in the U.S. District
Court for the Eastern District of Virginia  (District Court) against the Company
alleging that the  "pass-through"  port in certain of the Company's tape library
products  infringed U.S. Patent No. 4,779,151 (the "151 Patent").  The complaint
asked the court to impose  injunctive  relief,  treble damages in an unspecified
amount,  and an award of  attorney's  fees and costs.  In February  1996, a jury
found that the  Company's  products  did not  infringe  the 151 Patent.  Odetics
appealed  and in June 1997,  the U.S.  Court of Appeals for the Federal  Circuit
(Court of Appeals)  reversed the District  Court's  ruling and remanded the case
back to the District Court for further proceedings.  On March 27, 1998, a second
trial was held and a jury  found  that a  pass-through  port in  certain  of the
Company's  tape library  products  infringed  the 151 Patent and awarded  actual
damages to Odetics of $70,600,000.  On July 31, 1998, the District Court granted
the  Company's  motion for judgment as a matter of law,  overturning  the jury's
verdict,  and entered  judgment  in favor of the  Company.  On August 10,  1998,
Odetics  appealed the judgment.  On July 6, 1999, the Court of Appeals  reversed
the District Court's judgment as a matter of law, entered a judgment in favor of
Odetics, and remanded the case to the District Court for further proceedings. In
connection  with this  litigation,  the Company  recognized a pre-tax expense of
$82,308,000  during  the  second  quarter  of 1999  for the  actual  damages  of
$70,600,000   as  determined  by  the  jury,   plus   $11,708,000  of  estimated
post-judgment  interest.  On July 20,  1999,  the Company  filed a petition  for
rehearing with the Court of Appeals. A decision on the petition is pending.

NOTE 5 - RESTRUCTURING

On April 15, 1999, the Company announced plans to restructure certain aspects of
its  business.  The  elements of the  restructuring  plan include a reduction in
headcount as well as the  elimination  of certain  lower  priority  research and
product development projects. The headcount reductions were targeted in the area
of research and product development, administrative and manufacturing.

The  Company's  accounting  policies  with respect to its  restructuring  are in
accordance with the guidance  provided in the consensus  opinion of the Emerging
Issues Task Force (EITF) in connection with EITF Issues No. 94-3 (EITF 94-3) and
SFAS No 121.  EITF 94-3  generally  requires,  with  respect to  recognition  of
severance expenses, management approval of the restructuring plan, communication
of benefit arrangements to employees,  and the determination of the employees to
be terminated.  SFAS No. 121 generally requires that assets to be disposed of be
reported at the lower of carrying amount or fair value less cost to sell.

During the second  quarter of 1999,  the Company  incurred a pre-tax  expense of
$20,246,000  related to the  restructuring.  The following table  summarizes the
activity  in the  Company's  reserves  associated  with  the  restructuring  (in
thousands of dollars):
<PAGE>
                               Form 10-Q, Page 9


                                    Employee           Asset
                                   Severance         Writedowns      Total
                              -----------------------------------------------
Restructuring expense               $17,778           $ 2,468       $20,246
Cash payments                        (1,770)                         (1,770)
Asset writedowns                                       (2,468)       (2,468)
                                     ------            ------        ------
Balances, June 25, 1999             $16,008           $     0       $16,008
                                     ======            ======        ======

The employee severance expense of $17,778,000  consist of separation payments of
$15,908,000  payable to approximately  475 employees who irrevocably  elected to
participate  in a voluntary  separation  program  prior to the end of the fiscal
quarter; payments of $1,770,000 of employees salaries prior to their termination
date, but subsequent to their last day of work; and estimated outplacement costs
of $100,000.  Payments of $13,859,000  associated with the severance charge were
subsequently   paid  on  June  30,  1999,  in  connection  with  the  employees'
termination.  The remaining $2,049,000 of payments associated with the severance
charge as of June 30, 1999, relate to employees with extended  termination dates
and are expected to be paid within the next six months.

The asset  writedowns of $2,468,000  relate to  engineering  assets that will be
disposed of during the next six months in connection with the Company's decision
during the second  quarter to discontinue  certain lower  priority  research and
product development projects.

The Company expects to incur additional  employee  severance expense and related
asset writedowns  during the third quarter of 1999. See  "RESTRUCTURING"  within
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" of this Form 10-Q for further discussion of the restructuring.

NOTE 6 - RECENTLY ISSUED ACCOUNTING STANDARDS

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 and
be measured at their fair value. The  corresponding  change in fair value of the
derivative  instrument  will be recorded in the earnings of the Company,  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.

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.  The Company is currently  evaluating  the impact
of SFAS No. 133 on its  financial  statements  and its plans for  adopting the
new accounting standard.

NOTE 7 - OPERATIONS OF BUSINESS SEGMENTS

The Company is organized into three reportable segments based on the definitions
of  segments  provided  under SFAS No. 131  "Disclosures  about  Segments  of an
Enterprise and Related  Information":  storage  products,  storage  services and
storage  management  software.  The storage products  segment sells  information
storage tape, disk and network  products.  The storage services segment provides
support  services  for  the  Company's  and  third-party  products,  integration
services,  storage  consulting  and managed  services.  The  storage  management
software segment sells and licenses software products.
<PAGE>
                               Form 10-Q, Page 10


The  Company  does not have  any  intersegment  revenue  and  evaluates  segment
performance  based  on  gross  profit.  The  segment  gross  profit  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.  The revenue and gross profit by segment are as follows (in  thousands
of dollars):

                                Quarter Ended                 Six Months
                         -------------------------    ------------------------
                          06/25/99        06/26/98      06/25/99      06/26/98
                         ---------        --------    -----------     --------
Revenue:
  Storage products        $418,444        $367,394    $  741,638    $  695,985
  Storage services         184,565         153,132       349,087       296,435
  Storage management
    software                51,393          21,780        81,180        34,777
                           -------         -------     ---------     ---------
      Total revenue       $654,402        $542,306    $1,171,905    $1,027,197
                           =======         =======     =========     =========

Gross profit:
  Storage products        $170,306        $175,923    $  305,049    $  335,801
  Storage services          61,335          65,933       128,380       128,518
  Storage management
    software                38,801          15,704        60,430        24,743
                           -------         -------     ---------     ---------
      Total gross profit  $270,442        $257,560    $  493,859    $  489,062
                           =======         =======     =========     =========

<PAGE>
                               Form 10-Q, Page 11



               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  JUNE 25, 1999


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.  The
Company's actual results may differ materially  because of a number of risks and
uncertainties.  Some of these risks are detailed below in "Risk Factors That May
Affect Future Results" and elsewhere in this Form 10-Q.

Statements made herein are accurate only as of the date of filing this Form 10-Q
with the  Securities  and Exchange  Commission and may be relied upon only as of
that date.  The  Company  disclaims  any  obligation  to update  information  on
forecasts contained herein, except as may be otherwise required by law.

GENERAL

The Company  reported a net loss for the second  quarter ended June 25, 1999, of
$38.5  million  on  revenue of $654.4  million,  compared  to net income for the
second quarter in 1998 of $54.4 million on revenue of $542.3 million. A net loss
of $32.7  million  was  reported  for the six months of 1999 on revenue of $1.17
billion,  compared to net income of $95.0  million for the six months of 1998 on
revenue of $1.03 billion.  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  expenses  during the second  quarter,  net of tax, the
Company would have earned net income of $27.2  million and $33.0 million  during
the second quarter and six months of 1999, respectively.

Revenue  increased 21% and 14% during the second quarter and six months of 1999,
respectively,  compared to the same periods in 1998,  due to revenue growth from
all of the Company's  business  segments.  Gross profit margins decreased to 41%
and 42% during the second quarter and six months of 1999, respectively, compared
to 47% and 48% for the same periods in 1998, due to decreased  profit margins on
storage  products  and storage  services.  The  decreased  margins  from storage
products and services were partially  offset by increased sales of higher-margin
storage management software.

Future  revenue and  operating  results  are  significantly  dependent  upon the
Company's ability to effectively manage the introduction of new or enhanced tape
and disk products and software;  successfully  manage direct and indirect  sales
channel activity;  increase sales of the higher-margin  software segment;  drive
gross margin  improvements  in the product and services  segments;  successfully
implement  the Company's  storage area network (SAN) and other storage  solution
strategies; and reduce operating expenses. For the discussion of these and other
risk factors, see "Risk Factors That May Affect Future Results" below.

The Company's cash balance  increased $1.1 million during the six months of 1999
as cash proceeds from financing  activities was offset by cash used in operating
and investing  activities.  Cash generated  from financing  activities of $103.0
million was mainly the result of increased  borrowings  of $116.0  million under
short-term credit facilities, and was partially offset by cash payments of $26.1
million  associated with the Company's  on-going common stock repurchase program
to offset dilution from employee stock and option plans. The Company's operating
<PAGE>
                               Form 10-Q, Page 12


activities used cash of $18.1 million during the six months of 1999, as compared
to cash of $85.1  million  generated  from  operations  during the six months of
1998. The decrease in cash generated from  operations  during 1999 was primarily
the  result of  decreased  gross  margins,  increased  operating  expenses,  and
increased  levels  of  accounts  receivable,  inventory  and  spare  parts.  See
"Liquidity and Capital Resources - Working Capital" for additional discussion of
operating  cash flows.  Cash used in investing  activities  of $68.1 million was
primarily due to property, plant and equipment purchases of $59.4 million.

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
                                  ----------------------------------------
                                  06/25/99 06/26/98     06/25/99  06/26/98
                                  ----------------------------------------
Storage products:
   Tape products                     43.9%    41.5%        44.7%     43.1%
   Disk products                     16.5     22.1         15.8      21.0
   Network products                   3.5      4.2          2.8       3.7
                                    -----    -----        -----     -----
     Total storage products          63.9     67.8         63.3      67.8
Storage services                     28.2     28.2         29.8      28.8
Storage management software           7.9      4.0          6.9       3.4
                                    -----    -----        -----     -----
     Total revenue                  100.0    100.0        100.0     100.0
Cost of revenue                      58.7     52.5         57.9      52.4
                                    -----    -----        -----     -----
     Gross profit                    41.3     47.5         42.1      47.6
Research and product development
  costs                              11.1     10.1         12.5      10.8
Selling, general, administrative
  and other income and expense, net  23.2     21.8         24.7      22.7
Litigation expense                   12.5                   7.0
Restructuring expense                 3.1                   1.7
                                    -----    -----        -----     -----
     Operating profit (loss)         (8.6)    15.6         (3.8)     14.1
Interest income (expense), net       (0.6)     0.6         (0.5)      0.8
                                    -----    -----        -----     -----
     Income (loss) before income
       taxes                         (9.2)    16.2         (4.3)     14.9
Benefit (provision) for income
  taxes                               3.3     (6.2)         1.5      (5.7)
                                    -----    -----        -----     -----
     Net income (loss)               (5.9)%   10.0%        (2.8)%     9.2%
                                    =====    =====        =====     =====


REVENUE

STORAGE PRODUCTS

The Company's storage products revenue includes sales of tape, disk, and network
products.  Revenue  generated from storage products  increased 14% and 7% during
the second  quarter and six months of 1999,  respectively,  compared to the same
periods in 1998,  primarily  due to increased  revenue from tape  products.  The
increase in revenue  from tape  products was  partially  offset by a decrease in
revenue from disk products.

Tape Products
Tape product  revenue  increased  28% and 18% during the second  quarter and six
months of 1999,  respectively,  compared to the same periods in 1998,  primarily
due to increased sales of the 9840  high-performance  tape drive and the related
tape media.  Demand for the 9840 in the second quarter of 1999 was  particularly
strong in the client-server  market.  Increased revenue from the  TimberWolf(TM)
family of automated  tape products  designed for the  client-server  market also
contributed to the revenue increase during the six months of 1999.  Revenue from


<PAGE>
                               Form 10-Q, Page 13


TimberLine(R)  9490, a 36-track  cartridge  subsystem;  PowderHorn(R)  9310,  an
automated  cartridge system library;  and other earlier generation tape products
declined during the second quarter and six months of 1999,  compared to the same
periods in 1998, reflecting decreases in both the number of units sold and lower
selling prices.

Disk Products
Disk product  revenue  decreased  10% and 14% during the second  quarter and six
months of 1999,  respectively,  compared to the same periods in 1998,  primarily
due to a decrease in revenue from OEM sales to IBM of Iceberg(R), a disk storage
product  designed for the  mainframe  market.  While  terabyte  sales of Iceberg
increased in the second  quarter and six months of 1999, as compared to the same
periods in 1998,  the increase in terabytes sold was more than offset by product
price erosion.  The Company  anticipates  that revenue from Iceberg sales to IBM
will  continue  to decrease in the  future.  See "Risk  Factors  That May Affect
Future Results - Dependence on IBM," for discussion of the risks associated with
IBM. The decrease in revenue from sales of Iceberg to IBM was  partially  offset
by an increase in direct  sales of the 9393 Shared  Virtual  Array (SVA) and the
OPENstorage(TM)  Disk products,  a family of disk products for the client-server
market.  SVA became  available  in April 1999.  The Company is  currently in the
engineering  development  phase with  respect  to a new  family of virtual  disk
products.

Network Products
Network  product  revenue was unchanged  during the second quarter and decreased
13% during the six months of 1999, compared to the same periods in 1998. Revenue
from  network  products  designed  for the SAN  market  increased  in the second
quarter  and six  months of 1999,  compared  to the same  periods  in 1998.  The
increase  in SAN  network  products  was offset by  decreased  revenue  from the
earlier generation network products.

Future revenue growth in the Company's storage products segment is significantly
dependent  upon the continued  demand for the TimberWolf and 9840 tape products,
successfully  replacing the  anticipated  decline in OEM sales of Iceberg to IBM
with sales of the  recently-introduced SVA disk product, the timely introduction
and acceptance of new disk products and enhancements, and gaining greater market
acceptance for SAN network products. There can be no assurances that the Company
will be successful in these endeavors.  See "Risk Factors That May Affect Future
Results - New Products,  Markets and  Distribution  Channels," for discussion of
the risks associated with the introduction and manufacture of new products.

STORAGE SERVICES

Storage  services  include  support  service  revenue  from  the  Company's  and
third-party storage products,  as well as integration service revenue associated
with new applications,  storage consulting and managed storage services. Storage
services revenue  increased 21% and 18% during the second quarter and six months
of 1999,  respectively,  compared to the same periods in 1998,  due to growth in
storage consulting and integration services.  Revenue from the Company's support
services  increased  slightly  in the  second  quarter  and six  months of 1999,
compared to the same periods in 1998,  primarily  due to the  Company's  current
generation of products  requiring less support services than earlier  generation
of products.

Future revenue growth from storage  services is  significantly  dependent on the
Company's  ability to provide  consulting and integration  services as part of a
bundled  solution with products and software as well as its new managed  storage
services   utility  model.   Storage  services  revenue  is  also  dependent  on
successfully expanding the support service offerings for third-party products.
<PAGE>
                               Form 10-Q, Page 14


STORAGE MANAGEMENT SOFTWARE

Storage  management  software revenue  increased 136% and 133% during the second
quarter and six months of 1999,  respectively,  compared to the same  periods in
1998,  primarily due to increased  revenue from the Virtual Storage  Manager(TM)
(VSM). VSM is a data storage software solution designed to improve  performance,
cartridge  utilization,  and overall storage management.  Revenue from SnapShot,
which is currently designed for use with the Company's  mainframe disk products,
was largely  unchanged  as  decreased  revenue  from IBM was offset by increased
revenue associated with direct sales of SnapShot for SVA.

Future  revenue  growth  from  storage  management   software  is  significantly
dependent upon increasing  market  acceptance for VSM.  Because VSM is a complex
system,  it is  difficult  to predict  the  timing and extent VSM will  increase
market  acceptance.  There  can  be no  assurances  that  the  Company  will  be
successful in increasing market acceptance for VSM. A significant portion of the
Company's  storage  management  software  revenue has been derived from sales of
SnapShot to IBM. The Company  anticipates sales of SnapShot to IBM will continue
to  decline  in  future  periods.  While  the  Company  has  developed  SnapShot
capabilities  for SVA in the mainframe  marketplace,  future revenue growth from
Snapshot is  significantly  dependent  upon the timely  introduction  and market
acceptance of future releases of the SnapShot  software.  See "Risk Factors That
May Affect  Future  Results - Dependence  on IBM," for  discussion  of the risks
associated with IBM.

GROSS PROFIT

Gross profit margins  decreased to 41% and 42% during the second quarter and six
months of 1999,  respectively,  compared to 47% and 48% for the same  periods in
1998, respectively,  due to reduced margins associated with storage products and
storage services. The decreased margins were partially offset by increased sales
of higher-margin storage management software products.  The gross profit margins
on storage products decreased primarily because of price erosion associated with
the  Company's  disk  products  and  increased  revenue  contribution  from  the
lower-margin  OPENstorage disk products.  The decrease in storage products gross
profit margin was partially  offset by increased  margins  associated  with tape
products.  The gross profit margins on storage services decreased  primarily due
to increased revenue from lower-margin storage consulting services and increased
parts usage associated with certain tape products.

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 a  significant  impact on the  Company's  profit
margins.   The  Company's  ability  to  sustain  or  improve  gross  margins  is
significantly   dependent  upon  its  ability  to  continue  to  reduce  product
manufacturing  costs and  increase  sales of  higher-margin  storage  management
software.  Storage product and storage management  software 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.
Storage services margins may be adversely  affected in the future as a result of
increased  revenue  contribution  from  lower-margin  consulting,   integration,
managed storage and multi-vendor support services.
<PAGE>
                               Form 10-Q, Page 15


RESEARCH AND PRODUCT DEVELOPMENT

Research  and  product  development  expenses  increased  32%  during the second
quarter and six months of 1999,  respectively,  compared to the same  periods in
1998.  This increase was  primarily  due to increased  investment in new storage
software and storage  products,  as well as a reduction of  approximately  $10.0
million and $20.0 million in research and product  development  funding received
from  third-parties in the second quarter and six months of 1999,  respectively,
as compared to the same periods in 1998.

As further  discussed under  "Restructuring,"  below,  the Company has announced
plans to eliminate lower priority research and product development programs. The
restructuring  is expected to reduce research and product  development  expenses
during the second half of 1999.

SELLING, GENERAL, ADMINISTRATIVE AND OTHER

Selling,  general,  administrative and other income and expense (SG&A) increased
29% and 24%  during  the second  quarter  and six months of 1999,  respectively,
compared  to the same  periods  in  1998.  The  increase  was  primarily  due to
increased selling expenses associated with increased revenue as well as expenses
associated  with expanding and training the direct sales force,  the addition of
application   specialists   associated  with  storage  services,  and  increased
marketing  efforts  associated with the SAN initiative and a corporate  branding
campaign.

LITIGATION

In the second quarter of 1999, the Company recorded  litigation expense of $82.3
million  as a  result  of the U.S.  Court of  Appeals  for the  Federal  Circuit
reversal of a judgment as a matter of law by the U.S.  District  Court in a U.S.
patent  infringement  case  originally  brought  against  the Company in 1995 by
Odetics,  Inc. The Company has filed a petition for rehearing  with the Court of
appeals.  A decision on the  petition  is pending.  See Note 1 and 4 of NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS for further discussion of this case.

RESTRUCTURING

On April 15, 1999, the Company announced plans to restructure certain aspects of
its  business.  The  elements of the  restructuring  plan include a reduction in
headcount as well as the  elimination  of certain  lower  priority  research and
product development projects. The headcount reductions were targeted in the area
of research and product development, administrative and manufacturing.

During the second  quarter of 1999,  the Company  incurred a pre-tax  expense of
$20.2 million related to the  restructuring.  The following table summarizes the
activity  in the  Company's  reserves  associated  with  the  restructuring  (in
thousands of dollars):

                                    Employee           Asset
                                   Severance         Writedowns      Total
                              -----------------------------------------------
Restructuring expense               $17,778           $ 2,468       $20,246
Cash payments                        (1,770)                         (1,770)
Asset writedowns                                       (2,468)       (2,468)
                                     ------            ------        ------
Balances, June 25, 1999             $16,008           $     0       $16,008
                                     ======            ======        ======
<PAGE>
                               Form 10-Q, Page 16


The employee  severance expense of $17.8 million consist of separation  payments
of $15.9 million payable to approximately 475 employees who irrevocably  elected
to participate in a voluntary  separation program prior to the end of the fiscal
quarter;  payments  of  $1.8  million  of  employees  salaries  prior  to  their
termination  date,  but  subsequent  to their  last day of work;  and  estimated
outplacement  costs of $100,000.  Payments of $13.9 million  associated with the
severance charge were subsequently paid on June 30, 1999, in connection with the
employees'  termination.  The remaining $2.0 million of payments associated with
the  severance  charge as of June 30, 1999,  relate to employees  with  extended
termination dates and are expected to be paid within the next six months.

The asset  writedowns of $2.5 million relate to engineering  assets that will be
disposed of during the next six months in connection with the Company's decision
during the quarter to discontinue  certain lower  priority  research and product
development projects.

The Company expects to incur additional  employee  severance  expense of between
$12 million and $15 million  during the third  quarter of 1999  associated  with
approximately  250  employees.  The Company also expects to incur  related asset
writedowns in the third quarter. While the Company does not expect it will incur
any  incremental  operating  expenses  on an  on-going  basis as a result of the
restructuring,  the Company does anticipate  hiring  employees in other areas of
its business to address skills requirements to support new business  initiatives
within the storage services and storage management software segments, as well as
to address the on-going  requirements of natural attrition.  The Company expects
annualized   savings  of  approximately   $40  million  once  the  restructuring
activities  are  completed.  The  majority of these  savings are  expected to be
realized in the form of reduced research and product development expenses. There
can be no  assurance  that the future  restructuring  expense will be within the
range described above or that the targeted savings will be achieved.  See Note 1
of NOTES TO  CONSOLIDATED  FINANCIAL  STATEMENTS  for  discussion of significant
estimates.

The Company has  restructured  its business in the past in order to re-align its
business  with its  products  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.

INTEREST EXPENSE AND INCOME

Interest  expense  increased  $3.4  million and $6.2  million  during the second
quarter and six months of 1999,  respectively,  compared to the same  periods in
1998,  due to  increased  borrowings  under  the  Company's  credit  facilities.
Interest  income  decreased  $3.5  million  and $8.3  million  during the second
quarter and six months of 1999,  respectively,  compared to the same  periods in
1998,  primarily  as a result of a decrease  in cash  available  for  investment
during  the  quarter.   See  "Liquidity  and  Capital  Resources,"  for  further
discussion of the Company's working capital and credit facilities.

INCOME TAXES

The Company's  effective tax rate  decreased  from 38% for the second quarter of
1998, to 36% for the second quarter of 1999.  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
<PAGE>
                               Form 10-Q, Page 17


determined that the Company will
more likely than not realize $133.3 million of deferred  income tax assets as of
June 25, 1999. The Company's  valuation allowance of approximately $23.9 million
as of June 25, 1999, relates principally to net deductible temporary differences
and net operating  loss  carryforwards  associated  with the  Company's  foreign
subsidiaries.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital

The Company's cash balance  increased $1.1 million during the six months of 1999
as cash proceeds from financing  activities was offset by cash used in operating
and investing  activities.  Cash generated  from financing  activities of $103.0
million was mainly the result of increased  borrowings  of $116.0  million under
short-term credit facilities, and was partially offset by cash payments of $26.1
million  associated with the Company's  on-going common stock repurchase program
to offset dilution from employee stock and option plans. The Company's operating
activities used cash of $18.1 million during the six months of 1999, as compared
to cash of $85.1  million  generated  from  operations  during the six months of
1998. The decrease in cash generated from  operations  during 1999 was primarily
the  result of  decreased  gross  margins,  increased  operating  expenses,  and
increased levels of accounts receivable, inventory and spare parts. Cash used in
investing activities of $68.1 million was primarily due to increased investments
in  property,  plant  and  equipment  of  $59.4  million.  Accounts  receivable,
inventory  and  spare  parts  levels  have  been  adversely  impacted  by issues
associated with the transition to new internal  information systems and business
processes.  See "Risks  Factors  That May Affect  Future  Results -  Information
Systems  Transition," for discussion of the risks associated with the transition
to new systems.  Inventory and spare part levels also  increased  during the six
months of 1999 due to the introduction of inventory ramp-up for new products.

Available Financing Lines

The Company has an unsecured  revolving  credit  facility (the  Revolver)  which
expires in October 2001.  The credit limit  available  under the Revolver,  $325
million as of June 25, 1999, is reduced by $12.5 million on the last day of each
calendar  quarter.  The interest rates under the Revolver  depend on the type of
advance  selected.  The basic advance rate is not less than the London Interbank
Offered Rate (LIBOR) plus .625%  (approximately  5.79% as of June 25, 1999). The
interest rate on the  outstanding  borrowings  under the Revolver as of June 25,
1999,  has varied from  approximately  5.90% to 7.75%.  As of June 25, 1999, the
Company had  borrowings  of $310  million  and had issued  letters of credit for
approximately  $100,000 under the Revolver. The remaining available credit under
the Revolver as of June 25, 1999, was  approximately  $15 million.  The Revolver
contains  certain  financial  and other  covenants,  including  restrictions  on
payment of cash dividends on the Company's common stock.

In January 1999,  the Company  entered into a $150 million  unsecured  revolving
credit  facility (the $150 million  Revolver) which expires in January 2000. The
interest  rates under the $150  million  Revolver  depend on the type of advance
selected.  The  basic  advance  rate is not  less  than  the  LIBOR  plus  1.00%
(approximately  6.17% as of June 25, 1999). As of June 25, 1999, the Company had
no  borrowings  issued  against  the $150  million  Revolver.  The $150  million
Revolver contains certain financial and other covenants,  including restrictions
on the payment of the cash dividends on the Company's common stock.

The Company has a financing  agreement with a bank that provides for the sale of
promissory  notes in the principal amount of up to $140 million at any one time.
The agreement,  which expires in January 2000,  provides for  commitments by the
bank to purchase promissory notes denominated in a number of foreign currencies.
As of June 25, 1999,  the Company had
<PAGE>
                               Form 10-Q, Page 18


outstanding  borrowings  of $80.1 million
under this financing agreement and had committed to borrowings between July 1999
and December 1999 in the cumulative  principal  amount of  approximately  $212.1
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  and bear
interest at rates no less than the LIBOR plus 0.35%  (approximately  5.52% as of
June 25,  1999).  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 not less than the outstanding promissory notes.

The  Company  intends  to  continue  to commit  substantial  working  capital to
research and product development  projects,  and the rollout of new products and
services.  The  Company  may  invest  in or  acquire  complementary  businesses,
products or technologies as market and business conditions warrant.  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 such  additional  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  increased  from  23% as of
December 25, 1998,  to 31% as of June 25, 1999,  primarily due to a net increase
in borrowings of $113.5 million under short-term credit facilities. See "Working
Capital" above for discussion of cash sources and uses.

INTERNATIONAL OPERATIONS

During  the second  quarter  and six  months of 1999,  approximately  39% of the
Company's  revenue was generated by its  international  operations,  compared to
approximately  36% for the second  quarter  and six months of 1998.  The Company
also sells products and software 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 United  States  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  and  business  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
<PAGE>
                               Form 10-Q, Page 19


factors  outside  the  Company's  control.  There  can  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 which 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 value 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 is 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
25, 1999, and as of December 25, 1998,  would result in a  hypothetical  loss of
approximately $51.3 million and $59.2 million, respectively. The decrease in the
hypothetical  loss  for the  first  six  months  of 1999 is  primarily  due to a
decrease  in  committed   borrowings  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 20


Risk Factors That May Affect Future Results

New Products, Services and Software; Markets; and Distribution Channels

The Company's  results of operations and  competitive  strength  depend upon its
ability to successfully develop, manufacture and market innovative new products,
services,  and  software.   Short  product  life  cycles  are  inherent  to  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,
services and software is complex and involves  uncertainties.  Delays in product
development,  manufacturing,  or in customer evaluation and purchasing decisions
can make product transitions  difficult.  In addition,  product transitions make
the process of production  and inventory  planning more difficult as the Company
must accurately anticipate product mix and configuration demands, and accurately
forecast  approximate  inventory  levels.  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 assurances that the Company
will be able to  successfully  manage the  development  and  introduction of new
products, services, and software in the future.

In  December  1998,  the  Company's  9840  tape  drive and VSM  software  became
generally available.  The Company's financial results in the second half of 1999
are  significantly  dependent on increased  market  acceptance for the 9840 tape
drive and VSM. 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. For example,  capacity constraints in manufacturing 9840 tape
drives and extended customer  evaluation  periods for the VSM software adversely
effected the Company's financial results in the first quarter of 1999.

The Company  historically has generated a significant portion of its revenue and
operating  profits from the  mainframe  market.  The rate of revenue  growth has
declined in the mainframe  market as a result of significant  price  competition
and as customers' purchase patterns transition to the client-server environment.
The  Company's  future  financial  results  are  significantly   dependent  upon
successfully competing in the rapidly growing client-server and SAN markets. The
Company currently is making significant  investments in developing new products,
services and software for these  markets.  There can be no  assurances  that the
Company will be successful in these activities.

The Company's business model involves the use of both its direct sales force, as
well as indirect distribution channels,  such as OEMs, value-added resellers and
value-added distributors. In order to be successful with this model, the Company
must  successfully  manage  the  mix of  these  different  sales  channels.  The
Company's operating and financial results may be adversely affected in the event
an indirect partner establishes a new relationship with a competitor,  delays or
changes its purchasing patterns, or experiences financial difficulties.

Dependence on IBM

During the second  quarter  and six months of 1999,  OEM sales of  products  and
software to IBM declined to 11% and 12%,  respectively,  of the Company's  total
revenue.  The Company anticipates that IBM will continue to reduce its purchases
from the  Company  and will not  extend  the  relationship  beyond  the  current
contract  that expires in December  2000,  with  respect to future  products and
software,  as IBM has  announced  a  competitive  disk  product.  The
<PAGE>
                               Form 10-Q, Page 21


Company is
currently  expanding  its  direct  sales  channel  to sell its SVA and  SnapShot
products.  The Company anticipates  increased revenue  contribution from SVA and
Snapshot in the second half of 1999 through its direct sales  channel,  but does
not expect that this  increase  will fully  offset the  decrease in OEM sales to
IBM. Failure to successfully develop new high-volume  distribution  channels for
the Company's  disk products and SnapShot  software could  adversely  affect the
Company's  financial  results.  IBM's entry with a competitive  disk product may
heighten the competitive  pressures in the market for SVA and further accelerate
the price  erosion  which the  Company  is  currently  experiencing  in the disk
market.

Competition

The markets for the  Company's  products,  software 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 the Company's new products and  offerings,
and new product  introductions  by the Company's  competitors.  This competitive
environment gives rise to aggressive pricing strategies and puts pressure on the
Company's  gross margins for each segment.  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 market presence
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 some of these competitive
issues through its software, SAN, and services strategies.

From  time-to-time,  two or more of the Company's  competitors may form business
alliances  that compete with the Company.  For example,  in the first quarter of
1999, IBM and EMC announced that they have entered into a strategic business and
technology  alliance.  Although  the impact of this  alliance  on the  Company's
business is unclear at this time,  the  alliance of two of the  Company's  major
competitors  could adversely affect the Company's ability to compete in a number
of its existing market  segments.  A number of the Company's  competitors in the
product,  services and software  markets have formed  alliances  with the stated
objective of developing  interoperable SAN solutions.  In the storage management
software market, the Company competes with vendors with which it has established
partnerships,  including Legato Systems,  Inc. and VERITAS Software Corporation.
The Company also  anticipates  that it will  continue to establish  distribution
partnerships  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  successfully  compete  against other companies in these
markets.

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 are
recognized  in the last weeks and days of the  quarter.  These  factors make the
forecasting  of
<PAGE>
                               Form 10-Q, Page 22


revenue  inherently  difficult.  Because the  Company  plans its
operating  expenses  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 solutions,  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 cause the  Company's  operating  margins  to  fluctuate  and impact
earnings.

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 in  satisfactory  quantities  after a
period of  pre-qualification  and product ramping.  Certain of the Company's 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.  In particular,  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.
There can be no  assurance  that  Imation  will be able to meet the  anticipated
demands.  However,  the Company is also  dependent  on IBM to supply disk drives
used in both the Company's  Iceberg product which are sold to IBM and in the SVA
product which is sold through its own direct sales channel.

Certain  of the  Company's  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 the  Company's  revenue  and  operating  results.  In the event a sole
source supplier were unable or unwilling to continue to supply  components,  the
Company  would have 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  the
Company's production requirements on a timely basis.

Information Systems Transition

The  Company is in the process of  replacing  many of its  internal  information
systems with new, integrated  information  systems.  The implementation of these
information   systems  is  complex  and  has  affected   numerous   operational,
transactional,  financial,  and reporting processes. The transition to these new
systems and  processes  is currently  expected to be completed  during the third
quarter of 1999, and involves a number of risks and  uncertainties.  The Company
must  successfully  manage  the  transfer  of  critical  information  to the new
systems,  the integration of these systems, and the implementation of associated
process changes and employee training  programs.  There can be no assurance that
the  transition  to the  new  information  systems  will  not  cause  delays  or
interruptions in the Company's critical business processes.  For example, during
the first half of 1999, the Company's accounts receivable,  inventory, and spare
parts  levels  have  been  adversely  impacted  by  issues  associated  with the
transition to new internal information systems
<PAGE>
                               Form 10-Q, Page 23


and business processes.  Failure to  successfully  manage the  transition  could
adversely  affect the Company's operating and financial results in the future.

Risks Associated with the Year 2000

The Company's  product lines include  information  storage products and software
which  collect,  move,  store,  share,  and protect  data.  In order to properly
process data,  the Company's  products must  successfully  manage and manipulate
data that includes  both 20th and 21st century  dates (Year 2000 Ready).  All of
the Company's  currently  offered products and software have been evaluated and,
provided they have been upgraded to include all recommended engineering changes,
the Company  believes  that they are Year 2000 Ready.  However,  there can be no
assurance  that the  Company's  current  products and software will be Year 2000
Ready in all environments. In addition, the Company does not currently intend to
develop modifications to certain of its older products and software to make them
Year 2000 Ready and has notified all the  affected  customers of potential  year
2000  problems  with  older  products  and  software  in order  to  raise  their
awareness.

The Company  generally  believes  that it is not legally  responsible  for costs
incurred  by its  customers  to achieve  their year 2000  readiness.  Should the
Company's products and software fail to be Year 2000 Ready, however, the Company
may experience  increased warranty and other customer  satisfaction costs. Since
the year 2000  complications are not fully known and potential  liability issues
are  uncertain,  the effect of the year 2000 on the  Company's  warranty  costs,
product liability costs,  potential litigation  expenses,  and financial results
are not known at this time, but could be material in any given quarter.

The  Company is  currently  in the  process of  replacing  many of its  internal
information systems with new integrated  information  systems.  See "Information
Systems Transition" above. These new systems are believed to be Year 2000 Ready.
The Company has also  completed an  assessment  on its other  critical  internal
information systems which are not being replaced and has implemented remediation
programs on non-Year 2000 Ready  systems.  The Company has  completed  assessing
critical  non-information  systems to determine if they are Year 2000 Ready. The
remediation  programs for its critical  information and non-information  systems
that were not Year 2000  Ready  are  substantially  completed  and  tested.  The
remaining  remediation  programs are expected to be completed  and tested by the
end of  the  third  quarter  of  1999.  The  Company  is  currently  formulating
contingency plans in the event of a system failure or delay.

The  costs  incurred  to date  directly  related  to the  Company's  remediation
activities  are  approximately  $2.5  million.   Future  costs  related  to  the
remediation  activities are not expected to exceed  approximately  $1.0 million;
however,  the amount may change as the year 2000 readiness  activities  progress
during 1999.  These  remediation  costs do not include the costs associated with
the Company's new information systems, which are expected to be Year 2000 Ready.
The  Company has  invested  approximately  $40 million in these new  information
systems as of June 25, 1999,  and the  investment  in these  systems  during the
remainder of 1999 is estimated to be approximately $3 million.  The Company does
not currently believe that any remaining remediation and testing activities will
have a  material  adverse  effect  on the  Company's  operations  and  financial
results. Delays in implementing new internal information systems or a failure to
fully identify all year 2000  dependencies  in the Company's  systems could have
material adverse  consequences,  including delays in the delivery or sale of the
Company's products, or cause the Company to incur unexpected additional costs.

The  Company  has  completed  an  assessment  of  the  possible  effects  on its
operations of the year 2000 readiness of key suppliers and vendors.  The Company
identified all critical vendors and suppliers and has ensured they are Year 2000
Ready. The Company has also identified
<PAGE>
                               Form 10-Q, Page 24


alternative suppliers and vendors in the
event  such  suppliers  and  vendors  are not Year  2000  Ready.  The  Company's
dependence on suppliers and vendors and, therefore, on the proper functioning of
their information systems and software, means that their failure to address year
2000  issues  could  have a  material  effect on the  Company's  operations  and
financial results.

The effect  that the year 2000 will have on  customers'  information  technology
spending patterns is uncertain at this time. The potential adverse  consequences
resulting  from  customers'  year 2000  concerns  could  include,  among others,
decreased spending on new information  storage systems during the second half of
1999 as  customers  complete  their year 2000 testing  activities  and delays in
customer purchase decisions once customers have verified the year 2000 readiness
of their information  systems.  The demand for the Company's  products worldwide
could be adversely  affected in the event these  patterns  were to  materialize,
which could have an adverse  effect on the  Company's  operating  and  financial
results.

Euro Conversion

Effective  January 1, 1999, 11 member  countries of the European Union adopted a
single European currency,  the euro, as their common legal currency. The Company
generates a significant portion of its revenue from sales in member countries of
the European Union. Like many companies that operate in Europe,  various aspects
of the Company's business and financial  accounting will be affected by the euro
conversion and the  transitions in the business  environment  resulting from the
convergence  of  currencies.  The Company  continues  to evaluate  the  European
pricing strategies for its products,  software and services and the implications
of the euro conversion on its contractual  agreements,  tax strategy and foreign
currency  risk  management  strategy.  The  Company  does not  believe  that the
transition in the European market resulting from the euro conversion will impact
the competitiveness of its products and services in Europe in the short-term, as
significant  price  transparency  already  exists.  There can be no  assurances,
however,  that the conversion will not adversely  affect the Company's  pricing,
tax, and currency hedging  strategies,  or business systems and processes in the
future.
<PAGE>
                               Form 10-Q, Page 25




               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 25, 1998, filed with the Commission on March 5, 1999.

In January 1994,  Stuff Technology  Partners II, a Colorado Limited  Partnership
(Stuff),  filed suit in Boulder  County,  Colorado,  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 court granted the Company's  motion for summary judgment and dismissed
the complaint. Stuff appealed the dismissal to the Colorado 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 dismissed with prejudice Stuff's claims relating to the
Company's  alleged use of the optical disk  technology,  and  dismissed  without
prejudice all of the remaining claims. The only course of legal action available
to Stuff with respect to the claims dismissed with prejudice is to appeal to the
Court of Appeals for a second  time.  While it is unclear  what course of action
Stuff  intends to take in this case,  the Company  continues to believe  Stuff's
claims are wholly  without  merit and intends to  vigorously  defend any further
actions arising from this complaint.

On December 8, 1995, Odetics, Inc. (Odetics) filed a patent infringement suit in
the U.S.  District  Court for the  Eastern  District  of  Virginia  against  the
Company.  The complaint  alleges that the "cartridge  access port" in certain of
the Company's  tape library  products  infringes  U.S.  Patent No.  4,779,151 as
further  described in the Odetics  litigation dated June 29, 1995, below in this
section. The complaint seeks injunctive relief, treble damages in an unspecified
amount,  and an award of  attorney's  fees and costs.  This case has been stayed
pending the outcome of the June 29, 1995 Odetics litigation.

On October 3, 1995,  certain  former  employees of the Company filed suit in the
U.S.  District  Court for the  District of Colorado  against  the  Company.  The
amended suit alleges  violations of the Age  Discrimination  in  Employment  Act
(ADEA) and the  Employee  Retirement  Income  Security  Act (ERISA)  between the
period of April 13, 1993, and December 31, 1996. On November 26, 1997, the Court
granted the plaintiffs' request to proceed as a class action on the ADEA claims.
On November 9, 1998, the Court granted the  plaintiffs'  request to proceed as a
class on the ERISA  claims.  On March 1, 1999,  the Court  denied the  Company's
appeal on the certification of the ERISA class.  Approximately 1,300 persons are
eligible members of the ERISA class, which includes approximately 400 members of
the ADEA class. The plaintiffs seek, among other things, compensatory damages in
an  unspecified   amount,   including  the  value  of  back  pay  and  benefits;
reinstatement  as employees or  alternatively  the value of future  earnings and
benefits;  and exemplary or liquidated damages.  The Company has filed an answer
denying both the ADEA and ERISA claims.  The case is in the discovery phase. The
Company  has filed a number of motions  which are  pending  before the court.  A
trial date has been set for October 1999.

The Company  believes it has adequate legal defenses with respect to each of the
actions cited above and intends to  vigorously  defend  against  these  actions.
However,  it is reasonably  possible that these actions could result in outcomes
unfavorable  to the Company.  The

<PAGE>
                               Form 10-Q, Page 26


Company is also involved in various other less
significant legal actions.  While the Company currently believes that the amount
of the ultimate potential loss would not be material to the Company's  financial
position,  the  outcome  of all 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.

On June 29, 1995, Odetics filed a patent  infringement suit in the U.S. District
Court for the Eastern District of Virginia  (District Court) against the Company
alleging that the  "pass-through"  port in certain of the Company's tape library
products  infringed U.S. Patent No. 4,779,151 (the "151 Patent").  The complaint
asked the court to impose  injunctive  relief,  treble damages in an unspecified
amount,  and an award of  attorney's  fees and costs.  In February  1996, a jury
found that the  Company's  products  did not  infringe  the 151 Patent.  Odetics
appealed  and in June 1997,  the U.S.  Court of Appeals for the Federal  Circuit
(Court of Appeals)  reversed the District  Court's  ruling and remanded the case
back to the District Court for further proceedings.  On March 27, 1998, a second
trial was held and a jury  found  that a  pass-through  port in  certain  of the
Company's  tape library  products  infringed  the 151 Patent and awarded  actual
damages  to Odetics of $70.6  million.  On July 31,  1998,  the  District  Court
granted the Company's  motion for judgment as a matter of law,  overturning  the
jury's  verdict,  and entered  judgment in favor of the  Company.  On August 10,
1998,  Odetics  appealed  the  judgment.  On July 6, 1999,  the Court of Appeals
reversed the District Court's judgment as a matter of law, entered a judgment in
favor of  Odetics,  and  remanded  the case to the  District  Court for  further
proceedings.  In  connection  with this  litigation,  the Company  recognized  a
pre-tax  expense of $82.3  million  during  the  second  quarter of 1999 for the
actual damages of $70.6 million as determined by the jury, plus $11.7 million of
estimated post-judgment interest. On July 20, 1999, the Company filed a petition
for rehearing with the Court of Appeals. A decision on the petition is pending.

Information  concerning  these legal  proceedings is also contained in Note 4 of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS included in Part I of this Form 10-Q.


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 27




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

The annual  meeting of  stockholders  of the Company was held on May 20, 1999. A
quorum of stockholders was represented at the meeting in person or by proxy.


A board of ten directors was to be elected at the meeting.  All of  management's
nominees as listed in the Company's proxy statement were elected,  including the
following:


                                                        FOR       WITHHELD
                                                   ----------    -----------
David E. Weiss                                     88,431,829     1,170,262
James R. Adams                                     88,440,876     1,161,215
William L. Armstrong                               88,438,140     1,163,951
J. Harold Chandler                                 88,439,932     1,162,159
Maurice F. Holmes                                  88,454,208     1,147,883
William R. Hoover                                  88,439,076     1,163,015
William T. Kerr                                    88,439,792     1,162,299
Robert E. La Blanc                                 88,432,570     1,169,521
Robert E. Lee                                      88,432,380     1,169,711
Richard C. Steadman                                88,446,113     1,155,978

At the annual meeting,  the stockholders  approved an amendment to the Company's
Restated  Certificate  of  Incorporation  to increase  the number of  authorized
shares of Common Stock from 150,000,000 to 300,000,000,  by a vote of 81,910,497
in favor to 7,427,626 against,  with 263,968 abstentions.  The stockholders also
approved an  amendment  to the  Company's  1995 Equity  Participation  Plan,  as
amended,  to increase  the number of shares  reserved  for issuance by 4,750,000
shares of Common Stock, by a vote of 65,247,297 in favor to 23,848,694  against,
with  506,100  abstentions.  The  stockholders  also  approved  the  terms  of a
performance-based  incentive plan, by a vote of 84,332,295 in favor to 4,838,860
against, with 430,936 abstentions.  The stockholders ratified the appointment of
PricewaterhouseCoopers  LLP as the  Company's  independent  accountants  for the
current fiscal year, by a vote of 89,179,957 in favor to 353,951  against,  with
68,183 abstentions.  The shareholders did not approve a shareholder  proposal to
require shareholder approval of certain expenditures in excess of $500,000, by a
vote  of  74,541,071  against,  1,846,001  in  favor,  802,422  abstentions  and
12,412,597  broker  non-votes.  There were no other broker  non-votes for any of
these proposals.


<PAGE>
                               Form 10-Q, Page 28



ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

      (a)   Exhibits

       3.1        Certificate  of Third  Amendment of Restated  Certificate of
                  Incorporation

      10.1*       Executive Officer Performance-Based Incentive Plan

      10.2*       Employment Agreement between the Company and David E. Weiss

      10.3*       1995 Equity Participation Plan, as amended March 1999

      11.0        Computation of Earnings Per Share

      27.0        Financial Data Schedule


      (b)   Reports on Form 8-K

            No current  reports on Form 8-K were filed during the quarter  ended
            June 25, 1999.


















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

*     Contract or compensation plan or arrangement in which directors and/or
      officers participate.



<PAGE>
                               Form 10-Q, Page 29




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 9, 1999                          /s/ ROBERT S. KOCOL
-------------------------------      ----------------------------------------
            (Date)                                   Robert S. Kocol
                                                 Corporate Vice President
                                               and Chief Financial Officer
                                              (Principal Financial Officer)






        August 9, 1999                         /s/ THOMAS G. ARNOLD
-------------------------------      -----------------------------------------
            (Date)                                   Thomas G. Arnold
                                         Vice President and Corporate Controller
                                              (Principal Accounting Officer)





<PAGE>
                               Form 10-Q, Page 30






                                  EXHIBIT INDEX





   Exhibit No.    Description
--------------    --------------------------------------------------
       3.1        Certificate  of Third  Amendment of Restated  Certificate of
                  Incorporation

      10.1        Executive Officer Performance-Based Incentive Plan

      10.2        Employment Agreement between the Company and David E. Weiss

      10.3        1995 Equity Participation Plan

      11.0        Computation of Earnings Per Share

      27.0        Financial Data Schedule