Use these links to rapidly review the documentIndex

---

---

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

FORM 10-Q

|ý                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 
|--------------------------------------------- | ----------------------------------------------------------------------------------------
|For the quarterly period ended March 28, 2003
|or                                           
|o                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|For the transition period from
 to           

Commission file number 1-7534



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

Delaware

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

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

80028-4309(Address of principal executive offices)

(Zip Code)


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

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

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
ý Yes      o No   The registrant had 108,804,380 shares
of common stock outstanding as of May 5, 2003.

---

# STORAGE TECHNOLOGY
CORPORATION INDEX TO FORM 10-Q March 28, 2003

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

2

---

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

|                                                                                                                                                                      | 03/28/03 |  | 12/27/02 |          
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------- |  | -------- | ---------
|
|ASSETS                                                                                                                                                                |          |  |          |          
|Current assets:                                                                                                                                                       |          | 
|Cash and cash equivalents                                                                                                                                             |          |  | $        | 718,630  
|Accounts receivable                                                                                                                                                   |          |  |          | 462,828  
|Inventories                                                                                                                                                           |          |  |          | 145,556  
|Deferred income tax assets                                                                                                                                            |          |  |          | 113,164  
|Other current assets                                                                                                                                                  |          |  |          | 9,657    
|                                                                                                                                                                      |          |  |          |          
|Total current assets                                                                                                                                                  |          |  |          | 1,449,835
|Property, plant, and equipment                                                                                                                                        |          |  |          | 225,844  
|Spare parts for maintenance                                                                                                                                           |          |  |          | 43,068   
|Deferred income tax assets                                                                                                                                            |          |  |          | 100,353  
|Other assets                                                                                                                                                          |          |  |          | 125,477  
|                                                                                                                                                                      |          |  |          |          
|Total assets                                                                                                                                                          |          |  | $        | 1,944,577
|                                                                                                                                                                      |          |  |          |          
|LIABILITIES                                                                                                                                                           |          | 
|Current liabilities:                                                                                                                                                  |          |  |          |          
|Current portion of long-term debt                                                                                                                                     |          |  | $        | 814      
|Accounts payable                                                                                                                                                      |          |  |          | 96,937   
|Accrued liabilities                                                                                                                                                   |          |  |          | 407,460  
|Income taxes payable                                                                                                                                                  |          |  |          | 215,096  
|Other current liabilities                                                                                                                                             |          |  |          | 25,222   
|                                                                                                                                                                      |          |  |          |          
|Total current liabilities                                                                                                                                             |          |  |          | 745,529  
|Long-term debt                                                                                                                                                        |          |  |          | 10,503   
|                                                                                                                                                                      |          |  |          |          
|Total liabilities                                                                                                                                                     |          |  |          | 756,032  
|                                                                                                                                                                      |          |  |          |          
|STOCKHOLDERS' EQUITY                                                                                                                                                  |          | 
|Common stock, $0.10 par value, 300,000,000 shares authorized;     108,281,377 shares issued at March 28, 2003, and     106,849,329 shares issued at December 27, 2002 |          |  |          | 10,828   
|Capital in excess of par value                                                                                                                                        |          |  |          | 936,489  
|Retained earnings                                                                                                                                                     |          |  |          | 276,614  
|Accumulated other comprehensive loss                                                                                                                                  |          |  |          | (11,221  
|Treasury stock of 259,218 shares at March 28, 2003,     and 238,276 shares at December 27, 2002, at cost                                                              |          |  |          | (4,919   
|Unearned compensation                                                                                                                                                 |          |  |          | (19,246  
|                                                                                                                                                                      |          |  |          |          
|Total stockholders' equity                                                                                                                                            |          |  |          | 1,188,545
|                                                                                                                                                                      |          |  |          |          
|Total liabilities and stockholders' equity                                                                                                                            |          |  | $        | 1,944,577
|                                                                                                                                                                      |          |  |          |          

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

3

---

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

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

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

4

---

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

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

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

5

---

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

|                                                                                                                                      | Quarter Ended | 
|------------------------------------------------------------------------------------------------------------------------------------- | ------------- | 
|
|Net income                                                                                                                            |               | 
|Other comprehensive loss:                                                                                                             |               | 
|Unrealized gain on marketable securities:                                                                                             |               | 
|Holding gain, net of tax expense of $413 and $0                                                                                       |               | 
|Foreign currency hedging contracts:                                                                                                   |               | 
|Net loss on foreign currency cash flow hedges, net of tax benefit of          $(3,036) and $(14)                                      |               | 
|Reclassification adjustment for net (gains) losses included in net          income, net of tax benefit (expense) of $1,415 and $(863) |               | 
|                                                                                                                                      |               | 
|Other comprehensive loss                                                                                                              |               | 
|                                                                                                                                      |               | 
|Comprehensive income                                                                                                                  |               | 
|                                                                                                                                      |               | 

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

6

---

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

# NOTE 1  BASIS OF
PREPARATION

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

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

# NOTE 2 
STOCK-BASED COMPENSATION PLANS

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

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

|                                                                                                                                 | Quarter Ended | 
|-------------------------------------------------------------------------------------------------------------------------------- | ------------- | 
|
|
|Net income, as reported                                                                                                          |               | 
|                                                                                                                                 |               | 
|Add: Stock-based compensation expense included in                                                                                |               | 
|reported net income, net of related tax effects                                                                                  |               | 
|                                                                                                                                 |               | 
|Deduct: Total stock-based compensation expensedetermined under fair value based method for allawards, net of related tax effects |               | 
|                                                                                                                                 |               | 
|Pro forma net income                                                                                                             |               | 
|                                                                                                                                 |               | 
|Earnings per share:                                                                                                              |               | 
|Basic, as reported                                                                                                               |               | 
|Basic, pro forma                                                                                                                 |               | 
|Diluted, as reported                                                                                                             |               | 
|Diluted, pro forma                                                                                                               |               | 

7

---

# NOTE 3 
INVENTORIES

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

|                | 03/28/03 |  | 03/29/02 |        
|--------------- | -------- |  | -------- | -------
|Raw materials   |          |  | $        | 29,087 
|Work-in-process |          |  |          | 36,462 
|Finished goods  |          |  |          | 80,007 
|                |          |  |          |        
|                |          |  | $        | 145,556
|                |          |  |          |        

# NOTE 4  LITIGATION

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

# 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
products, disk products, network products, and other miscellaneous products. The storage
services segment includes maintenance and support services, as well as professional
services.

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

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

8

---

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

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

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

For the quarters ended March 28,
2003, and March 29, 2002, options to purchase 2,299,369 and 4,238,371 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.

# NOTE 7 
INDEMNIFICATIONS AND GUARANTEES

During its normal course of business,
the Company has made certain indemnities, commitments, and guarantees under which it may
be required to make payments in relation to certain transactions. These indemnities
include, but are not limited to, intellectual property indemnities to the Companys
customers in connection with the sales of its products, including software products,
indemnities to various lessors in connection with facility leases for certain claims
arising from such facility or lease, and indemnities to directors and officers of the
Company to the maximum extent permitted under the laws of the State of Delaware. The
duration of these indemnities, commitments and guarantees varies, and in certain cases, is
indefinite. In addition, the majority of these indemnities, commitments, and guarantees do
not provide for any limitation of the maximum potential future payments the Company could
be obligated to make. As such, the Company is unable to estimate with any reasonableness
its potential exposure under these items. The Company has not recorded any liability for
these indemnities, commitments, and guarantees in the accompanying consolidated balance
sheets. The Company does, however, accrue for losses for any known contingent liability,
including those that may arise from indemnification provisions, when future payment is
both reasonably determinable and probable. The Company carries specific and general
liability insurance policies that the Company believes would provide, in most
circumstances, some, if not total recourse to any claims arising from these
indemnifications.

9

---

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):

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

# NOTE 8  RECENT
ACCOUNTING PRONOUNCEMENTS

In August 2001, the Financial
Accounting Standards Board (FASB) issued SFAS No. 143, Accounting for
Obligations Associated with the Retirement of Long-Lived Assets. This statement
addresses the accounting for the recognition and measurement of an asset retirement
obligation and its associated asset retirement cost. The Company adopted SFAS No. 143
for the year ending December 26, 2003, and the adoption of this statement did not
have a material impact on the Companys financial condition or results of operations.

In June 2002, the FASB issued
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. This statement addresses the accounting for costs associated with an
exit activity or with a disposal of long-lived assets. The Company adopted SFAS
No. 146 for the year ending December 26, 2003, and the adoption of this
statement did not have a material impact on the Companys financial condition or
results of operations.

In November 2002, the FASB
issued Interpretation No. 45 (FIN 45), Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN 45 requires that a liability be recorded in the guarantors balance
sheet upon issuance of a guarantee. FIN 45 also requires additional disclosures about the
guarantees an entity has issued, including a rollforward of the entitys product
warranty liabilities. The initial recognition and measurement provisions of FIN 45 are
applicable to guarantees issued or modified after December 31, 2002, and have not had
a material impact on the Companys financial condition or results of operations. The
Company adopted the disclosure requirements of FIN 45 in the fourth quarter of 2002, and
the disclosures for the first quarter of 2003 are included in Note 7, above.

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

10

---

In December 2002, the FASB
issued SFAS No. 148, Accounting for Stock-Based CompensationTransition
and Disclosure. This statement amends SFAS No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
compensation. It also amends the disclosure provisions of that statement and requires
disclosure of the pro forma effect in interim financial statements. The Company adopted
SFAS No. 148 for the fiscal year ended December 27, 2002, and the adoption did
not have a material impact on the Companys financial condition or results of
operations. The Company plans to continue to account for its stock-based compensation
under the recognition and measurement principles of APB Opinion No. 25. Accordingly, the
alternative methods of transition provided under SFAS No. 148 are not expected to impact
the Company. The quarterly disclosure provision of SFAS No. 148 for the first quarter of
2003 is included in Note 2, above.

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

11

---

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

FORWARD-LOOKING STATEMENTS

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

# BUSINESS SEGMENTS
SUMMARY (in thousands, except percentages)

|                                                     | Quarter Ended
|---------------------------------------------------- | -------------
|
|Revenue                                              |              
|Storage products                                     |              
|Storage services                                     |              
|                                                     |              
|Total revenue                                        |              
|                                                     |              
|Cost of revenue                                      |              
|Storage products                                     |              
|Storage services                                     |              
|                                                     |              
|Total cost of revenue                                |              
|                                                     |              
|Gross profit                                         |              
|Storage products                                     |              
|Storage services                                     |              
|                                                     |              
|Total gross profit                                   |              
|                                                     |              
|Gross profit margin                                  |              
|Storage products                                     |              
|Storage services                                     |              
|Total gross profit margin                            |              
|                                                    
|Supplemental financial data-storage products revenue |              
|Tape products                                        |              
|Disk products                                        |              
|Network products                                     |              
|Other                                                |              
|                                                     |              
|Total storage products revenue                       |              
|                                                     |              

12

---

FIRST QUARTER 2003
FINANCIAL OVERVIEW

We grew our revenue and earnings in
the first quarter of 2003, compared to the first quarter of 2002, despite the continuing
effects of the global economic downturn, depressed information technology spending, and
recent geopolitical events. We continue to focus on providing our customers with
integrated storage solutions that optimize their storage environments. We also continue to
focus on reducing costs and expenses.

Our cash and cash equivalents
increased from $657.6 million as of December 27, 2002, to $718.6 million as of March 28,
2003, a $61.0 million improvement. Our debt-to-capitalization ratio remains constant at
1%, and we continue to generate positive cash flows from operations.

REVENUE AND GROSS PROFIT
MARGIN

Total revenue for the first quarter
of 2003 was $480.0 million, an increase of 5% compared to the same period in 2002, due to
increased revenue from the storage services segment. On a constant currency basis,
eliminating the favorable currency impacts from a weakening dollar, first quarter 2003
total revenue decreased slightly compared to the same period in 2002. Total gross profit
margin for the first quarter of 2003 was 44.3%, an increase of 1.4 points compared to the
same period in 2002, due to higher gross profit margins from the storage products segment.

# Storage Products

Our storage products revenue
primarily consists of sales of tape products, disk products, 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 for the
first quarter of 2003 was $281.3 million, basically unchanged compared to the same period
in 2002. A 5% decrease in tape product revenue was offset by an 86% increase in disk
product revenue. We believe the decline in tape product revenue is primarily attributable
to the current global economic conditions and the associated weakness in information
technology spending, as well as recent geopolitical events. The increase in disk product
revenue is primarily the result of an increase in the number of units sold, and reflects
the strength of our strategic alliance with LSI Logic Storage Systems, which was announced
in January 2002. We continue to experience an increase in product revenue contribution
from sales of open-systems tape and disk products. Storage products gross profit margin
increased 2.5 points for the first quarter of 2003, compared to the same period in 2002,
primarily due to our efforts to reduce product costs and improve inventory management.

# Storage Services

Our storage services revenue
primarily includes revenue associated with the maintenance and support of our storage
products and third-party storage products, as well as professional services revenue
associated with diverse storage consulting activities.

Storage services revenue increased
14% during the first quarter of 2003 compared to the same period in 2002. The growth in
service revenue was driven basically by an expanded effort to sell services that help
customers successfully manage their storage requirements. A portion of the increase was
also due to the secondary storage services agreement with EDS, which began at the end of
the first quarter of 2002. Storage services gross profit margin was 42.7% for the first
quarter of 2003, basically unchanged compared to the same period in 2002.

13

---

RESEARCH AND PRODUCT
DEVELOPMENT

Research and product development
costs decreased 7% during the first quarter of 2003, compared to the same period in 2002.
Research and product development costs as a percentage of revenue for the first quarter of
2003 were 11% compared to 12% for the same period in 2002. The decrease is primarily due
to engineering initiatives designed to improve research and product development
productivity, increase strategic alignment, and eliminate non-essential spending, as well
as reduced spending on engineering prototypes. We continue to evaluate and prioritize
research and product development programs to maximize our return on investment, and our
research and product development activities focus on the core businesses of tape products,
virtual storage, SAN products, and related services.

SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSE

Selling, general, and administrative
expense (SG&A) increased 5% during the first quarter of 2003, compared to the same
period in 2002, primarily due to investments made in the sales and marketing areas of our
business. These investments are focused on expanding sales coverage in the growing
open-systems environment. As a percentage of revenue, SG&A was unchanged from the
first quarter of 2002. In light of the prolonged economic downturn, we are continuing our
efforts to control discretionary spending and identify new opportunities to drive
increased profitability.

INTEREST INCOME AND
EXPENSE

Interest income increased $392,000 in
the first quarter of 2003, compared to the same period in 2002, primarily due to an
increase in cash available for investment. Interest expense was basically unchanged during
the first quarter of 2003, compared to the same period in 2002.

INCOME TAXES

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

Statement of Financial Accounting
Standards (SFAS) No. 109 requires that deferred income tax assets be recognized to the
extent realization of such assets is more likely than not. Based on the currently
available information, we have determined that we will more likely than not realize $213.5
million of deferred income tax assets as of March 28, 2003. Our valuation allowance of
approximately $23.3 million as of March 28, 2003, relates principally to foreign net
operating loss carryforwards.

CRITICAL ACCOUNTING
POLICIES

Our critical accounting policies are
disclosed in our Annual Report on Form 10-K for the year ended December 27, 2002. We have
made no changes to those policies for the quarter ended March 28, 2003.

RECENT ACCOUNTING
PRONOUNCEMENTS

For information regarding recent
accounting pronouncements, see Note 8 of NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS, included in Item 1 of this Form 10-Q, which information is incorporated
by reference into this Item 2.

14

---

LIQUIDITY AND CAPITAL
RESOURCES

# Internal Sources of
Liquidity

Our cash balance increased $61.0
million during the first quarter of 2003 primarily as a result of cash flows generated by
our operations. Our operating activities provided cash of $63.2 million during the first
quarter of 2003, compared to cash of $120.0 million generated from operations during the
same period in 2002. The decrease in cash generated from operations during the first
quarter of 2003, compared to the same period in 2002, was primarily due to a higher level
of inventory purchases, as well as a shift in the timing of payments resulting from our
lean manufacturing initiatives. Cash used in investing activities decreased to $11.4
million during the first quarter of 2003 from $18.2 million during the first quarter of
2002, primarily due to increased proceeds from the sale of property, plant, and equipment.
Our financing activities provided $12.4 million of cash during the first quarter of 2003,
primarily due to proceeds from employee stock plans. Our financing activities used $70.8
million of cash during the first quarter of 2002, primarily due to the repayment of
borrowings under our credit facilities.

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

# External Sources of
Liquidity

We have a $150.0 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 borrowing. The rate ranges from the applicable LIBOR plus
1.75% to 2.50% or the agent banks base rate plus 0.00% to 0.50%. We pay a 0.50% per
annum commitment fee on any unused borrowings. We had no outstanding borrowings under the
Revolver as of March 28, 2003. The Revolver is secured by our U.S. accounts receivable and
U.S. inventory, and contains certain financial and other covenants, including restrictions
on the payment of cash dividends on our common stock.

Our debt-to-capitalization ratio was
1% as of March 28, 2003. See Internal Sources of Liquidity above for a
discussion of cash sources and uses.

INTERNATIONAL OPERATIONS

International operations accounted
for approximately 54% of our revenue during the first quarter of 2003 compared to 48%
during the same period of 2002. We also sell products through U.S. indirect distribution
channels that have end-user customers located outside the United States. We expect that we
will continue to generate a significant portion of our revenue from international
operations. See We may be materially affected by the risks of conducting business
outside the United States under FACTORS THAT MAY AFFECT FUTURE RESULTS
for a discussion of the risks associated with international operations.

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

15

---

MARKET RISK MANAGEMENT

# Foreign Currency
Exchange Rate Risk

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

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

A hypothetical 10% adverse movement
in foreign exchange rates applied to our foreign currency exchange rate sensitive
instruments held as of March 28, 2003, and as of December 27, 2002, would result in a
hypothetical loss in fair value of approximately $50.0 million and $64.5 million,
respectively. The decrease in the hypothetical loss is primarily due to a decrease in
outstanding derivatives used to hedge net monetary assets. 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 and short-term borrowings as of March 28, 2003, and December 27, 2002, would
not have a material adverse effect on our financial condition, results of operations, or
cash flows.

# Credit Risk

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

16

---

FACTORS THAT MAY AFFECT
FUTURE RESULTS

# We may be materially
affected by global economic and political conditions

Our ability to generate revenue
growth during 2001 and 2002 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. We do not currently anticipate any significant improvement in
information technology spending during 2003. During 2002, we 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 quarter of 2003,
approximately 77% of our storage products revenue was generated by sales of our tape
products. Tape products also generate a significant portion of our storage services
revenue. If overall demand for tape storage products declines, or if we lose market share
in tape, our financial condition and results of operations could be materially affected.

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

# We may be materially
affected by aggressive competition

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

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

17

---

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

In order to grow revenue in the
future, it is critical that we execute on our Information Lifecycle Management (ILM)
strategy by continuing to capitalize on our ability to deliver complete storage solutions
to satisfy customer storage requirements. Our ILM strategy requires that we successfully
integrate the sale of products and services. Our ability to compete is significantly
dependent upon the successful rollout of our ILM strategy. We achieved some initial
success during 2002 in our efforts to address customer storage needs by focusing on the
delivery of storage solutions that include a combination of tape, disk, and network
products, together with the associated services. This success continued during the first
quarter of 2003, resulting in increased revenue contributions from disk products, network
products, and services. We cannot provide any assurance that we will successfully execute
our ILM strategy or that this strategy will successfully address the significant
competition in the data storage industry.

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

We are continually developing our
indirect distribution channels, including original equipment manufacturers (OEMs),
value-added distributors (VADs), value-added resellers (VARs), and other distributors.
Indirect channels sales contributed approximately 50% of our total product revenue in the
first quarter of 2003, compared to 47% in the same period in 2002. Increasing our sales
through these indirect channels is critical to expanding our reach into the growing
open-systems market. Successfully managing the interaction of our direct and indirect
channel efforts to effectively reach all 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. Maintenance revenue also may be adversely affected in future
periods to the extent that customers of our indirect channel partners elect to purchase
maintenance services from our competitors. Our financial results may also be negatively
affected if the financial condition of one or more of our channel partners weakens or if
the current economic downturn continues.

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

Services contributed approximately
41% of our total revenue in the first quarter of 2003, compared to 38% for the same period
in 2002. This growth was driven by new service offerings such as storage consulting
services, implementation services, and storage management services. The development and
delivery of these new services are critical to the success of our plan to deliver complete
storage solutions to our customers. We must ensure that service professionals have the
necessary skill sets, experience, tools, and training to support these new service
offerings. 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.

18

---

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

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

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

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

HDL is located in the Peoples
Republic of China (PRC). Our dependence on HDL is subject to additional risks beyond those
associated with other sole source suppliers, including the lack of a well-established
court system or acceptance of the rule of law in the PRC, the degree to which the PRC
permits economic reform policies to continue, the political relationship between the PRC
and the United States, broader political and economic factors, and the impact of the
recent outbreak of the Severe Acute Respiratory Syndrome (SARS) virus. 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 suppliers to meet our requirements for an extended
period, or the inability to secure comparable components in a timely manner, could result
in a shortage of key components or products, longer lead times, reduced control over
production and delivery schedules, and an inability to fulfill customer orders in a timely
manner. In addition, if SARS is not contained, our ability to obtain parts and components
for our products may be materially adversely affected.

19

---

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

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

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

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

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

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

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

Pressure on our disk product gross
profit margins is expected to increase as our disk revenue shifts from our
enterprise-class products to open-systems products developed and manufactured by LSI. We
continue to increase the amount of third-party products sold, and our gross profit margin
may be adversely affected as third-party 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
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.

20

---

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

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

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

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

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

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

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

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

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

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.

21

---

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 if
we are unable to attract, retain, and motivate key employees

Our future success depends in large part
on our ability to attract, retain, and motivate our key employees. 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, retain, and motivate these employees could
have an adverse effect on our future financial condition and results of operations.

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

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

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

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

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

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

22

---

# We may be materially
affected by restructuring activities

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

# ITEM 3 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

# ITEM 4  CONTROLS
AND PROCEDURES

Under the supervision and with the
participation of management, including the principal executive officer and principal
financial officer, we conducted an evaluation of our disclosure controls and procedures,
as such term is defined under Rule 13a-14 promulgated under the Securities Exchange Act of
1934, within 90 days of the filing date of this report. Based on their evaluation, the
principal executive officer and principal financial officer concluded that our disclosure
controls and procedures are effective.

There have been no significant
changes in our internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation referenced above.

23

---

# 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 6  EXHIBITS
AND REPORTS ON FORM 8-K

(a)    
          Exhibits:

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

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

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

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

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

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

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

|10.1(1)(2) |  | Storage  Technology  Corporation  Amended and Restated 1987  Employee  Stock  Purchase
 Plan, as amended            through March 6, 2003
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------

|10.2(1) |  | Storage
 Technology  Corporation  Amended and Restated 1995 Equity  Participation Plan
(previously filed            as Exhibit  10.6 to the  Company's  Annual  Report on Form
10-K for the fiscal year ended  December  31,            1999, filed on March 10, 2000,
and incorporated herein by reference)
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

24

---

|10.3(1) |  | 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)
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4(1) |  | 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)
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5(1) |  | 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)
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6(1) |  | Agreement
 between the Company and Gary  Francis,  dated  August 19, 1997  (previously  filed as
Exhibit            10.25 to the  Company's  Annual Report on Form 10-K for the fiscal
year ended  December 26, 1997,  filed            on March 6, 1998, and incorporated
herein by reference)
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7(1) |  | CEO
Employment  Agreement,  dated July 11, 2000,  between the Company and Patrick J. Martin
 (previously            filed as Exhibit 10.1 to the Company's  Quarterly  Report on Form
10-Q for the fiscal quarter ended June            30, 2000, filed on August 11, 2000, and
incorporated herein by reference)
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.8(1) |  | 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)
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9(1) |  | Restricted
 Stock  Award  Agreement,  dated as of  September  27,  2001,  by and between the Company
and            Robert S. Kocol  (previously  filed as Exhibit 10.9 to the Company's
 Annual Report on Form 10-K for the            fiscal year ended December 28, 2001, filed
on March 4, 2002, and incorporated herein by reference)
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.10(1) |  | 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)
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.11(1) |  | Offer
Letter,  dated February 9, 2001, from the Company to Jill F. Kenney  (previously  filed
as Exhibit            10.19 to the  Company's  Quarterly  Report on Form 10-Q for the
fiscal  quarter  ended  March 30,  2001,            filed on May 14, 2001, and
incorporated herein by reference)
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.12(1) |  | 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)
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.13(1) |  | Promissory
 Note,  dated May 11, 2001,  from Michael McLay to the Company,  in the  principal
 amount of            $390,000  (previously  filed as Exhibit  10.23 to the  Company's
 Quarterly  Report on Form 10-Q for the            fiscal quarter ended June 29, 2001,
filed on August 9, 2001, and incorporated herein by reference)
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

25

---

|10.14(1) |  | Promissory
 Note,  dated May 11, 2001,  from Michael McLay to the Company,  in the  principal
 amount of            $160,000  (previously  filed as Exhibit  10.24 to the  Company's
 Quarterly  Report on Form 10-Q for the            fiscal quarter ended June 29, 2001,
filed on August 9, 2001, and incorporated herein by reference)
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.15(1) |  | Form
of LEAP  Participation  Agreement,  dated April 30, 2001 (previously  filed as Exhibit
10.25 to the            Company's  Quarterly  Report on Form 10-Q for the fiscal quarter
ended June 29, 2001, filed on August 9,            2001, and incorporated herein by
reference)
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.16(1) |  | Offer
Letter,  dated July 16, 2001, from the Company to Roy Perry  (previously filed as Exhibit
10.28 to            the Company's  Quarterly  Report on Form 10-Q for the fiscal quarter
ended September 28, 2001,  filed on            November 8, 2001, and incorporated herein
by reference)
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.17(1) |  | 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)
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.18(1) |  | Offer
 Letter,  dated  December 10,  2001,  between the Company and Thomas  Major  (previously
 filed as            Exhibit 10.20 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)
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.19(1) |  | Letter
 Agreement,  dated July 31,  2001,  between the Company and Pierre  Cousin  (previously
 filed as            Exhibit 10.21 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)
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.20 |  | 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)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.21 |  | 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)
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.22 |  | 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)
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.23(1) |  | 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)
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

26

---

|10.24 |  | 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)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.25 |  | 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)
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.26 |  | 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)
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.27 |  | 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)
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.28(1) |  | Offer
Letter,  dated June 25, 2002,  between the Company and Mark Roellig  (previously  filed
as Exhibit            10.28 to the Company's  Quarterly  Report on Form 10-Q for the
fiscal quarter ended June 28, 2002, filed            on August 12, 2002, and incorporated
herein by reference)
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.29(1) |  | Extension
 Agreement,  dated August 28, 2002, between the Company and Pierre Cousin (previously
filed as            Exhibit  10.29 to the Company's  Quarterly  Report on Form 10-Q for
the fiscal  quarter ended  September            27, 2002, filed on November 12, 2002, and
incorporated herein by reference)
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.30(1) |  | Extension
 Agreement,  dated September 30, 2002, between the Company and Pierre Cousin (previously
filed            as Exhibit 10.20 to the Company's  Quarterly  Report on Form 10-Q for
the fiscal quarter ended September            27, 2002, filed on November 12, 2002, and
incorporated herein by reference)
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.31(1) |  | Form
of  Indemnification  Agreement,  dated as of  November  22,  2002,  between  the  Company
 and each            director  (previously  filed as Exhibit 10.31 to the Company's
Annual Report on Form 10-K for the fiscal            year ended December 27, 2002, filed
on March 7, 2003, and incorporated herein by reference)
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.32(1) |  | Storage
Technology  Corporation 1993 Non-Statutory  Stock Option Plan (previously filed as
Exhibit 10.32            to the  Company's  Annual  Report on Form 10-K for the fiscal
year ended  December  27,  2002,  filed on            March 7, 2003, and incorporated
herein by reference)
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.33(1) |  | 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)
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.34(1) |  | 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)
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

27

---

|10.35(1)(2) |  | CEO
Employment  Agreement,  dated July 11, 2000, and revised February 12, 2003,  between the
Company and            Patrick J. Martin
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------

|10.36(1)(2) |  | Amended
and Restated CEO  Employment  Agreement,  dated March 27, 2003,  between the Company and
Patrick            J. Martin
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------

|10.37(1)(2) |  | Form
of  Executive  Agreement,  dated as of February 12,  2003,  between the Company and each
 executive            officer
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------

|99.1(2) |  | Certification
 Pursuant  to 18  U.S.C.  Section  1350,  as  Adopted  Pursuant  to  Section  906  of
 the            Sarbanes-Oxley Act of 2002
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

|99.2(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

(b)    
          Reports on Form 8-K.

Current report on Form 8-K, filed on
January 7, 2003, relating to an Item 9, Regulation FD Disclosure, regarding a press
release issued by the Company announcing higher-than-anticipated fourth quarter 2002
financial results

Current report on Form 8-K, filed on
January 10, 2003, relating to an Item 9, Regulation FD Disclosure, regarding a press
release issued by the Company announcing that the Chief Financial Officer had presented
certain information at the Needham Growth Conference in New York

Current report on Form 8-K, filed on
January 23, 2003, relating to an Item 9, Regulation FD Disclosure, regarding an
announcement by the Company of its results of operations for the fiscal quarter and fiscal
year ended December 27, 2002, including a copy of the script of the prepared remarks of
the Companys Chief Executive Officer and Chief Financial Officer from a conference
call regarding such results of operation

28

---

# 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.

|May 8, 2003(Date)
May 8, 2003(Date) |  | STORAGE TECHNOLOGY CORPORATION(Registrant)    /s/ ROBERT S. KOCOL
Robert S. KocolCorporate Vice Presidentand Chief Financial Officer(Principal Financial Officer)
/s/ THOMAS G. ARNOLD
Thomas G. ArnoldVice President and Corporate Controller(Principal Accounting Officer)
|--------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

29

---

# CERTIFICATIONS

I, Patrick J. Martin, certify that:

|1. | I have reviewed this quarterly report on Form 10-Q of Storage Technology
          Corporation;
|-- | -----------------------------------------------------------------------------------------------

|2. | Based on my knowledge, this quarterly report does not contain any untrue
          statement of a material fact or omit to state a material fact necessary to make
          the statements made, in light of the circumstances under which such statements
          were made, not misleading with respect to the period covered by this quarterly
          report;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based on my knowledge, the financial statements, and other financial information
          included in this quarterly report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this quarterly report;
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The registrants other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | designed
such disclosure controls and procedures to ensure that material           information
relating to the registrant, including its consolidated subsidiaries,           is made
known to us by others within those entities, particularly during the           period in
which this quarterly report is being prepared;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | evaluated
the effectiveness of the registrants disclosure controls and           procedures
as of a date within 90 days prior to the filing date of this           quarterly report
(the Evaluation Date); and
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | presented
in this quarterly report our conclusions about the effectiveness of           the
disclosure controls and procedures based on our evaluation as of the           Evaluation
Date;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The registrants other certifying officer and I have disclosed, based on
          our most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors (or persons performing the
          equivalent function):
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | all
significant deficiencies in the design or operation of internal controls           which
could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | The registrants other certifying officer and I have indicated in this
          quarterly report whether or not there were significant changes in internal
          controls or in other factors that could significantly affect internal controls
          subsequent to the date of our most recent evaluation, including any corrective
          actions with regard to significant deficiencies and material weaknesses.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: May 8, 2003

/s/ PATRICK J. MARTIN 
Patrick J. MartinChairman,
President and CEO

30

---

I, Robert S. Kocol, certify that:

|1. | I have reviewed this quarterly report on Form 10-Q of Storage Technology
          Corporation;
|-- | -----------------------------------------------------------------------------------------------

|2. | Based on my knowledge, this quarterly report does not contain any untrue
          statement of a material fact or omit to state a material fact necessary to make
          the statements made, in light of the circumstances under which such statements
          were made, not misleading with respect to the period covered by this quarterly
          report;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based on my knowledge, the financial statements, and other financial information
          included in this quarterly report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this quarterly report;
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The registrants other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | designed
such disclosure controls and procedures to ensure that material           information
relating to the registrant, including its consolidated subsidiaries,           is made
known to us by others within those entities, particularly during the           period in
which this quarterly report is being prepared;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | evaluated
the effectiveness of the registrants disclosure controls and           procedures
as of a date within 90 days prior to the filing date of this           quarterly report
(the Evaluation Date); and
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | presented
in this quarterly report our conclusions about the effectiveness of           the
disclosure controls and procedures based on our evaluation as of the           Evaluation
Date;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The registrants other certifying officer and I have disclosed, based on
          our most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors (or persons performing the
          equivalent function):
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | all
significant deficiencies in the design or operation of internal controls           which
could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | The registrants other certifying officer and I have indicated in this
          quarterly report whether or not there were significant changes in internal
          controls or in other factors that could significantly affect internal controls
          subsequent to the date of our most recent evaluation, including any corrective
          actions with regard to significant deficiencies and material weaknesses.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: May 8, 2003

/s/ ROBERT S. KOCOL 
Robert S. Kocol Corporate Vice President,
Chief Financial Officer

31