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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, 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 26, 2004

or

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                      to                                     

Commission File Number: 1-7534

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

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

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

Registrant's telephone number, including area code  303-673-5151

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 112,289,181 shares of common stock outstanding as of May 3, 2004.

STORAGE TECHNOLOGY CORPORATION
INDEX TO FORM 10-Q
March 26, 2004

PAGE
PART I - FINANCIAL INFORMATION    

         Item 1 - Financial Statements		 

                     Consolidated Balance Sheets		   3  

                     Consolidated Statements of Operations		   4  

                     Consolidated Statements of Cash Flows		   5  

                     Consolidated Statements of Changes in Stockholders' Equity		   6  

                     Consolidated Statements of Comprehensive Income		   7  

                     Notes to Consolidated Financial Statements		   8  

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

          Item 3 - Quantitative and Qualitative Disclosures about Market Risk		   22  

          Item 4 - Controls and Procedures		   23  

PART II - OTHER INFORMATION		      

          Item 1 - Legal Proceedings		   24  

          Item 2 - Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities		   24  

          Item 6 - Exhibits and Reports on Form 8-K		   24  

          Signatures		   29  

2

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

03/26/04
   12/26/03
  
(Unaudited)  
ASSETS            
Current assets:  
   Cash and cash equivalents   $ 1,035,921   $ 1,001,629  
   Short-term investments    2,625    14,650  
   Accounts receivable    482,908    539,334  
   Inventories    105,480    109,988  
   Deferred income tax assets    135,794    139,446  
   Other current assets    4,309    123  
     Total current assets    1,767,037    1,805,170  
   
Long-term investments    34,413    43,501  
Property, plant, and equipment    194,170    201,647  
Spare parts for maintenance    46,332    44,695  
Deferred income tax assets    93,659    93,521  
Other assets    133,259    116,712  
     Total assets   $ 2,268,870   $ 2,305,246  
   
LIABILITIES  
Current liabilities:                
   Current portion of long-term debt   $ 1,272   $ 1,090  
   Accounts payable    105,207    132,404  
   Accrued liabilities    472,732    483,672  
   Income taxes payable    242,572    250,818  
   Other current liabilities    38,503    64,674  
     Total current liabilities    860,286    932,658  
   
Long-term debt    10,659    11,150  
     Total liabilities    870,945    943,808  
Commitments and contingencies (Note 4 and 7)  
   
STOCKHOLDERS’ EQUITY                
Common stock, $0.10 par value, 300,000,000 shares  
    authorized; 112,669,286 shares issued at March 26, 2004,   
    and 111,135,483 shares issued at December 26, 2003    11,267    11,114  
Capital in excess of par value    1,026,624    991,273  
Retained earnings    432,421    409,072  
Accumulated other comprehensive loss    (24,459 )  (30,436 )
Treasury stock, 1,000,000 shares at March 26, 2004,   
    and 299,677 shares at December 26, 2003, at cost    (29,190 )  (5,919 )
Unearned compensation    (18,738 )  (13,666 )
     Total stockholders' equity    1,397,925    1,361,438  
     Total liabilities and stockholders' equity   $ 2,268,870   $ 2,305,246  

        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
  
03/26/04
   03/28/03
  
Revenue:            
   Storage products   $ 294,606   $ 281,259  
   Storage services    220,466    198,696  
      Total revenue    515,072    479,955  
Cost of revenue:                
   Storage products    149,619    153,335  
   Storage services    127,250    113,861  
      Total cost of revenue    276,869    267,196  
   Gross profit    238,203    212,759  
   
Research and development costs    48,502    50,461  
Selling, general, and administrative expense    162,685    140,817  
   Operating profit    27,016    21,481  
   
Interest income    3,181    2,442  
Interest expense    (377 )  (469 )
   Income before income taxes    29,820    23,454  
   
Provision for income taxes    (6,471 )  (7,000 )
   Net income   $ 23,349   $ 16,454  
EARNINGS PER COMMON SHARE  
   
Basic earnings per common share   $ 0.21   $ 0.15  
Weighted-average shares    110,551    106,691  
Diluted earnings per common share   $ 0.21   $ 0.15  
Weighted-average and dilutive potential shares    113,353    109,126  

        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
  
03/26/04
   03/28/03
  
OPERATING ACTIVITIES            
Cash received from customers   $ 569,589   $ 591,316  
Cash paid to suppliers and employees    (493,952 )  (525,725 )
Interest received    2,634    2,138  
Interest paid    (307 )  (373 )
Income taxes paid    (7,516 )  (4,143 )
     Net cash provided by operating activities    70,448    63,213  
INVESTING ACTIVITIES  
Proceeds from sale of investments    21,915    --  
Purchases of property, plant, and equipment    (14,738 )  (9,828 )
Proceeds from sale of property, plant, and equipment    11    3,704  
Other assets    (25,602 )  (5,302 )
     Net cash used in investing activities    (18,414 )  (11,426 )
FINANCING ACTIVITIES  
Purchases of common stock    (29,190 )  --  
Proceeds from employee stock plans    27,788    12,612  
Proceeds from other debt    416    42  
Repayments of other debt    (491 )  (264 )
     Net cash provided by (used in) financing activities    (1,477 )  12,390  
     Effect of exchange rate changes on cash    (16,265 )  (3,146 )
Increase in cash and cash equivalents    34,292    61,031  
Cash and cash equivalents - beginning of the period    1,001,629    657,599  
Cash and cash equivalents - end of the period   $ 1,035,921   $ 718,630  
RECONCILIATION OF NET INCOME TO NET CASH  
   PROVIDED BY OPERATING ACTIVITIES                
Net income   $ 23,349   $ 16,454  
Depreciation and amortization expense    20,117    23,786  
Inventory writedowns    2,862    5,909  
Translation loss    8,981    4,545  
Other non-cash adjustments to income    29,120    (397 )
Decrease in accounts receivable    54,517    111,361  
(Increase) decrease in other current assets    2,449    (2,001 )
(Increase) decrease in inventories    7,144    (17,783 )
Increase in spare parts    (6,032 )  (6,590 )
(Increase) decrease in deferred income tax assets    (384 )  7  
Decrease in accounts payable    (27,191 )  (39,035 )
Decrease in accrued liabilities    (11,297 )  (18,565 )
Decrease in other current liabilities    (25,326 )  (14,628 )
Increase (decrease) in income taxes payable    (7,861 )  150  
     Net cash provided by operating activities   $ 70,448   $ 63,213  

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

5

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

Accumulated  
Common   Capital in   Other  
Shares   Common   Excess of   Retained   Comprehensive   Treasury   Unearned  
Issued
  Stock
   Par Value
   Earnings
   Income (Loss)
   Stock
   Compensation
   Total
  
Balances, December 26, 2003      111,135   $ 11,114   $ 991,273   $ 409,072   $ (30,436 ) $ (5,919 ) $ (13,666 ) $ 1,361,438  
   Components of comprehensive          
      income:  
         Net income    --    --    --    23,349    --    --    --    23,349  
         Other comprehensive income    --    --    --    --    5,977    --    --    5,977  
   Total comprehensive income    --    --    --    23,349    5,977    --    --    29,326  
   Shares issued upon exercise of  
      stock options    1,669    167    28,245    --    --    --    --    28,412  
   Shares repurchased under stock