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UNITED STATES 
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

|ý                                            | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 
|-------------------------------------------- | ----------------------------------------------------------------------------------------
|For the quarterly period ended June 25, 2004
|or                                          
|o                                            | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|For the transition period from
 to          

Commission File Number:
1-7534



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

Delaware

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

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

80028-4309(Address of principal executive offices)

(Zip Code)


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

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
ý Yes       
o No

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
ý Yes      
o No   The registrant had 111,137,989 shares
of common stock outstanding as of July 30, 2004.

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# STORAGE TECHNOLOGY CORPORATION 
INDEX TO FORM 10-Q 
June 25, 2004

|                                                                                                                         | PAGE
|------------------------------------------------------------------------------------------------------------------------ | ----
|PART I - FINANCIAL INFORMATION                                                                                           |     
|Item 1 - Financial Statements                                                                                            |     
|Consolidated Balance Sheets                                                                                              |     
|Consolidated Statements of Operations                                                                                    |     
|Consolidated Statements of Cash Flows                                                                                    |     
|Consolidated Statements of Changes in Stockholders' Equity                                                               |     
|Consolidated Statements of Comprehensive Income                                                                          |     
|Notes to Consolidated Financial Statements                                                                               |     
|Item 2 - Management's Discussion and Analysis of Financial
                         
Condition and Results of Operations |     
|Item 3 - Quantitative and Qualitative Disclosures about Market Risk                                                      |     
|Item 4 - Controls and Procedures                                                                                         |     
|PART II - OTHER INFORMATION                                                                                              |     
|Item 1 - Legal Proceedings                                                                                               |     
|Item 2 - Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities                               |     
|Item 4 - Submission of Matters to a Vote of Security Holders                                                             |     
|Item 6 - Exhibits and Reports on Form 8-K                                                                                |     
|Signatures                                                                                                               |     

2

---

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

|                                                        | 06/25/04 |  | 12/26/03 |          
|------------------------------------------------------- | -------- |  | -------- | ---------
|
|ASSETS                                                  |          |  |          |          
|Current assets:                                         |          | 
|Cash and cash equivalents                               |          |  | $        | 1,062,060
|Short-term investments                                  |          |  |          | 3,549    
|Accounts receivable                                     |          |  |          | 452,469  
|Inventories                                             |          |  |          | 105,637  
|Deferred income tax assets                              |          |  |          | 133,429  
|Other current assets                                    |          |  |          | 9,752    
|                                                        |          |  |          |          
|Total current assets                                    |          |  |          | 1,766,896
|                                                        |          |  |         
|Long-term investments                                   |          |  |          | 45,049   
|Property, plant, and equipment                          |          |  |          | 186,354  
|Spare parts for maintenance                             |          |  |          | 47,222   
|Deferred income tax assets                              |          |  |          | 93,532   
|Other assets                                            |          |  |          | 130,360  
|                                                        |          |  |          |          
|Total assets                                            |          |  | $        | 2,269,413
|                                                        |          |  |          |          
|                                                        |          |  |         
|LIABILITIES                                             |          | 
|Current liabilities:                                    |          |  |          |          
|Current portion of long-term debt                       |          |  | $        | 1,238    
|Accounts payable                                        |          |  |          | 97,466   
|Accrued liabilities                                     |          |  |          | 459,319  
|Income taxes payable                                    |          |  |          | 242,659  
|Other current liabilities                               |          |  |          | 28,552   
|                                                        |          |  |          |          
|Total current liabilities                               |          |  |          | 829,234  
|                                                        |          |  |         
|Long-term debt                                          |          |  |          | 10,369   
|                                                        |          |  |          |          
|Total liabilities                                       |          |  |          | 839,603  
|                                                        |          |  |          |          
|Commitments and contingencies (Notes 4 and 7)           |          | 
|                                                        |          |  |         
|STOCKHOLDERS' EQUITY                                    |          |  |          |          
|Common stock, $0.10 par value, 300,000,000 shares       |          | 
|authorized; 113,620,235 shares issued at June 25, 2004, |          | 
|and 111,135,483 shares issued at December 26, 2003      |          |  |          | 11,362   
|Capital in excess of par value                          |          |  |          | 1,046,058
|Retained earnings                                       |          |  |          | 468,048  
|Accumulated other comprehensive loss                    |          |  |          | (21,510  
|Treasury stock, 2,000,000 shares at June 25, 2004,      |          | 
|and 299,677 shares at December 26, 2003, at cost        |          |  |          | (56,155  
|Unearned compensation                                   |          |  |          | (17,993  
|                                                        |          |  |          |          
|Total stockholders' equity                              |          |  |          | 1,429,810
|                                                        |          |  |          |          
|Total liabilities and stockholders' equity              |          |  | $        | 2,269,413
|                                                        |          |  |          |          

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

3

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

|                                               | Quarter Ended |  | Six Months Ended |        
|---------------------------------------------- | ------------- |  | ---------------- | -------
|
|Revenue:                                       |               |  |                  |        
|Storage products                               |               |  | $                | 289,048
|Storage services                               |               |  |                  | 227,567
|                                               |               |  |                  |        
|Total revenue                                  |               |  |                  | 516,615
|                                               |               |  |                  |        
|Cost of revenue:                               |               |  |                  |        
|Storage products                               |               |  |                  | 152,096
|Storage services                               |               |  |                  | 126,687
|                                               |               |  |                  |        
|Total cost of revenue                          |               |  |                  | 278,783
|                                               |               |  |                  |        
|Gross profit                                   |               |  |                  | 237,832
|                                               |               |  |                 
|Research and development costs                 |               |  |                  | 47,046 
|Selling, general, and administrative expense   |               |  |                  | 148,287
|                                               |               |  |                  |        
|Operating profit                               |               |  |                  | 42,499 
|                                               |               |  |                 
|Interest income                                |               |  |                  | 3,319  
|Interest expense                               |               |  |                  | (318   
|                                               |               |  |                  |        
|Income before income taxes                     |               |  |                  | 45,500 
|                                               |               |  |                 
|Provision for income taxes                     |               |  |                  | (9,873 
|                                               |               |  |                  |        
|Net income                                     |               |  | $                | 35,627 
|                                               |               |  |                  |        
|EARNINGS PER COMMON SHARE                      |               | 
|                                               |               |  |                 
|Basic earnings per share                       |               |  | $                | 0.32   
|                                               |               |  |                  |        
|Weighted-average shares                        |               |  |                  | 110,675
|                                               |               |  |                  |        
|Diluted earnings per share                     |               |  | $                | 0.32   
|                                               |               |  |                  |        
|Weighted-average and dilutive potential shares |               |  |                  | 112,726
|                                               |               |  |                  |        

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

4

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

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

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

5

---

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

|                                |  |  |  |         | Accumulated |   |        |   |  
|------------------------------- |  |  |  | ------- | ----------- | - | ------ | - | -
|
|
|
|Balances, December 26, 2003     |  |  |  | 111,135 |             | $ | 11,114 |   | $
|                                |  |  |  |         |             |   |        |   |  
|Components of comprehensive     |  |  |  |         |             |   |        |  
|income:                         |  | 
|Net income                      |  |  |  | --      |             |   | --     |   |  
|Other comprehensive             |  | 
|income                          |  |  |  | --      |             |   | --     |   |  
|                                |  |  |  |         |             |   |        |   |  
|Total comprehensive income      |  |  |  | --      |             |   | --     |   |  
|                                |  |  |  |         |             |   |        |   |  
|Shares  issued upon exercise of |  | 
|stock options                   |  |  |  | 2,179   |             |   | 218    |   |  
|Shares issued under employee    |  |  |  |         |             |   |        |   |  
|stock purchase plan             |  |  |  | 408     |             |   | 41     |   |  
|Shares repurchased under        |  | 
|stock repurchase program        |  |  |  | --      |             |   | --     |   |  
|Restricted stock activity       |  |  |  | 231     |             |   | 22     |   |  
|Other                           |  |  |  | (333    | )           |   | (33    | ) |  
|                                |  |  |  |         |             |   |        |   |  
|Balances, June 25, 2004         |  |  |  | 113,620 |             | $ | 11,362 |   | $
|                                |  |  |  |         |             |   |        |   |  

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

6

---

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

|                                                     | Quarter Ended |  | Six Months Ended |       
|---------------------------------------------------- | ------------- |  | ---------------- | ------
|
|Net income                                           |               |  | $                | 35,627
|                                                     |               |  |                  |       
|Other comprehensive income (loss):                   |               | 
|                                                     |               |  |                 
|Foreign currency hedging contracts:                  |               |  |                  |       
|Net  gain  (loss)  on  foreign  currency  cash  flow |               | 
|hedges,  net of tax  expense  (benefit)  of $(121),  |               | 
|$(5,626), $462, and $(8,662)                         |               |  |                  | (192  
|Reclassification adjustment for net losses included  |               |  |                  |       
|in  net  income,  net of tax  benefit  of $3,010,    |               |  |                  |       
|$2,974, $6,467, and $4,389                           |               |  |                  | 4,788 
|                                                     |               |  |                 
|Unrealized gain (loss) on marketable securities:     |               | 
|Holding  gain (loss),  net of tax expense  (benefit) |               |  |                  |       
|of $(276), $152, $(134), and $565                    |               |  |                  | (461  
|Reclassification  adjustment  for net gains included |               | 
|in net income,  net of tax expense of $508,          |               |  |                  |       
|$534, $830, and $534                                 |               |  |                  | (1,186
|                                                     |               |  |                  |       
|Other comprehensive income (loss)                    |               |  |                  | 2,949 
|                                                     |               |  |                  |       
|Comprehensive income                                 |               |  | $                | 38,576
|                                                     |               |  |                  |       

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

7

---

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

# NOTE 1  BASIS OF
PREPARATION

The accompanying interim consolidated
financial statements of Storage Technology Corporation and its wholly owned subsidiaries
(StorageTek or the Company) have been prepared on substantially the same basis as the
Companys annual consolidated financial statements and should be read in conjunction
with the Companys Annual Report on Form 10-K for the year ended December 26, 2003.
In the opinion of management, the interim consolidated financial statements reflect all
adjustments necessary for the fair presentation of results for the periods presented, and
such adjustments are of a normal, recurring nature. Certain prior year amounts have been
reclassified to conform to the current year presentation.

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

# NOTE 2  STOCK-BASED
COMPENSATION PLANS

The Company accounts for stock-based
compensation plans under the recognition and measurement principles of Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Stock-based compensation reflected in net
income is related to restricted stock.

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

|                                                  | Quarter Ended |  | Six Months Ended |       
|------------------------------------------------- | ------------- |  | ---------------- | ------
|
|Net income, as reported                           |               |  | $                | 35,627
|                                                  |               |  |                 
|Add: Stock-based compensation expense included in |               | 
|reported net income, net of related tax effects   |               |  |                  | 1,260 
|                                                  |               |  |                 
|Deduct: Total stock-based compensation expense    |               |  |                  |       
|determined under fair value based method for all  |               |  |                  |       
|awards, net of related tax effects                |               |  |                  | (6,498
|                                                  |               |  |                  |       
|Pro forma net income                              |               |  | $                | 30,389
|                                                  |               |  |                  |       
|Earnings per share:                               |               |  |                  |       
|Basic, as reported                                |               |  | $                | 0.32  
|Basic, pro forma                                  |               |  | $                | 0.27  
|                                                  |               |  |                 
|Diluted, as reported                              |               |  | $                | 0.32  
|Diluted, pro forma                                |               |  | $                | 0.27  

8

---

# NOTE 3  INVENTORIES

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

|                | 06/25/04 |  | 12/26/03 |        
|--------------- | -------- |  | -------- | -------
|Raw materials   |          |  | $        | 19,505 
|Work-in-process |          |  |          | 15,578 
|Finished goods  |          |  |          | 70,554 
|                |          |  |          |        
|                |          |  | $        | 105,637
|                |          |  |          |        

# NOTE 4  LITIGATION

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

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

# NOTE 5  OPERATIONS
OF BUSINESS SEGMENTS

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

9

---

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

|                   | Quarter Ended |  | Six Months Ended |        
|------------------ | ------------- |  | ---------------- | -------
|
|Revenue:           |               |  |                  |        
|Storage products   |               |  | $                | 289,048
|Storage services   |               |  |                  | 227,567
|                   |               |  |                  |        
|Total revenue      |               |  | $                | 516,615
|                   |               |  |                  |        
|Gross profit:      |               |  |                  |        
|Storage products   |               |  | $                | 136,952
|Storage services   |               |  |                  | 100,880
|                   |               |  |                  |        
|Total gross profit |               |  | $                | 237,832
|                   |               |  |                  |        

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

|                               | Quarter Ended |  | Six Months Ended |        
|------------------------------ | ------------- |  | ---------------- | -------
|
|Tape products                  |               |  | $                | 215,044
|Disk products                  |               |  |                  | 46,186 
|Network products               |               |  |                  | 18,595 
|Other                          |               |  |                  | 9,223  
|                               |               |  |                  |        
|Total storage products revenue |               |  | $                | 289,048
|                               |               |  |                  |        

# NOTE 6  EARNINGS
PER COMMON SHARE

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

|                                            | Quarter Ended |  | Six Months Ended |        
|------------------------------------------- | ------------- |  | ---------------- | -------
|
|Net income                                  |               |  | $                | 35,627 
|                                            |               |  |                  |        
|Weighted average common shares outstanding: |               | 
|Basic                                       |               |  |                  | 110,675
|Effect of dilutive common stock equivalents |               |  |                  | 2,051  
|                                            |               |  |                  |        
|Diluted                                     |               |  |                  | 112,726
|                                            |               |  |                  |        
|Earnings per common share:                  |               | 
|Basic                                       |               |  | $                | 0.32   
|Diluted                                     |               |  | $                | 0.32   

10

---

For the quarters ended June 25, 2004,
and June 27, 2003, options to purchase 3,612,443 and 737,281 shares of common stock,
respectively, were excluded from the computation of diluted earnings per share because the
exercise price of the options was greater than the average market price of the
Companys common stock, and therefore, the effect would have been antidilutive. For
the six months ended June 25, 2004 and June 27, 2003, options to purchase 3,623,196 and
1,518,325 shares of common stock, respectively, were excluded from the computation of
diluted earnings per share for the same reason.

# NOTE 7 
INDEMNIFICATIONS AND WARRANTIES

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

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

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

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

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

11

---

# NOTE 8  SUBSEQUENT
EVENT

In July 2004, the Companys
Board of Directors authorized an increased stock repurchase program to acquire up to $500
million of common stock. The intent of the repurchase program is to reduce dilution
created by shares issued under employee stock plans and opportunistically balance the cash
returned to shareholders through share repurchases with the cash reinvested in the
business for profitable revenue growth. The repurchase program does not have an expiration
date, and it replaces the previous program announced in January 2004. The previous program
had allowed for the acquisition of up to 1,000,000 shares of common stock per quarter
through 2005.

Purchases under the repurchase
program may be made in the open market or through privately negotiated transactions.
Purchases may be commenced or suspended at any time without prior notice, and there is no
fixed termination date for the repurchase program.

12

---

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

FORWARD-LOOKING STATEMENTS

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

SECOND QUARTER 2004
FINANCIAL OVERVIEW

Although the second quarter of 2004
represented the sixteenth consecutive quarter of year-over-year earnings growth, we found
the second quarter of 2004 to be a challenging period. Total revenue for the second
quarter of 2004 was $517 million, a decrease of 2% compared to the same period in 2003.
Revenue decreased 6% as adjusted to reflect constant foreign currencies. We experienced an
unexpected shortfall in order flow during the last two weeks of the quarter. We continue
to see a lethargic IT environment. At the beginning of the year, there were expectations
that IT spending would pick up in 2004. We have not seen this increase in the first half
of the year, but are hopeful that we will see a rebound in spending in the fourth quarter
of 2004.

Our Europe, Africa, and Middle East
(EAME) region continues to show moderate improvement on a year-over-year basis, but we
anticipate EAME is still a few quarters away from returning to its traditional revenue
levels. Asia and Latin America continue to perform well, with the exception of Japan. The
revenue shortfall for the second quarter of 2004 was particularly pronounced in North
America and Japan.

Total gross profit margin continued
to improve in the second quarter of 2004, compared to the same period in 2003, primarily
due to an increase in storage products gross profit margin as a result of favorable
product and channel mixes. Operating expense in the second quarter of 2004 was largely
unchanged compared to the same period in 2003, but decreased substantially compared to the
first quarter of 2004 due to disciplined expense controls.

We continued to strengthen our
balance sheet and cash flows during the second quarter of 2004. Our cash flow from
operations was approximately $73 million, bringing our total cash and investments balance
up to $1.1 billion as of June 25, 2004. Cash flow from operations also funded $56 million
of share repurchases during the six months of 2004. Our operations continue to be
self-funded and our debt-to-capitalization ratio remains constant at 1%.

Through our strong balance sheet and
cash flows, we believe that we are firmly positioned to exploit future opportunities. Our
primary challenge for the future is to increase revenue while maintaining strong cost

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controls. We believe revenue growth can be achieved primarily through the successful
execution of our Information Lifecycle Management (ILM) strategy, as well as through
various new product launches over the next year. We will continue to focus on improving
our sales productivity in all of our geographic regions. A potential risk to successfully
growing our revenue and earnings in the future continues to be the weak economic
conditions in IT spending.

SELECTED CONSOLIDATED
STATEMENT OF OPERATIONS DATA

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

|                                              |  |  | Percentage Increase |      
|--------------------------------------------- |  |  | ------------------- | -----
|
|
|
|Revenue:                                      |  |  |                     |      
|Storage products                              |  |  |                     | 56.0 
|Storage services                              |  |  |                     | 44.0 
|                                              |  |  |                     |      
|Total revenue                                 |  |  |                     | 100.0
|                                              |  |  |                     |      
|Gross profit:                                 |  | 
|Storage products                              |  |  |                     | 47.4 
|Storage services                              |  |  |                     | 44.3 
|                                              |  |  |                     |      
|Total gross profit                            |  |  |                     | 46.0 
|                                              |  |  |                    
|Operating expenses:                           |  | 
|Research and development costs                |  |  |                     | 9.1  
|Selling, general, and administrative expenses |  |  |                     | 28.7 
|                                              |  |  |                     |      
|Operating profit                              |  |  |                     | 8.2  
|Interest income                               |  |  |                     | 0.6  
|Interest expense                              |  |  |                     | (0.1 
|                                              |  |  |                     |      
|Income before income taxes                    |  |  |                     | 8.8  
|Provision for income taxes                    |  |  |                     | 1.9  
|                                              |  |  |                     |      
|Net income                                    |  |  |                     | 6.9  
|                                              |  |  |                     |      

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

|                                             |  |  | Percentage Increase |      
|-------------------------------------------- |  |  | ------------------- | -----
|
|
|
|Supplemental data - storage products revenue |  |  |                     |      
|Tape products                                |  |  |                     | 74.4 
|Disk products                                |  |  |                     | 16.0 
|Network products                             |  |  |                     | 6.4  
|Other                                        |  |  |                     | 3.2  
|                                             |  |  |                     |      
|Total storage products revenue               |  |  |                     | 100.0
|                                             |  |  |                     |      

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REVENUE AND GROSS PROFIT
MARGIN

Storage Products

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

Storage products revenue decreased in
the second quarter of 2004, compared to the same period in 2003, primarily due to a
shortfall in orders near the end of the quarter. Overall, we experienced weakness in the
United States and Asia-Pacific regions. Our worldwide indirect channel sales decreased 12%
in the second quarter of 2004 compared to the same period in 2003. We experienced indirect
channel weakness throughout the world, but most notably in North America. New product
launches planned for the second half of the year are targeted for the channels in the
mid-range market, and we anticipate these new products will increase channel sales in late
2004.

We had a decrease in tape product
sales during the second quarter of 2004 due primarily to a double-digit decline in
open-systems tape revenue. This decline was partially offset by the continued strength in
our Virtual Storage Manager (VSM) system revenue. We also saw weakness in our tape
automation revenue as customers awaited our new products. Disk product revenue increases
were led by a 19% increase in open-systems disk product revenue, and were partially offset
by a 6% decrease in enterprise disk products.

We are currently anticipating that
revenue for the third quarter of 2004 will be similar to the second quarter of 2004, with
the potential for a slight improvement. We expect that normal third quarter seasonal
patterns will prevail in Europe and that the favorable impact of currencies on
year-over-year comparisons of revenue will diminish late in the year.

Storage products gross profit margin
increased in the second quarter and six months of 2004, compared to the same periods in
2003, primarily due to a favorable mix of enterprise product offerings going through the
direct channel. Enterprise product sales and direct channel sales both typically carry
higher margins. Even though indirect channel sales declined in the second quarter of 2004,
we believe this is a temporary condition that will change as the new mid-range products
are introduced in the second half of 2004. Indirect channel sales increases could put
downward pressure on the gross profit margin. With respect to product mix, continued
success in VSM sales has been an important contributor in maintaining the improved product
margins we experienced in the first half of 2004. Product mix, channel mix, and further
operational efficiencies will be key factors for maintaining storage products gross profit
margin.

Storage Services

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

Storage services revenue increased in
the second quarter and six months of 2004, compared to the same periods in 2003, primarily
due to increased maintenance and support services revenue, as well as continued revenue
growth from professional service offerings. Professional services revenue accounted for
12% of total storage services revenue in the second quarter of 2004, compared to 11% for
the same period in 2003.

Storage services gross profit margin
increased slightly in the second quarter of 2004, compared to the same period in 2003, and
also increased compared to the first quarter of 2004 due primarily to actions taken to
reduce certain inefficiencies in our service operations. We believe that the impact of
these actions will be

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sustainable throughout the second half of 2004. The increase in
storage services gross profit margin may be adversely impacted if professional services
continues to become a greater portion of our service revenue, as professional services
typically carry lower margins than our maintenance and support services business.

RESEARCH AND DEVELOPMENT

Research and development costs
continue to decrease, consistent with the trend we have experienced since 2001, although
we expect research and development costs to increase in the second half of 2004 due to
product launch activities. The continued decreases in research and development costs have
been achieved primarily through the implementation of engineering initiatives designed to
improve research and development productivity, increase strategic alignment, and reduce
non-essential spending.

SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSE

Selling, general, and administrative
expense (SG&A) increased slightly during the second quarter of 2004, compared to the
same period in 2003. SG&A was significantly higher for the first half of 2004 than for
the first half of 2003, primarily due to unfavorable impacts of foreign currency movements
on the operating expenses of our international operations.

SG&A expense decreased 9% during
the second quarter of 2004, as compared to the first quarter, primarily due to the
implementation of expense controls, including a reduction in discretionary spending. We
reduced headcount by approximately 250 employees from the first quarter, reflecting a
continuation of our efforts on several fronts, including executing on planned outsourcing
activities, performance management, and further elimination of non-essential activities.
In addition, unfavorable impacts of foreign currencies were smaller in the second quarter
of 2004 and provided some of the improvement from the first to the second quarter.

INTEREST INCOME AND
EXPENSE

Net interest income increased
approximately 40% for the second quarter and six months of 2004, compared to the same
periods in 2003, primarily due to our growing cash and investments balance. Although our
cash and investments balance has been steadily increasing, decreasing interest rates have
kept our interest income from increasing proportionally. See LIQUIDITY AND CAPITAL
RESOURCES for further discussion of our debt and financing arrangements.

INCOME TAXES

Our effective tax rate was
approximately 22% for the second quarter and six months of 2004, compared to 30% for the
same periods in 2003. We continue to recognize increased tax benefits associated with our
manufacturing operations in Puerto Rico and, based on our current estimates, we believe
that some of the potential tax contingencies previously identified should be reduced. We
anticipate that the effective tax rate in the first half of 2004 will likely be in effect
for the full year. Our effective tax rate may be impacted in the future by a variety of
factors, including the overall effectiveness of our global manufacturing strategies and
changes in our estimates regarding the resolution of open tax matters.

We are subject to regular audits by
federal, state, and foreign tax authorities. These audits may result in proposed
assessments that may result in additional tax liabilities. Our income taxes payable
balance as reported on the Consolidated Balance Sheet is comprised primarily of tax
contingencies that we believe are both probable and reasonably estimable.

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Statement of Financial Accounting
Standards (SFAS) No. 109 requires that deferred income tax assets be recognized to the
extent realization of such assets is more likely than not. Based on the currently
available information, we have determined that we will more likely than not realize $227
million of deferred income tax assets as of June 25, 2004. Our valuation allowance of
approximately $22.8 million as of June 25, 2004, relates principally to foreign net
operating loss carryforwards.

CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

Our critical accounting estimates and
assumptions are disclosed in our Annual Report on Form 10-K for the year ended December
26, 2003. We have made no changes to those policies during the six months ended June 25,
2004.

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

The following table summarizes our
sources and uses of cash (in thousands):

|                     | Six Months Ended | 
|-------------------- | ---------------- | 
|
|Operating activities |                  | 
|Investing activities |                  | 
|Financing activities |                  | 

Our cash and cash equivalents balance
increased $60.4 million during the first six months of 2004, primarily a result of
cash flows generated by our operating activities. Days sales outstanding (DSO) now stands
at 80 days, which is 5 days better than the second quarter of 2003. Inventory turns
increased to 5.8 times, 5% better than the second quarter of 2003. We continue to focus on
improving our operational effectiveness and efficiency.

In the first half of 2004, we used
$56.2 million of cash to purchase shares of the Companys stock under the publicly
announced share repurchase program, which was offset by $45.1 million of proceeds from
employee stock plans.

Future Sources and Uses
of Cash

We expect that cash flows from
operations will continue to serve as our principal source of liquidity, and we believe
that we have adequate working capital and financing capabilities to meet our anticipated
operating and capital requirements for the next 12 months. However, cash flows from
operations could be negatively impacted by a decrease in demand for our products and
services as a result of rapid technological changes and other risks described under
FACTORS THAT MAY AFFECT FUTURE RESULTS.

In July 2004, our Board of Directors
authorized a share repurchase program to acquire up to $500 million of common stock. This
replaces the program approved in January 2004. We intend to fund the purchases through
cash on hand and cash flows from operations. We believe that our financial strength allows
us to make these purchases, while still allowing us to expand our presence into new
markets and to invest in those areas of the business where we think we can achieve the
best returns. We continue to review and evaluate alternative uses for our cash, including
potential acquisitions and investments in additional technologies to strengthen our ILM
offerings.

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Cash flows from operations can be
supplemented by our $75 million revolving credit facility (the Revolver) that expires in
October 2004. The interest rates for borrowing under the Revolver are dependent on our
Total Debt to rolling four quarter Earnings Before Interest Expense, Taxes, Depreciation,
and Amortization (EBITDA) ratio and the term of the outstanding borrowings. The rate
ranges from the applicable LIBOR plus 1.75% to 2.50% or the agent banks base rate
plus 0.00% to 0.50%. We pay a 0.50% per annum commitment fee on any unused borrowings. We
had no outstanding borrowings under the Revolver as of June 25, 2004. The Revolver is
secured by our U.S. accounts receivable and U.S. inventory, and contains certain financial
and other covenants, including a prohibition on the payment of cash dividends.

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

FACTORS THAT MAY AFFECT
FUTURE RESULTS

We may be materially affected by
global economic and political conditions

Our ability to generate revenue
growth during the last several years was adversely affected by the slowdown in the global
economy as customers delayed their purchase decisions, reduced their information
technology spending budgets, increased their purchase authorization approval requirements,
and reduced their capital expenditures by maximizing the current capacities of their data
storage equipment. This trend appears to be continuing in 2004. We have implemented
various cost-saving measures to help mitigate the adverse effects of the slowdown in the
global economy. We cannot provide any assurance that a prolonged economic downturn will
not have additional adverse effects on our financial condition, results of operations, or
our ability to generate revenue growth. Furthermore, we cannot provide any assurance that
our cost-saving measures will be successful or sufficient to allow us to continue to
generate improved operating results in future periods.

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

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

In the first half of 2004,
approximately 74% of our storage products revenue was generated by sales of our tape
products. Services associated with our tape products also represent a significant portion
of our storage services revenue. We experienced a decline in tape product revenue during
the second quarter of 2004. We believe this decline may be minimized as we introduce
various new tape product offerings in the second half of 2004. For a discussion of risk
associated with new products, see We may be materially affected by risks associated
with new product development, below. If overall demand for tape storage products
declines, or if we lose significant market share in tape, our financial condition and
results of operations could be materially affected.

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

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

The data storage industry is highly
competitive, and customers make their decisions based on a number of competitive factors.
We must address each of these factors effectively in order to successfully compete. If we
are unable to adapt our products and services to changes in these competitive factors, we
may lose market share to our competitors.

Our principal strategy for addressing
the competition and growing revenue is our ILM strategy. Our ILM strategy is intended to
capitalize on our ability to deliver complete storage solutions that satisfy customer
storage requirements, including tape, disk, and network products, together with associated
services. We have achieved some initial success in our ILM strategy; however, we must
continue to develop and deliver on this strategy in the future in order to grow revenue.
We have also seen the adoption of strategies similar to our ILM strategy by our
competitors. We cannot provide any assurance that we will successfully execute our ILM
strategy or that this strategy will provide us with a competitive advantage in the data
storage industry.

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

Services continue to contribute an
increasing amount of our total revenue. Growth in services has partially been driven by
new service offerings such as storage consulting services, implementation services, and
storage management services. The development and delivery of these new services are
critical to the success of our plan to deliver complete storage solutions to our
customers. We must ensure that storage service professionals have the necessary skill
sets, experience, tools, and training to support these new service offerings. Revenue
growth from these new service offerings is needed to offset possible future declines in
maintenance revenue from our installed service base of products under maintenance
contracts as these products are displaced by sales of new StorageTek products under
warranty. Any failure to properly develop or deliver our new and existing service
offerings could have a material adverse effect on our financial condition and results of
operations.

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

In the past, our results have
followed a seasonal pattern, which reflects the tendency of customers to make their
purchase decisions at the end of a calendar year. During any fiscal quarter, a
disproportionately large percentage of total product sales are earned in the last weeks
or days of the quarter. We continue to experience these trends in 2004, as we had a
shortfall in orders during the last two weeks of the second quarter. It is difficult to
predict the extent to which these historical trends will continue in the future. We cannot
provide any assurance that we will be able to manage our uneven sales patterns.

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

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

We provide a variety of solutions to
meet customer needs, including tape, disk, and network products, along with associated
software and services. Our products and services contribute varying gross profit margins,
and the gross margin on a customers total solution is dependent on the amounts and
types of products or services involved. Gross profit margins may also be impacted by early
start-up manufacturing costs associated with new products. We cannot provide any assurance
that our future gross profit margin will be similar to our historical gross profit margin.

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

We sell a number of third-party
products, and our gross profit margin may be adversely affected if those products become a
larger portion of our total storage solutions. We may also be at a cost disadvantage in
acquiring third-party products that are manufactured by competitors.

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

We are continually developing our
indirect distribution channels, including original equipment manufacturers (OEMs),
value-added distributors (VADs), value-added resellers (VARs), and other distributors.
Indirect channel sales contributions are substantially lower in 2004 than they were in
2003, although we believe these contributions will improve in the second half of 2004.
Increasing our sales through these indirect channels is critical to expanding our reach
into the growing open-systems market. Successfully managing the interaction of our direct
and indirect channel efforts to effectively reach all of the potential customer segments
for our products and services is a complex process. We cannot provide any assurance that
we will be successful in expanding our indirect channel sales. Our ability to forecast
future demand for our products may be adversely affected by unforeseen changes in demand
from our indirect channel partners. Storage products gross profit margins may be adversely
impacted to the extent we continue to receive a larger portion of our sales through our
indirect channels in the future. Maintenance revenue may also be adversely affected in
future periods to the extent that customers of our indirect channel partners elect to
purchase maintenance services from our competitors. Our financial results may also be
negatively affected if the financial condition of one or more of our channel partners
weakens.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We have introduced significant new
products in the first half of 2004, including the StreamLineTM SL8500 modular library
system, and we plan to introduce a number of other significant new products during the
second half of 2004. When we introduce new products, we must effectively manage the
transition from our existing products to the new products. If we do not manage the
transition effectively, we may be subject to the following adverse effects:

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

In addition, sales of our new
products may replace some of the sales of our existing products, and there may be a
decline in sales of existing products in the periods leading up to new product
introductions. We cannot provide any assurance that we will be able to successfully manage
the development, introduction, or transition of new products in the future.

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

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

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

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

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

We may be materially affected by the
risks associated with litigation

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

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

Our future success depends in large part
on our ability to attract and retain our key employees. During 2003 and the first six
months of 2004, several changes were made with respect to the executive management team
and their organizational responsibilities. We face significant competition for individuals
who possess the skills required to sell our products and services, as well as design,
develop, manufacture, service, and market those products and services. An inability to
successfully attract and retain these employees could have an adverse effect on our future
financial condition and results of operations. Furthermore, there may be a delay between
when organizational announcements are made and when the organizations are fully effective.

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

International operations accounted
for approximately 56% of our revenue in the first half of 2004, respectively, compared to
53% for the same period in 2003. We also sell products through U.S. indirect channel
partners that have some of their end-user customers located outside the United States. We
expect that we will continue to generate a significant portion of our revenue from
international operations.

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

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

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

We may be materially affected by the
WEEE directive

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

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

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

We may be materially affected by
restructuring activities

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

24

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# ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange
Rate Risk

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

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

A hypothetical 10% adverse movement
in foreign exchange rates applied to our foreign currency exchange rate sensitive
instruments held as of June 25, 2004, and as of December 26, 2003, would result in a
hypothetical loss in fair value of approximately $45.5 million and $59.2 million,
respectively. The decrease in the hypothetical loss is primarily due to a decrease in net
outstanding derivatives. These hypothetical losses do not take our underlying
international operations into consideration. We anticipate that any hypothetical loss
associated with our foreign currency exchange rate sensitive instruments would be
substantially offset by gains associated with our underlying international operations.

Interest Rate Risk

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

Credit Risk

We are exposed to credit risk
associated with cash equivalents, investments, foreign currency options and forwards, and
trade receivables. We do not believe that our cash equivalents, investments, or foreign
currency derivatives present significant credit risks, because the counterparties to the
instruments consist of major financial institutions, and we manage the notional amount of
contracts entered into with any one counterparty. Substantially all trade receivable
balances are unsecured. The concentration of credit risk with respect to trade receivables
is limited by the large number of customers in our customer base and their dispersion
across various industries and geographic areas. Although we have a large number of
customers who are dispersed across different industries and geographic areas, a prolonged
economic

25

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downturn could increase our exposure to credit risk on our trade receivables. We
perform ongoing credit evaluations of our customers and maintain an allowance for
potential credit losses.

# ITEM 4  CONTROLS
AND PROCEDURES

Under the supervision and with the
participation of management, including the principal executive officer and principal
financial officer, we conducted an evaluation of our disclosure controls and procedures
(as defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934) as
of June 25, 2004, the end of the period covered by this report. Based on their evaluation,
the principal executive officer and principal financial officer concluded that our
disclosure controls and procedures are effective.

During the fiscal quarter ended June
25, 2004, there has been no change in our internal control over financial reporting (as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that has materially
affected, or is reasonably likely to materially affect, our internal control over
financial reporting.

26

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# PART II

# ITEM 1  LEGAL
PROCEEDINGS

For information regarding legal
proceedings, see Note 4 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS,
included in Part 1, Item 1, of this Form 10-Q, which information is incorporated by
reference into this Part II, Item 1.

# ITEM 2 - CHANGES IN SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

The following table summarizes our
purchases of our equity securities during the second quarter of 2004:

| |                     |  |  |           |  |   | Total Number of |     | Maximum Number of
| | ------------------- |  |  | --------- |  | - | --------------- | --- | -----------------
|
|
|
| | 03/27/04 - 04/30/04 |  |  | 235,500   |  | $ | 27              | .42 |                  
| | 05/01/04 - 05/28/04 |  |  | 656,700   |  |   | 26              | .61 |                  
| | 05/29/04 - 06/25/04 |  |  | 107,800   |  |   | 28              | .11 |                  
| |                     |  |  |           |  |  
| | Total               |  |  | 1,000,000 |  | $ | 26              | .96 |                  
| |                     |  |  |           |  |  

|(1) | Excludes shares withheld to satisfy minimum tax withholding requirements
          associated with restricted stock lapses.
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(2) | In January 2004, our Board of Directors authorized a stock repurchase program to
          acquire up to 1,000,000 shares of common stock per quarter through 2005.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | As of June 25, 2004, a maximum of 6,000,000 shares could be purchased under the
          repurchase program announced in January 2004. However, our Board of Directors
          authorized a new stock repurchase program in July 2004 to acquire up to $500
          million of common stock. This new repurchase program will replace the previous
          program announced in January 2004.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Our Annual Meeting of Stockholders
(the Annual Meeting) was held on May 20, 2004. A total of 101,973,111 shares of common
stock, par value $0.10 per share (the Common Stock), were present at the Annual Meeting,
either in person or by proxy, constituting a quorum. The matters voted upon at the Annual
Meeting by the stockholders consisted of the four proposals set forth in our definitive
Proxy Statement, dated April 12, 2004.

27

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

|Director          |  | For        |  | Withheld  | 
|----------------- |  | ---------- |  | --------- | 
|James R. Adams    |  | 97,487,609 |  | 4,485,502 | 
|Charles E. Foster |  | 97,818,473 |  | 4,154,638 | 
|Mercedes Johnson  |  | 98,212,148 |  | 3,760,963 | 
|William T. Kerr   |  | 97,801,839 |  | 4,171,272 | 
|Robert E. Lee     |  | 97,033,192 |  | 4,939,919 | 
|Patrick J. Martin |  | 98,978,537 |  | 2,994,574 | 
|Judy C. Odom      |  | 98,211,857 |  | 3,761,254 | 

The second proposal related to
approval of our 2004 Long Term Incentive Plan. The third proposal related to approval of
our 2004 Performance-Based Incentive Plan. These two proposals were approved as detailed
below.

The fourth proposal was a stockholder
proposal regarding cumulative voting. This proposal was rejected as detailed below.

|Proposal   |  | For        |  | Against    |  | Abstentions |  | Broker Non-Votes | 
|---------- |  | ---------- |  | ---------- |  | ----------- |  | ---------------- | 
|Proposal 2 |  | 66,490,308 |  | 24,806,407 |  | 146,165     |  | 10,530,231       | 
|Proposal 3 |  | 87,118,028 |  | 4,183,156  |  | 142,588     |  | 10,529,339       | 
|Proposal 4 |  | 39,711,152 |  | 44,369,191 |  | 7,362,562   |  | 10,530,206       | 

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

(a)    
          Exhibits:

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

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

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

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

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

28

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

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

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

|10.2 1,2 |  | Storage  Technology  Corporation  Amended and Restated 1995 Equity  Participation  Plan, as amended through
May 20, 2004
|-------- |  | ------------------------------------------------------------------------------------------------------------------------

|10.3 1,2 |  | Storage Technology Corporation 2004 Long Term Incentive Plan.
|-------- |  | -------------------------------------------------------------

|10.41 |  | Storage Technology Corporation Management by Objective Bonus Plan (previously filed as
Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended March 30, 2001, filed on May 14, 2001, and incorporated herein by reference)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.51,2 |  | Storage Technology Corporation 2004 Performance-Based Incentive Plan.
|------- |  | ---------------------------------------------------------------------

|10.61 |  | Storage Technology Corporation Amended and Restated Stock Option Plan for Non-Employee
Directors (previously filed as Exhibit 10.2 to the Companys Quarterly Report on Form
10-Q for the fiscal quarter ended June 28, 1996, filed on August 12, 1996, and
incorporated herein by reference)
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.71 |  | Storage Technology Corporation Flexible Option Plan, dated December 2001 (previously filed
as Exhibit 10.5 to the Companys Annual Report on Form 10-K for the fiscal year ended
December 28, 2001, filed on March 4, 2002, and incorporated herein by reference)
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.81 |  | Severance Agreement, dated as of July 1, 2001, between the Company and Robert S. Kocol
(previously filed as Exhibit 10.9 to the Companys Quarterly Report on Form 10-Q for
the fiscal quarter ended September 28, 2001, filed on November 8, 2001, and incorporated
herein by reference)
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|10.101 |  | Offer Letter, dated February 9, 2001, from the Company to Roger Gaston (previously filed
as Exhibit 10.20 to the Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended March 30, 2001, filed on May 14, 2001, and incorporated herein by reference)
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.111 |  | Offer Letter, dated July 16, 2001, from the Company to Roy Perry (previously filed as
Exhibit 10.28 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended September 28, 2001, filed on November 8, 2001, and incorporated herein by reference)
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

29

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

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

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

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

|10.161 |  | Form of Executive Severance Agreement (previously filed as Exhibit 10.32 to the
Companys Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2002,
filed on May 13, 2002, and incorporated herein by reference)
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.17 |  | Master Services Agreement (MSA), between each of the Company, Electronic Data Systems
Corporation, and EDS Information Services L.L.C., dated as of April 1, 2002 (previously
filed as Exhibit 10.33 to the Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended March 29, 2002, filed on May 13, 2002, and incorporated herein by reference)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.18 |  | Authorization Letter #1 pursuant to the MSA, dated April 1, 2002 (previously filed as
Exhibit 10.34 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended March 29, 2002, filed on May 13, 2002, and incorporated herein by reference)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.19 |  | Authorization Letter #2 pursuant to the MSA, dated April 1, 2002 (previously filed as
Exhibit 10.35 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended March 29, 2002, filed on May 13, 2002, and incorporated herein by reference)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.20 |  | Master Secondary Storage Services Agreement, between the Company and Electronic Data
Systems Corporation, dated March 29, 2002 (previously filed as Exhibit 10.36 to the
Companys Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2002,
filed on May 13, 2002, and incorporated herein by reference)
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.211 |  | Offer Letter, dated June 25, 2002, between the Company and Mark Roellig (previously filed
as Exhibit 10.28 to the Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended June 28, 2002, filed on August 12, 2002, and incorporated herein by
reference)
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

30

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|10.221 |  | Form of Indemnification Agreement, dated as of November 22, 2002, between the Company and
each director (previously filed as Exhibit 10.31 to the Companys Annual Report on
Form 10-K for the fiscal year ended December 27, 2002, filed on March 7, 2003, and
incorporated herein
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.231 |  | Offer Letter, dated November 12, 2002, between the Company and Pierre Cousin (previously
filed as Exhibit 10.33 to the Companys Annual Report on Form 10-K for the fiscal
year ended December 27, 2002, filed on March 7, 2003, and incorporated herein by
reference)
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.241 |  | Agreement, dated December 1, 2002, between the Company and Pierre Cousin (previously filed
as Exhibit 10.34 to the Companys Annual Report on Form 10-K for the fiscal year
ended December 27, 2002, filed on March 7, 2003, and incorporated herein by reference)
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.251 |  | Amended and Restated CEO Employment Agreement, dated March 27, 2003, between the Company
and Patrick J. Martin (previously filed as Exhibit 10.36 to the Companys Quarterly
Report on Form 10-Q for the fiscal quarter ended March 28, 2003, filed on May 9, 2003, and
incorporated herein by reference)
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.261 |  | Form of Executive Agreement, dated as of February 12, 2003, between the Company and each
executive officer (previously filed as Exhibit 10.37 to the Companys Quarterly
Report on Form 10-Q for the fiscal quarter ended March 28, 2003, filed on May 9, 2003, and
incorporated herein by reference)
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.27 |  | Letter, dated July 24, 2003, from the Company to Bank of America, N.A. (previously filed
as Exhibit 10.32 to the Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended June 27, 2003, filed on August 8, 2003, and incorporated herein by
reference)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.281 |  | Offer Letter, dated December 12, 2003, between the Company and Mark Ward (previously filed
as Exhibit 10.30 to the Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended March 26, 2004, filed on May 5, 2004, and incorporated herein by reference)
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.291 |  | Offer Letter, dated March 1, 2004, between the Company and Eula Adams (previously filed as
Exhibit 10.31 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter
ended March 26, 2004, filed on May 5, 2004, and incorporated herein by reference)
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

|32.2 2 |  | Certification   Pursuant  to  18  U.S.C.   Section  1350,  as  Adopted  Pursuant  to  Section  906  of  the
Sarbanes-Oxley Act of 2002
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------

_________________

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

31

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(b)    
          Reports on Form 8-K.

Current report on Form 8-K, filed on
May 28, 2004, relating to an Item 5, Other Events and Regulation FD Disclosure, regarding
the voting results from Storage Technology Corporations Annual Meeting of
Stockholders held on May 20, 2004.

Current report on Form 8-K, filed on
April 21, 2004, relating to an Item 9, Regulation FD Disclosure, regarding the
announcement of our results of operations for the fiscal quarter ended March 26, 2004,
including a copy of the script of the prepared remarks of the Chief Executive Officer and
Chief Financial Officer from a conference call regarding such results of operations.

32

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SIGNATURES

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

|August 2, 2004(Date)
August 2, 2004(Date) |  | STORAGE TECHNOLOGY CORPORATION(Registrant)    /s/ ROBERT S. KOCOL
Robert S. KocolCorporate Vice Presidentand Chief Financial Officer(Principal Financial Officer)
/s/ THOMAS G. ARNOLD
Thomas G. ArnoldVice President and Corporate Controller(Principal Accounting Officer)
|--------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

33