VERITAS SOFTWARE CORP /DE/, 10-Q, 1999-08-16

VERITAS SOFTWARE CORP /DE/
10-Q, 1999-08-16
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM 10-Q

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

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999

[ ] 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: 000-26247

VERITAS SOFTWARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 77-0507675
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>

1600 PLYMOUTH STREET
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 335-8000
(ADDRESS, INCLUDING ZIP CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES
AND REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

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. Yes [ ] No [X]

The number of shares of the registrant's common stock outstanding as of
July 30, 1999 was 170,332,113 shares.

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<PAGE> 2

VERITAS SOFTWARE CORPORATION

INDEX

<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999
and
December 31, 1998........................................... 3
Condensed Consolidated Statements of Operations for the
Three Months and Six Months Ended June 30, 1999 and 1998.... 4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1999 and 1998......................... 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 12
Item 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 31

PART II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders......... 32
Item 6. Exhibits and Reports on Form 8-K............................ 33
SIGNATURE............................................................ 35
</TABLE>

2
<PAGE> 3

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

VERITAS SOFTWARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 119,985 $139,086
Short-term investments.................................... 116,102 72,040
Accounts receivable, net of allowance for doubtful
accounts of $5,250 at June 30, 1999 and $2,572 at
December 31, 1998...................................... 59,487 52,697
Receivable from Seagate Software.......................... 20,975 --
Deferred income taxes..................................... 10,435 4,272
Other current assets...................................... 15,546 9,237
---------- --------
Total current assets.............................. 342,530 277,332
Long-term investments....................................... 52,234 31,925
Property and equipment, net................................. 57,750 26,518
Goodwill and other intangibles, net......................... 3,601,709 1,525
Other assets................................................ 4,185 11,817
---------- --------
Total assets...................................... $4,058,408 $349,117
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 10,211 $ 4,958
Accrued compensation and benefits......................... 20,377 11,267
Accrued acquisition and restructuring costs............... 32,039 478
Other accrued liabilities................................. 23,705 10,718
Income taxes payable...................................... 21,207 13,424
Customer advances......................................... 10,917 --
Deferred revenue.......................................... 62,749 37,645
---------- --------
Total current liabilities......................... 181,205 78,490
Convertible subordinated notes.............................. 100,000 100,000
Deferred income taxes....................................... 181,280 --
Other non-current liabilities............................... 739 773
Stockholders' equity:
Common stock.............................................. 3,774,479 199,858
Accumulated deficit....................................... (178,162) (29,416)
Deferred compensation..................................... (16) (32)
Accumulated other comprehensive income (loss)............. (1,117) (556)
---------- --------
Total stockholders' equity........................ 3,595,184 169,854
---------- --------
Total liabilities and stockholders' equity........ $4,058,408 $349,117
========== ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4

VERITAS SOFTWARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net revenue:
User license fees........................... $ 93,296 $ 38,337 $ 149,082 $ 69,026
Services.................................... 21,352 9,776 37,470 18,169
--------- -------- --------- --------
Total net revenue................... 114,648 48,113 186,552 87,195
Cost of revenue:
User license fees........................... 2,827 3,130 4,782 5,096
Services.................................... 8,254 4,792 14,781 9,292
Amortization of developed technology........ 5,006 -- 5,006 --
--------- -------- --------- --------
Total cost of revenue............... 16,087 7,922 24,569 14,388
--------- -------- --------- --------
Gross profit.................................. 98,561 40,191 161,983 72,807
Operating expenses:
Selling and marketing....................... 44,572 16,950 71,395 30,009
Research and development.................... 20,550 8,948 34,366 16,497
General and administrative.................. 7,122 2,242 10,411 4,412
Amortization of goodwill and other
intangibles.............................. 71,557 -- 71,557 --
In-process research and development......... 103,100 2,250 103,100 2,250
Acquisition and restructuring costs......... 11,000 -- 11,000 --
--------- -------- --------- --------
Total operating expenses............ 257,901 30,390 301,829 53,168
--------- -------- --------- --------
Income (loss) from operations................. (159,340) 9,801 (139,846) 19,639
Interest and other income, net................ 3,148 2,867 6,179 5,552
Interest expense.............................. (1,409) (1,429) (2,842) (2,849)
--------- -------- --------- --------
Income (loss) before income taxes............. (157,601) 11,239 (136,509) 22,342
Provision for income taxes.................... 4,728 2,698 12,237 4,746
--------- -------- --------- --------
Net income (loss)............................. $(162,329) $ 8,541 $(148,746) $ 17,596
========= ======== ========= ========
Net income (loss) per share -- basic.......... $ (1.33) $ 0.09 $ (1.36) $ 0.19
========= ======== ========= ========
Net income (loss) per share -- diluted........ $ (1.33) $ 0.08 $ (1.36) $ 0.17
========= ======== ========= ========
Number of shares used in computing per share
amounts -- basic............................ 122,430 93,724 109,108 93,293
========= ======== ========= ========
Number of shares used in computing per share
amounts -- diluted.......................... 122,430 102,709 109,108 102,302
========= ======== ========= ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5

VERITAS SOFTWARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1999 1998
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (148,746) $ 17,596
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 7,888 2,785
Amortization of goodwill and other intangibles.......... 71,557 --
Amortization of developed technology.................... 5,006 --
In-process research and development..................... 103,100 2,250
Restructuring costs..................................... 948 --
Changes in operating assets and liabilities:
Accounts receivable.................................. (4,481) (7,459)
Other receivable..................................... 1,960 --
Other assets......................................... (4,672) (3,155)
Accounts payable..................................... (629) 2,128
Accrued compensation and benefits.................... 2,356 396
Accrued acquisition and restructuring costs.......... (7,287) --
Other liabilities.................................... 490 2,700
Income taxes payable................................. 5,447 3,106
Deferred revenue..................................... 18,682 2,870
---------- ---------
Net cash provided by operating activities................... 51,619 23,217
Cash flows from investing activities:
Purchases of investments.................................. (164,926) (161,704)
Investment maturities..................................... 100,557 152,458
Purchases of property and equipment....................... (23,670) (10,005)
Cash acquired from Seagate Software....................... 1,044 --
Cash acquired from TeleBackup............................. 1,493 --
Purchase of Frontier Software Development Pvt. Ltd........ (1,325) --
Purchase of Windward Technologies, Inc.................... -- (1,250)
---------- ---------
Net cash used for investing activities...................... (86,827) (20,501)
Cash flows from financing activities:
Proceeds from issuance of common stock.................... 16,668 6,859
---------- ---------
Net cash provided by financing activities................... 16,668 6,859
Effect of exchange rate changes............................. (561) 62
---------- ---------
Net increase (decrease) in cash and cash equivalents........ (19,101) 9,637
Cash and cash equivalents at beginning of period............ 139,086 75,629
---------- ---------
Cash and cash equivalents at end of period.................. $ 119,985 $ 85,266
========== =========
Supplemental disclosures of cash flow information:
Cash paid for interest.................................... $ 2,625 $ 2,889
Cash paid for income taxes................................ $ 6,133 $ 829
Supplemental schedule of noncash investing and financing
transactions:
Issuance of common stock for business acquisitions........ $3,557,953 --
</TABLE>

See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6

VERITAS SOFTWARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, considered necessary for a fair
presentation have been included. The results for the interim periods presented
are not necessarily indicative of the results that may be expected for any
future period. The following information should be read in conjunction with the
consolidated financial statements and notes thereto included in VERITAS Software
Corporation's Annual Report on Form 10-K for the year ended December 31, 1998.

On May 28, 1999, VERITAS acquired the Network & Storage Management Group
business of Seagate Software, Inc. As part of a reorganization in connection
with that acquisition, the Company succeeded to the business formerly conducted
by VERITAS Software Corporation, which is now a wholly-owned subsidiary and is
known as VERITAS Operating Corporation.

2. STOCK SPLIT

On June 7, 1999, the Company announced a two-for-one stock split in the
form of a stock dividend which had an effective date of July 8, 1999. All share
and per share data applicable to prior periods have been restated to give
retroactive effect to the split.

3. RECLASSIFICATIONS

Certain reclassifications have been made to the 1998 Condensed Consolidated
Financial Statements to conform to the 1999 presentation.

4. NET INCOME (LOSS) PER SHARE

Basic net income and net loss per share is computed using the
weighted-average number of common shares outstanding during the period. Diluted
net income per share is computed using the weighted-average number of common
shares and dilutive potential common shares outstanding during the period.
Diluted net loss per share is computed using the weighted-average number of
common shares; however, dilutive potential common shares outstanding are not
included in the denominator as their effect would be anti-dilutive. Potential
common shares consist of employee stock options using the treasury stock method.

6
<PAGE> 7
VERITAS SOFTWARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table sets forth the computation of basic and diluted net
income and net loss per share:

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss)........................... $(162,329) $ 8,541 $(148,746) $ 17,596
========= ======== ========= ========
Denominator:
Denominator for basic net income (loss) per
share -- weighted-average shares......... 122,430 93,724 109,108 93,293
Common stock equivalents.................... -- 8,985 -- 9,009
--------- -------- --------- --------
Denominator for diluted net income (loss)
per share................................ 122,430 102,709 109,108 102,302
========= ======== ========= ========
Basic net income (loss) per share............. $ (1.33) $ 0.09 $ (1.36) $ 0.19
========= ======== ========= ========
Diluted net income (loss) per share........... $ (1.33) $ 0.08 $ (1.36) $ 0.17
========= ======== ========= ========
</TABLE>

Common stock equivalents included in the denominator for purposes of
computing diluted net income (loss) per share do not include 4,651,162 shares
issuable upon conversion of the 5.25% Convertible Subordinated Notes, as their
effect would be anti-dilutive for all periods presented.

5. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following are the components of comprehensive income (loss):

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- --------------------
1999 1998 1999 1998
--------- ------ --------- -------
<S> <C> <C> <C> <C>
Net income (loss)................................ $(162,329) $8,541 $(148,746) $17,596
Foreign currency translation adjustments......... (318) (66) (561) (149)
--------- ------ --------- -------
Comprehensive income (loss)...................... $(162,647) $8,475 $(149,307) $17,447
========= ====== ========= =======
</TABLE>

6. BUSINESS COMBINATIONS

On May 28, 1999, VERITAS acquired the Network & Storage Management Group
business of Seagate Software, Inc., which the Company refers to as "NSMG." On
June 1, 1999 VERITAS acquired TeleBackup Systems, Inc., which the Company refers
to as "TeleBackup."

The NSMG business develops and markets software products and provides
related services that enable information technology professionals to manage
distributed network resources and to secure and protect enterprise data. NSMG
products offer features such as system backup, disaster recovery, migration,
replication, automated client protection, storage resource management,
scheduling, event correlation and desktop management. In connection with the
NSMG acquisition, in consideration for the contribution or assets and
liabilities related to the NSMG business by Seagate Technology, Inc., Seagate
Software, Inc., and their respective subsidiaries, and based on the average
closing price of VERITAS common stock of $45.57 per share for 5 days before and
after June 7, 1999, the measurement date for the transaction, VERITAS issued
69,148,208 shares of its common stock to Seagate Software, Inc. and issued
options to purchase 6,945,048 shares of its common stock to VERITAS employees
who were former NSMG employees. VERITAS accounted for the NSMG acquisition using
the purchase method of accounting, and expects to incur charges of $220.8
million per quarter primarily related to the amortization of developed
technology,

7
<PAGE> 8
VERITAS SOFTWARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

goodwill and other intangibles over their estimated useful life of four years.
The total NSMG purchase price was approximately $3.5 million and included $3.2
billion for the issuance of VERITAS common stock, $269.7 million for the
issuance of options to purchase VERITAS common stock, and $31.7 million of
acquisition-related costs. In addition, the Company recorded a restructuring
charge of $11.0 million in the three months ended June 30, 1999 as a result of
the NSMG combination. This one-time restructuring charge related primarily to
exit costs with respect to duplicative facilities which VERITAS plans to vacate.
These costs are in addition to the liability for the costs to vacate duplicative
facilities of the NSMG business, which liability VERITAS assumed and included as
a part of the purchase price. Total acquisition and restructuring costs of $42.7
million, of which approximately $1.6 million will be non-cash, consist primarily
of direct transaction costs, operating lease commitments on duplicative
facilities and involuntary termination benefits. At June 30, 1999, $16.7 million
in professional fees and severance costs were paid against the acquisition and
restructuring reserve; the Company expects the remaining $26.0 million to be
utilized primarily for servicing operating lease payments or negotiated buyout
of operating lease commitments on duplicative facilities, the lease terms of
which will expire at various times through the year 2013. The purchase price was
allocated, based on an independent valuation, to goodwill of $3.0 billion,
distribution channels of $233.8 million, original equipment manufacturer
agreements of $23.4 million, developed technology of $233.7 million, assembled
workforce of $12.8 million, trademarks of $22.8 million, in-process research and
development of $101.2 million, net deferred tax liabilities of $179.5 million,
other intangibles of $1.5 million and tangible net liabilities acquired of $1.0
million. During the three months ended June 30, 1999, the Company recorded $68.7
million for amortization of goodwill and other intangibles, and $4.9 million for
amortization of developed technology related to this acquisition.

TeleBackup designs, develops and markets software solutions for local and
remote backup and recovery of electronic information stored on networked, remote
and mobile personal computers. Under a combination agreement, TeleBackup became
a wholly-owned subsidiary of VERITAS in exchange for the issuance of 3,041,242
shares of VERITAS common stock or shares exchangeable for VERITAS common stock
to the holders of TeleBackup common shares, and the grant of options to purchase
68,758 shares of VERITAS common stock to VERITAS employees who were former
employees of TeleBackup. The Company accounted for the TeleBackup acquisition
using the purchase method of accounting, and expects to incur charges of $8.9
million per quarter primarily related to the amortization of developed
technology, goodwill and other intangibles over their estimated useful life of
four years. Based on the average closing price of VERITAS common stock of $44.09
per share for 5 days before and after June 1, 1999, the measurement date for the
transaction, the total purchase price for TeleBackup was approximately $143.1
million. The TeleBackup purchase price included $134.1 million related to the
issuance of VERITAS common stock, $2.8 million for the issuance of options to
purchase VERITAS common stock and $6.2 million in acquisition-related costs. The
acquisition costs of $6.2 million consist primarily of direct transaction costs
and involuntary termination benefits. At June 30, 1999, of the total $6.2
million acquisition costs, the Company paid $0.5 million in direct transaction
costs with the majority of the remaining $5.7 million anticipated to be utilized
by December 1999. The purchase price was allocated, based on an independent
valuation, to goodwill of $131.7 million, distribution channels of $1.0 million,
original equipment manufacturer agreements of $2.1 million, developed technology
of $6.6 million, assembled workforce of $0.3 million, trademarks of $1.3
million, in-process research and development of $1.9 million, net deferred tax
liabilities of $3.0 million and tangible net assets acquired of $1.2 million.
During the three months ended June 30, 1999, the Company recorded $2.9 million
for amortization of goodwill and other intangibles, and $0.1 million for the
amortization of developed technology related to this acquisition.

8
<PAGE> 9
VERITAS SOFTWARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following unaudited pro forma summary results of operations data have
been prepared assuming that the NSMG and TeleBackup acquisitions had occurred at
the beginning of the periods presented. The consolidated results are not
necessarily indicative of results of future operations nor of results that would
have occurred had the acquisition been consummated as of the beginning of the
periods presented. The pro forma information excludes the impact of the one-time
charge related to in-process research and development costs of $103.1 million
and the restructuring charges of $11.0 million recorded in the quarter ended
June 30, 1999.

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenue................................. $ 155,738 $ 91,620 $ 290,467 $ 178,928
========= ========= ========= =========
Net loss.................................... $(186,949) $(201,709) $(376,216) $(403,690)
========= ========= ========= =========
Basic and diluted net loss per share........ $ (1.11) $ (1.22) $ (2.23) $ (2.44)
========= ========= ========= =========
</TABLE>

7. SUMMARY FINANCIAL INFORMATION OF SUBSIDIARY

VERITAS Software Corporation and its wholly-owned subsidiary VERITAS
Operating Corporation are co-obligors on VERITAS' 5.25% convertible subordinated
notes due 2004. In accordance with Staff Accounting Bulletin No. 53, Financial
Statement Requirements in Filings Involving the Guarantee of Securities by the
Parent, VERITAS provides the following unaudited summary financial information
with respect to VERITAS Operating Corporation. The following presents the
operations of, and the assets held by, the legal entity VERITAS Operating
Corporation and does not necessarily, nor is intended to, represent the
operations of VERITAS Operating Corporation had it continued as a separate
entity absent the NSMG acquisition.

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -------------------
1999 1998 1999 1998
------- ------- -------- -------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total net revenue.................................. $89,683 $48,113 $161,587 $87,195
Amortization of goodwill and other intangibles..... 2,979 -- 2,979 --
In-process research and development................ 1,900 2,250 1,900 2,250
Acquisition and restructuring costs................ 11,000 -- 11,000 --
Income from operations............................. 5,851 9,801 25,345 19,639
Net income......................................... 4,716 8,541 18,215 17,596
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $200,054 $198,842
Goodwill and other intangibles.............................. 143,232 --
Total assets................................................ 540,840 349,117
Long-term obligations....................................... 100,685 100,773
Accumulated deficit......................................... (15,267) (29,416)
Stockholders' equity........................................ 342,869 169,854
</TABLE>

9
<PAGE> 10
VERITAS SOFTWARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

8. SEGMENT INFORMATION

VERITAS continues to operate in one segment, storage management solutions.
The Company's products and services are sold throughout the world, through
direct, original equipment manufacturer, other reseller and distributor
channels. The Company's chief operating decision maker, the chief executive
officer, evaluates the performance of the Company based upon stand-alone
software product and service revenue by product channels and revenues by
geographic regions of the segment and does not receive separate, discrete
financial information about asset allocation, expense allocation or
profitability from the Company's storage products or services. The recent
acquisitions of NSMG and TeleBackup did not create a new segment, as the Company
is integrating the business and products of NSMG and TeleBackup with those of
VERITAS and the financial information related to the NSMG business and products
is not evaluated separately.

Geographic information:

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- ------- -------- -------
<S> <C> <C> <C> <C>
User license fees(1):
United States..................................... $ 71,528 $27,992 $114,756 $50,439
Europe(2)......................................... 15,750 7,137 24,667 12,553
Other(3).......................................... 6,018 3,208 9,659 6,034
-------- ------- -------- -------
Total................................... 93,296 38,337 149,082 69,026
-------- ------- -------- -------
Services(1):
United States..................................... 16,726 7,841 29,304 14,447
Europe(2)......................................... 3,527 1,837 6,206 3,500
Other(3).......................................... 1,099 98 1,960 222
-------- ------- -------- -------
Total................................... 21,352 9,776 37,470 18,169
-------- ------- -------- -------
Total net revenue....................... $114,648 $48,113 $186,552 $87,195
======== ======= ======== =======
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
Long-lived assets(4):
United States........................................ $3,648,336 $25,202
Europe(2)............................................ 9,937 3,644
Other(3)............................................. 3,649 380
---------- -------
Total...................................... $3,661,922 $29,226
========== =======
</TABLE>

- ---------------
(1) License and services revenues are attributed to geographic regions based on
location of customers.

(2) Europe includes the Middle East and Africa.

(3) Other consists of Canada, Latin America, Japan and the Asia Pacific region.

(4) Long-lived assets include all long-term assets except those specifically
excluded under SFAS No. 131, such as deferred income taxes and long-term
investments. Reconciliation to total assets reported:

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
Total long-lived assets............................ $3,661,922 $ 29,226
Other assets, including current.................... 396,486 319,891
---------- --------
Total consolidated assets................ $4,058,408 $349,117
========== ========
</TABLE>

10
<PAGE> 11
VERITAS SOFTWARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Sales to one customer accounted for approximately $12.6 million, or 11%, of
the Company's net revenues in the three months ended June 30, 1999 and $21.5
million, or 12% in the six months ended June 30, 1999.

9. FACILITIES LEASE COMMITMENT

During the quarter ended June 30, 1999, the Company signed a lease for new
corporate campus facilities in Mountain View, California. This facility will
replace the facilities the Company currently leases in Mountain View. The campus
facilities will be developed in two phases. The first phase is for 175,000
square feet. The second phase will add 250,000 square feet subject to certain
entitlements required from the City of Mountain View. The campus facilities will
provide space for sales, marketing, administration and research and development
functions. The lease term for the first phase facilities is five years beginning
in April 1999, with an option to extend the lease term for two successive
periods of one year each. The Company has an option to purchase the property
(land and facilities) for $72.0 million, or at the end of the lease to arrange
for the sale of the property, with VERITAS retaining an obligation to the owner
for the difference between the sales price and the $72.0 million if the sales
price is less than this amount, subject to certain provisions of the lease. The
Company anticipates that construction of the first phase facilities will begin
in the first quarter of 2000, and that the Company will occupy the facilities in
the second quarter of 2001. Lease payments on the first phase facilities will
begin in the second quarter of 2001. The lease requires VERITAS to maintain
specified financial covenants such as leverage ratio, quick ratio and earnings
before interest, taxes, depreciation and amortization, all of which the Company
was in compliance with as of June 30, 1999.

10. SUBSEQUENT EVENT

In August 1999, VERITAS and its wholly-owned subsidiary VERITAS Operating
Corporation issued $405.0 million aggregate principal amount at maturity of
1.856% convertible subordinated notes due 2006 (the "1.856% notes") for which
VERITAS received net proceeds of approximately $291.0 million. The underwriters
have exercised their option to purchase an additional $60.8 million aggregate
principal amount at maturity of the 1.856% notes for which VERITAS expects to
receive net proceeds of approximately $43.9 million. VERITAS and VERITAS
Operating Corporation are co-obligors on the 1.856% notes. The 1.856% notes
provide for semi-annual interest payments each February 13 and August 13,
commencing February 13, 2000. The 1.856% notes are convertible into shares of
VERITAS common stock at any time prior to the close of business on the maturity
date, unless previously redeemed or repurchased, at a conversion price of $59.78
per share, subject to adjustment in certain events, equivalent to an initial
conversion rate of 12.415 shares of common stock per $1,000 principal amount at
maturity. On or after August 16, 2002, the 1.856% notes will be redeemable over
the period of time until maturity at the option of VERITAS at issuance price
plus accrued original issue discount and any accrued interest. If a fundamental
change, as defined in the Amended and Restated First Supplemental Indenture
dated July 30, 1999, occurs prior to August 13, 2006, each holder has the right
to require VERITAS to redeem all or part of the 1.856% notes at issuance price
plus accrued original discount and any accrued interest. The debt issuance costs
are being amortized over the term of the 1.856% notes using the interest method.

11
<PAGE> 12

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

The following discussion should be read in conjunction with our financial
statements and accompanying notes, which appear elsewhere in this Quarterly
Report on Form 10-Q. The following discussion contains forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934 and Section 27A of the Securities Act of 1933, that involve risks and
uncertainties. These forward-looking statements include statements that reflect
our plans, estimates and beliefs, based on information available to us at the
time of this report. We assume no obligation to update any such forward-looking
statements. Actual results could differ materially from those anticipated in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those detailed from time to time in
our filings with the Securities and Exchange Commission and those discussed
below and elsewhere in this Form 10-Q, particularly in "Factors That May Affect
Future Results."

Unless expressly stated or the content otherwise requires, the terms "we",
"our", "us", "the Company" and "VERITAS" refer to VERITAS Software Corporation
and its subsidiaries.

OVERVIEW

VERITAS is the leading independent supplier of enterprise data storage
management solutions, providing advanced storage management software for open
system environments. Our products provide performance improvement and
reliability enhancement features that are critical for many commercial
applications. These products enable protection against data loss and file
corruption, rapid recovery after disk or system failure, and the ability to
process large files efficiently and the ability to manage and back up data
distributed on large networks of systems without interrupting users. In
addition, our products provide an automated fail over between computer systems
organized in clusters sharing disk resources. Our highly scalable products can
be used independently, and certain products can be combined to provide
interoperable client/server storage management solutions. Some of our products
offer centralized administration with a high degree of automation, enabling
customers to manage complex, distributed environments cost-effectively by
increasing system administrator productivity and system availability. We also
provide a comprehensive range of services to assist customers in planning and
implementing storage management solutions. We market our products and associated
services to original equipment manufacturers and end-user customers through a
combination of direct sales and indirect sales channels such as resellers,
value-added resellers, hardware distributors, application software vendors and
systems integrators.

We derive our user license fee revenue from shipments of our software
programs to end-user customers through direct sales channels, indirect sales
channels and original equipment manufacturer customers. Our original equipment
manufacturer customers either bundle VERITAS products with the original
equipment manufacturer products licensed by such original equipment
manufacturers or offer them as options. Certain original equipment manufacturers
may also resell VERITAS' products. VERITAS receives a user license fee each time
the original equipment manufacturer licenses a copy of the original equipment
manufacturer's products to a customer that incorporates one or more of VERITAS'
products. Our license agreements with its original equipment manufacturer
customers generally contain no minimum sales requirements and there can be no
assurance that any original equipment manufacturer will either commence or
continue shipping operating systems incorporating our products in the future.
Moreover, following the execution of new agreements between VERITAS and original
equipment manufacturer customers and resellers, a significant period of time may
elapse before any revenues to VERITAS are generated due to the development work
which VERITAS must generally undertake under such agreements and the time needed
for the sales and marketing organizations within such customers and distributors
to become familiar with and gain confidence in our products.

Our services revenue consists of fees derived from annual maintenance
agreements, from consulting and training services and from porting fees. The
original equipment manufacturer maintenance agreements covering our products
provide for technical and emergency support and minor unspecified product
upgrades for a fixed annual fee. The maintenance agreements covering products
that are licensed through channels other than through original equipment
manufacturer channels provide for technical support and unspecified

12
<PAGE> 13

product upgrades for an annual service fee based on the number of user licenses
purchased and the level of service subscribed. Porting fees consist of fees
derived from porting and other non-recurring engineering efforts when VERITAS
ports, or adapts, its storage management products to an original equipment
manufacturer's operating system and when VERITAS develops certain new product
features or extensions of existing product features at the request of a
customer. In most cases, VERITAS retains the rights to technology derived from
porting and non-recurring engineering work for licensing to other customers and
therefore generally does such work on a relatively low, and sometimes negative,
margin.

We have made, and intend to continue to make, substantial investments in
porting our products to new operating systems, including Windows NT. The success
of the Windows NT product development may depend on receipt of development
funding from third parties, including Microsoft, and failure to receive such
funding could hamper our efforts to extend our products into the Windows NT
market. The porting and development process requires substantial capital
investment and the devotion of substantial employee resources to such effort and
the added focus on Windows NT development has required, and will continue to
require, us to hire additional personnel. Under an agreement with Microsoft, we
have committed to develop a functional subset of our Volume Manager product that
will be ported to and embedded in Windows NT. The agreement also requires us to
develop a disk management graphical user interface designed specifically for
Windows NT. Microsoft has provided us with significant funding towards such
development effort. We recognize revenue under its development contract with
Microsoft on a percentage-of-completion basis consistent with our policy for
revenue recognition for other similar agreements. The payment terms in the
Microsoft agreement do not directly correlate to the timing of development
efforts and therefore revenue recognition does not directly correlate to
contract billings. The Microsoft agreement requires us to expand our marketing
and sales operations to deal with higher volume markets in which we have limited
experience. See "Factors That May Affect Future Results -- We face uncertainties
porting products to new operating systems and developing new products" and
"-- We distribute products through multiple distribution channels, each of which
is subject to risks."

Our international sales are generated primarily through its international
sales subsidiaries. International revenue outside the United States, most of
which is collectible in foreign currencies, accounted for 23% of total revenue
for the six months ended June 30, 1999 and 26% of the Company's total revenue
for the six months ended June 30, 1998. Our international revenue increased 91%
from $22.3 million for the six months ended June 30, 1998 to $42.5 million for
the six months ended June 30, 1999. Since much of our international operating
expenses are also incurred in local currencies, the relative impact of exchange
rates on net income or loss is relatively less than the impact on revenues.
Although our operating and pricing strategies take into account changes in
exchange rates over time, our operating results may be significantly affected in
the short term by fluctuations in foreign currency exchange rates. Our
international subsidiaries purchase licenses from the parent company resulting
in intercompany receivables and payables. These receivables and payables are
carried on each company's books at the local currency that existed at the time
of the transaction. Such receivables and payables are eliminated for financial
statement reporting purposes. Prior to elimination, the amounts carried in
foreign currencies are converted to U.S. Dollars at the then current rate, or
"marked to market." The marked to market process may give rise to currency gains
and losses. Such gains or losses are recognized on our statement of operations
as a component of other income, net. To date, such gains or losses have not been
material.

VERITAS believes that its success depends upon continued expansion of its
international operations. VERITAS currently has sales and service offices in the
United States, Canada, Japan, the United Kingdom, Germany, France, Sweden,
Switzerland and the Netherlands, a development center in India, and resellers
located in North America, Europe, Asia Pacific, South America and the Middle
East. International expansion may require VERITAS to establish additional
foreign offices, hire additional personnel and recruit additional international
resellers, resulting in the diversion of significant management attention and
the expenditure of financial resources. To the extent that VERITAS is unable to
effect these additions efficiently, growth in international sales will be
limited, which would have a material adverse effect on VERITAS' business,
operating results and financial condition. International operations also subject
VERITAS' to a number of risks inherent in developing and selling products
outside the United States, including potential loss of developed

13
<PAGE> 14

technology, limited protection of intellectual property rights, imposition of
government regulation, imposition of export duties and restrictions, cultural
differences in the conduct of business, and political and economic instability.
Furthermore, certain global markets, including Asia, Russia and Latin America,
are currently undergoing significant economic turmoil which could result in
deferral of purchase of information technology products and services by
potential customers located in such markets, thereby further limiting VERITAS'
ability to expand international operations. See "Factors That May Affect Future
Results -- Expanding our international sales depends on economic stability in
regions that recently have been unstable."

On May 28, 1999, VERITAS acquired the Network & Storage Management Group
business of Seagate Software, Inc., which we refer to as "NSMG." On June 1, 1999
VERITAS acquired TeleBackup Systems, Inc., which we refer to as "TeleBackup."

The NSMG business develops and markets software products and provides
related services enabling information technology professionals to manage
distributed network resources and to secure and protect enterprise data. Its
products offer features such as system backup, disaster recovery, migration,
replication, automated client protection, storage resource management,
scheduling, event correlation and desktop management. In connection with the
NSMG acquisition, in consideration for the contribution assets and liabilities
related to the NSMG business by Seagate Technology, Inc., Seagate Software,
Inc., and their respective subsidiaries, and based on the average closing price
of our common stock of $45.57 per share for 5 days before and after June 7,
1999, the measurement date for the transaction, we issued 69,148,208 shares of
our common stock to Seagate Software, Inc. and issued options to purchase
6,945,048 shares of our common stock to our employees who were former NSMG
employees. We accounted for the NSMG acquisition using the purchase method of
accounting, and expect to incur charges of $220.8 million per quarter primarily
related to the amortization of developed technology, goodwill and other
intangibles over their estimated useful life of four years. The total NSMG
purchase price was approximately $3.5 billion and included $3.2 billion for the
issuance of our common stock, $269.7 million for the issuance of options to
purchase our common stock and $31.7 million of acquisition-related costs. In
addition, we recorded a restructuring charge of $11.0 million in the three
months ended June 30, 1999 as a result of the NSMG combination. This one-time
restructuring charge related primarily to exit costs with respect to duplicative
facilities which we plan to vacate. These costs are in addition to the liability
for the costs to vacate duplicative facilities of the NSMG business, which
liability we assumed and included as a part of the purchase price. Total
acquisition and restructuring costs of $42.7 million consist primarily of direct
transaction costs, operating lease commitments on duplicative facilities and
involuntary termination benefits of which approximately $1.6 million will be
non-cash. At June 30, 1999, $16.7 million in professional fees and severance
costs were paid against the acquisition and restructuring reserve with the
remaining $26.0 million anticipated to be utilized primarily for servicing
operating lease payments or negotiated buyout of operating lease commitments,
the lease terms of which will expire at various times through the year 2013. The
purchase price was allocated, based on an independent valuation to goodwill of
$3.0 billion, distribution channels of $233.8 million, original equipment
manufacturer agreements of $23.4 million, developed technology of $233.7
million, assembled workforce of $12.8 million, trademarks of $22.8 million,
in-process research and development of $101.2 million, net deferred tax
liabilities of $179.5 million, other intangibles of $1.5 million and tangible
net liabilities acquired of $1.0 million. During the three months ended June 30,
1999, we recorded $68.7 million for the amortization of goodwill and other
intangibles, and $4.9 million for the amortization of developed technology
related to this acquisition.

14
<PAGE> 15

lion. The TeleBackup purchase price included $134.1 million related to the
issuance of our common stock, $2.8 million for the issuance of options to
purchase our common stock and $6.2 million in acquisition-related costs. The
acquisition costs of $6.2 million consist primarily of direct transaction costs
and involuntary termination benefits. At June 30, 1999, of the total $6.2
million acquisition costs, we paid $0.5 million in direct transaction costs with
the majority of the remaining $5.7 million anticipated to be utilized by
December 1999. The purchase price was allocated, based on an independent
valuation, to goodwill of $131.7 million, distribution channels of $1.0 million,
original equipment manufacturer agreements of $2.1 million, developed technology
of $6.6 million, assembled workforce of $0.3 million, trademarks of $1.3
million, in-process research and development of $1.9 million, net deferred tax
liabilities of $3.0 million and tangible net assets acquired of $1.2 million.
During the three months ended June 30, 1999, we recorded $2.9 million for
amortization of goodwill and other intangibles, and $0.1 million for
amortization of developed technology related to this acquisition.

RESULTS OF OPERATIONS

The following tables sets forth the percentage of total net revenue
represented by certain line items from our condensed consolidated statement of
operations for the three months and six months ended June 30, 1999 and 1998,
respectively, and the percentage changes between the comparable periods
including one month results of NSMG and TeleBackup since the date of
acquisition:

<TABLE>
<CAPTION>
PERCENTAGE OF PERIOD-TO-PERIOD
TOTAL NET REVENUE PERCENTAGE CHANGE
------------------- ------------------
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30, 1999
------------------- ------------------
1999 1998 COMPARED TO 1998
------ ----- ----------------
<S> <C> <C> <C>
Net revenue:
User license fees..................................... 81% 80% 143%
Services.............................................. 19 20 118%
---- ---
Total net revenue................................ 100 100 138%
Cost of revenue:
User license fees..................................... 3 6 (10)%
Services.............................................. 7 10 72%
Amortization of developed technology.................. 4 -- n/m
---- ---
Total cost of revenue............................ 14 16 103%
---- ---
Gross profit............................................ 86 84 145%
Operating expenses:
Selling and marketing................................. 39 35 163%
Research and development.............................. 18 19 130%
General and administrative............................ 6 5 218%
Amortization of goodwill and other intangibles........ 62 -- n/m
In-process research and development................... 90 5 4,482%
Acquisition and restructuring costs................... 10 -- n/m
---- ---
Total operating expenses......................... 225 64 749%
---- ---
Income (loss) from operations........................... (139) 20
Interest and other income, net.......................... 3 6
Interest expense........................................ (1) (3)
---- ---
Income (loss) before income taxes....................... (137) 23
Provision for income taxes.............................. (4) (5)
---- ---
Net income (loss)....................................... (141)% 18%
==== ===
</TABLE>

- ---------------
n/m = not meaningful

15
<PAGE> 16

<TABLE>
<CAPTION>
PERCENTAGE OF PERIOD-TO-PERIOD
TOTAL NET REVENUE PERCENTAGE CHANGE
----------------- -----------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, 1999
------------------ -----------------
1999 1998 COMPARED TO 1998
----- ----- -----------------
<S> <C> <C> <C>
Net revenue:
User license fees....................................... 80% 79% 116%
Services................................................ 20 21 106%
--- ---
Total net revenue............................... 100 100 114%
Cost of revenue:
User license fees....................................... 2 6 (6)%
Services................................................ 8 11 59%
Amortization of developed technology.................... 3 -- n/m
--- ---
Total cost of revenue........................... 13 17 71%
--- ---
Gross profit.............................................. 87 83 122%
Operating expenses:
Selling and marketing................................... 38 34 138%
Research and development................................ 18 19 108%
General and administrative.............................. 6 5 136%
Amortization of goodwill and other intangibles.......... 38 -- n/m
In-process research and development..................... 55 2 4,482%
Acquisition and restructuring costs..................... 6 -- n/m
--- ---
Total operating expenses........................ 161 60 468%
--- ---
Income (loss) from operations............................. (74) 23
Interest and other income, net............................ 3 6
Interest expense.......................................... (2) (3)
--- ---
Income (loss) before income taxes......................... (73) 26
Provision for income taxes................................ (7) (6)
--- ---
Net income (loss)......................................... (80)% 20%
=== ===
</TABLE>

- ---------------
n/m = not meaningful

Net Revenue. Total net revenue increased 138% from $48.1 million for the
three months ended June 30, 1998 to $114.6 million for the three months ended
June 30, 1999, and increased 114% from $87.2 million for the six months ended
June 30, 1998 to $186.6 million for the six months ended June 30, 1999. VERITAS
believes that the percentage increases in total revenue achieved in these period
are not necessarily indicative of future results. VERITAS' revenue is comprised
of user license fees and service revenue. Growth in user license fees has been
driven primarily by increasing market acceptance of VERITAS' products,
introduction of new products, a larger percentage of total license revenue
generated through the direct sales channel and the acquisition of NSMG in the
second quarter of 1999. Service revenue is derived primarily from contracts for
software maintenance and technical support and, to a lesser extent, consulting
services, training services and porting fees. The growth in service revenue has
been driven primarily by increased sales of service and support contracts on new
license sales and, to a lesser extent, by increasing renewals of these contracts
by VERITAS' installed base of licensees. VERITAS also experienced an increase in
demand for consulting and training services. Porting fees are derived from
VERITAS' funded development efforts that are typically associated with VERITAS'
agreements with original equipment manufacturers. User license fees were 81% of
total net revenue for the three months ended June 30, 1999, and 80% of total net
revenue for the three months ended June 30, 1998. User license fees were 80% of
total net revenue for the six months ended June 30, 1999, and 79% of total net
revenue for the six months ended June 30, 1998.

User License Fees. User license fees increased 143% from $38.3 million for
the three months ended June 30, 1998 to $93.3 million for the three months ended
June 30, 1999, and increased 116% from $69.0

16
<PAGE> 17

million for the six months ended June 30, 1998 to $149.1 million for the six
months ended June 30, 1999. The increases were primarily the result of continued
growth in market acceptance of VERITAS' software products, a greater volume of
large end-user transactions, increased revenue from original equipment
manufacturer resales of bundled and unbundled VERITAS products, the introduction
of new products and the acquisition of NSMG. In particular, VERITAS' user
license fees from storage products increased by approximately 110% for the six
months ended June 30, 1999 as compared to the six months ended June 30, 1998,
and accounted for 84% of user license fees in the six months ended June 30, 1999
and 86% of user license fees in the six months ended June 30, 1998.

Service Revenue. Service revenue increased 118% from $9.8 million for the
three months ended June 30, 1998 to $21.4 million for the three months ended
June 30, 1999, and increased 106% from $18.2 million for the six months ended
June 30, 1998 to $37.5 million for the six months ended June 30, 1999. The
increases were primarily due to increased sales of service and support contracts
on new licenses, renewal of service and support contracts on existing licenses
and, to a lesser extent, an increase in demand for consulting and training
services and the acquisition of NSMG.

Cost of Revenue. Cost of user license fees consists primarily of royalties,
media, manuals and distribution costs. Cost of service revenue consists
primarily of personnel-related costs in providing maintenance, technical
support, consulting and training to customers, and development efforts in
porting. Also included in the cost of revenue is the amortization of developed
technology. Gross margin on user license fees is substantially higher than gross
margin on service revenue, reflecting the low materials, packaging and other
costs of software products compared with the relatively high personnel costs
associated with providing maintenance, technical support, consulting, training
services and development efforts. Cost of service revenue also varies based upon
the mix of maintenance, technical support, consulting and training services.

Cost of User License Fees (including amortization of developed
technology). Cost of user license fees increased 150% from $3.1 million for the
three months ended June 30, 1998 to $7.8 million for the three months ended June
30, 1999 and increased 92% from $5.1 million for the six months ended June 30,
1998 to $9.8 million for the six months ended June 30, 1999. The increase in
cost of user license fees is due to the amortization of developed technology
acquired in the NSMG and TeleBackup acquisitions. Gross margin on user license
fees remained consistent at 92% for the three months ended June 30, 1998 and for
the three months ended June 30, 1999. Gross margin also remained consistent at
93% for the six months ended June 30, 1998 and for the six months ended June 30,
1999. The gross margin on user license fees may vary from period to period based
on the license revenue mix and certain products having higher royalty rates than
other products. VERITAS does not expect gross margin on user license fees to
increase.

Cost of Service Revenue. Cost of service revenue increased 72% from $4.8
million for the three months ended June 30, 1998 to $8.3 million for the three
months ended June 30, 1999, and increased 59% from $9.3 million for the six
months ended June 30, 1998 to $14.8 million for the six months ended June 30,
1999. Gross margin on service revenue increased from 51% for the three months
ended June 30, 1998 to 61% for the three months ended June 30, 1999, and
increased from 49% for the six months ended June 30, 1998 to 61% for the six
months ended June 30, 1999. The increases in absolute dollars were primarily due
to personnel additions in customer support and training and consulting
organizations, in anticipation of increased demand for such services. The
improvement in gross margins in the three months and six months ended June 30,
1999 compared to the three months and six months ended June 30, 1998 was a
result of increased productivity and higher service revenue growth due to a
larger installed customer base paying support fees.

Amortization of Developed Technology. Amortization of developed technology
was $5.0 million for the three and six months ended June 30, 1999. The amount
represents one month of amortization of the developed technology recorded upon
acquisitions of NSMG and TeleBackup. The useful life of the developed technology
acquired in the NSMG and TeleBackup acquisitions is four years and is expected
to be approximately $15.0 million per quarter.

Operating Expenses. The NSMG and the TeleBackup acquisitions have
contributed to increases in all operating expense categories. However, due to
the integration that has taken place to date, it is not possible to reasonably
quantify the portion of the increase which is directly related to these
acquisitions.
17
<PAGE> 18

Selling and Marketing. Selling and marketing expenses consist primarily of
salaries, related benefits, commissions, consultant fees and other costs
associated with VERITAS' sales and marketing efforts. Selling and marketing
expenses increased 163% from $17.0 million for the three months ended June 30,
1998 to $44.6 million for the three months ended June 30, 1999, and increased
138% from $30.0 million for the six months ended June 30, 1998 to $71.4 million
for the six months ended June 30, 1999. Selling and marketing expenses as a
percentage of total net revenue increased from 35% for the three months ended
June 30, 1998 to 39% for the three months ended June 30, 1999, and increased
from 34% for the six months ended June 30, 1998 to 38% for the six months ended
June 30, 1999. The increases were primarily the result of higher personnel and
related costs associated with increased staffing resulting from new hires and
the acquisitions. VERITAS intends to continue to expand its global sales and
marketing infrastructure, and accordingly, VERITAS expects its selling and
marketing expenses to increase in absolute dollars but not to change
significantly as a percentage of revenue in the future.

Research and Development. Research and development expenses consist
primarily of salaries, related benefits, third-party consultant fees and other
engineering related costs. Research and development expenses increased 130% from
$8.9 million for the three months ended June 30, 1998 to $20.6 million for the
three months ended June 30, 1999, and increased 108% from $16.5 million for the
six months ended June 30, 1998 to $34.4 million for the six months ended June
30, 1999. The increases were due primarily to increased staffing levels
associated with new hires and the acquisitions. As a percentage of total net
revenue, research and development expenses decreased from 19% for the three and
six months ended June 30, 1998 to 18% for the three and six months ended June
30, 1999. VERITAS believes that a significant level of research and development
investment is required to remain competitive, and expects such expenses will
continue to increase in absolute dollars in future periods, although such
expenses may decline slightly as a percentage of total net revenue to the extent
revenue increases. Research and development expenses can be expected to
fluctuate from time to time to the extent that VERITAS makes periodic
incremental investments in research and development and VERITAS' level of
revenue fluctuates.

General and Administrative. General and administrative expenses consist
primarily of salaries, related benefits and fees for professional services, such
as legal and accounting services. General and administrative expenses increased
218% from $2.2 million for the three months ended June 30, 1998 to $7.1 million
for the three months ended June 30, 1999, and increased 136% from $4.4 million
for the six months ended June 30, 1998 to $10.4 for the six months ended June
30, 1999. General and administrative expenses as a percentage of revenue
increased from 5% for the three and six months ended June 30, 1998 to 6% for the
three and six months ended June 30, 1999. The increase in absolute dollars was
primarily due to additional personnel costs, including additional personnel
related to the acquisitions in the second quarter of 1999, an increase in the
provision for the allowance for doubtful accounts and other expenses associated
with VERITAS enhancing its infrastructure to support expansion of its
operations. General and administrative expenses are expected to increase in
absolute dollars, but not to change significantly as a percentage of revenue in
the future, as VERITAS expands its operations.

Amortization of Goodwill and Other Intangibles. Amortization of goodwill
and other intangibles was $71.6 million for the three and six months ended June
30, 1999. This amount represents one month of amortization of goodwill, acquired
distribution channels, trademarks and other intangible assets recorded upon
acquisitions of NSMG and TeleBackup. The estimated useful life of the goodwill
and other intangibles is four years and the amortization is expected to be
approximately $214.7 million per quarter.

In-process Research and Development. Upon the acquisitions of NSMG and
TeleBackup in 1999, we recorded one-time charges to in-process research and
development $103.1 million in the second quarter of 1999.

Acquisition and Restructuring Costs. Upon the acquisition of NSMG, we
recorded a one-time charge to acquisition and restructuring costs of $11.0
million, which included approximately $9.7 million in exit costs with respect to
duplicative facilities which we plan to vacate and approximately $1.3 million in
severance benefits.

18
<PAGE> 19

Acquisition and restructuring costs are summarized below:

<TABLE>
<CAPTION>
CASH
PAYMENTS
PROVISION FROM ACCRUED
RECORDED AT ACQUISITION AS OF
ACQUISITION TO JUNE 30, JUNE 30,
DATE 1999 1999
----------- ----------- --------
<S> <C> <C> <C>
Cancellation of facility leases and other contracts...... $ 8,717 $ -- $ 8,717
Involuntary termination benefits......................... 1,335 (444) 891
Write off of redundant equipment and leasehold
improvements........................................... 948 -- 948
------- ----- -------
$11,000 $(444) $10,556
======= ===== =======
</TABLE>

Of the remaining balance, $8.7 million relates to servicing operating lease
payments or negotiated buyout of operating lease commitments on duplicative
facilities, the lease terms of which will expire at various times through the
year 2012. The remaining $1.8 million is expected to be utilized by December
1999. Non-cash restructuring charges of approximately $0.9 million relate to
leasehold improvements and excess equipment.

Interest and Other Income, Net. Interest and other income, net increased
10% from $2.9 million for the three months ended June 30, 1998 to $3.1 million
for the three months ended June 30, 1999, and increased 11% from $5.6 million
for the six months ended June 30, 1998 to $6.2 for the six months ended June 30,
1999. The increases were due primarily to increased amounts of interest income
attributable to the higher level of funds available for investment. Foreign
exchange transaction gains and losses which are included in other income, net,
have not had a material effect on VERITAS' results of operations.

Interest Expense. Interest expense remained consistent at $1.4 million for
the three months ended June 30, 1998 and 1999, and remained consistent at $2.8
million for the six months ended June 30, 1998 and 1999. Interest expense
consists primarily of interest accrued under the convertible subordinated notes
issued by VERITAS in October 1997.

Income Taxes. VERITAS had effective tax rates of (3%) and (9%) for the
three and six months ended June 30, 1999, respectively, compared to tax
provisions of 24% and 21% for the three and six months ended June 30, 1998.
VERITAS' effective tax rate for the six months ended June 30, 1999 was negative
and differed from the combined federal and state statutory rates primarily due
to acquisition related charges that were non-deductible for tax purposes.
VERITAS' 1998 effective tax rate is lower than the combined federal and state
statutory rates primarily due to the utilization of federal net operating loss
carryforwards and other credit carryforwards, offset by the impact of state and
foreign taxes.

The realization of VERITAS' net deferred tax assets is dependent on
generating sufficient taxable income in future periods. Although realization is
not assured, management believes it is more likely than not that the net
deferred tax assets will be realized. The amount of the net deferred tax assets
considered realizable, however, could be reduced or increased in the near term
if estimates of future taxable income are changed. Management intends to
evaluate the realizability of the net deferred tax assets on a quarterly basis
to assess the need for the valuation allowance.

New Accounting Pronouncements. In March 1998, the American Institute of
Certified Public Accountants, or AICPA, issued Statement of Position, or SOP,
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. SOP 98-1 requires that entities capitalize certain costs related
to internal-use software once certain criteria have been met. VERITAS has
implemented SOP 98-1 for its fiscal year ending December 31, 1999 and the impact
of SOP 98-1 on VERITAS' financial position, results of operations and cash flows
has not been material.

In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions. SOP 98-9
amends SOP 97-2 Software Revenue Recognition to require recognition of revenue
using the "residual method" when certain criteria are met. VERITAS will be
required to implement these provisions of SOP 98-9 for its fiscal year ending
December 31, 2000. SOP

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<PAGE> 20

98-9 also amends SOP 98-4, an earlier amendment to SOP 97-2, which extended the
deferral of the application of certain passages of SOP 97-2 provided by SOP
98-4. VERITAS does not believe the impact of SOP 98-9 will be material to
VERITAS' financial position, results of operations and cash flows.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative
Instruments and Hedging Activities). SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. VERITAS will be
required to implement SFAS No. 133 for its fiscal year ending December 31, 2001.
VERITAS' foreign currency exchange rate hedging activities have been
insignificant to date and VERITAS does not believe that the impact of SFAS No.
133 will be material to its financial position, results of operations or cash
flows.

LIQUIDITY AND CAPITAL RESOURCES

VERITAS' cash, cash equivalents and short-term investments totaled $236.1
million at June 30, 1999 and represented 5.8% of total assets. Cash and cash
equivalents are highly liquid with original maturities of ninety days or less.
Short-term investments consist mainly of investment grade commercial paper,
market auction preferreds and other medium-term notes. At June 30, 1999, VERITAS
had $100.0 million of long-term obligations and stockholders' equity was
approximately $3.6 billion.

Net cash provided by operating activities was $51.6 million in the six
months ended June 30, 1999, and $23.2 million in the six months ended June 30,
1998. For the six months ended June 30, 1999, cash provided by operating
activities resulted primarily from income after adjustments to exclude the
non-cash charges including amortization of intangibles related to acquisition
activities, an increase in deferred revenue. For the six months ended June 30,
1998, cash provided by operating activities resulted primarily from net income,
increases in accounts payable, accrued liabilities and deferred revenue balances
and reductions in prepaid expenses and accounts receivable.

VERITAS' investing activities used cash of $86.8 million in the six months
ended June 30, 1999 primarily due to the net increase in short-term and
long-term investments of $64.4 million, capital expenditures of $23.7 million
and acquisition-related costs of $1.3 million partially offset by cash acquired
from NSMG and TeleBackup of $2.5 million. VERITAS' investing activities used
cash of $20.5 million in the six months ended June 30, 1998 due primarily to the
net increase in short-term investments of $9.2 million and capital expenditures
of $10.0 million.

Financing activities provided cash of $16.7 million in the six months ended
June 30, 1999, and $6.9 million in the six months ended June 30, 1998 from the
issuance of common stock under VERITAS' employee stock plans.

In October 1997, VERITAS issued $100.0 million of 5.25% convertible
subordinated notes due 2004 (the "5.25% notes"), for which VERITAS received net
proceeds of $97.5 million. VERITAS and its a wholly-owned subsidiary VERITAS
Operating Corporation are co-obligors on the 5.25% notes. The 5.25% notes
provide for semi-annual interest payments of $2.6 million each May 1 and
November 1. The 5.25% notes are convertible into shares of VERITAS' common stock
at any time prior to the close of business on the maturity date, unless
previously redeemed or repurchased, at a conversion price of $21.50 per share,
subject to adjustment in certain events. On or after November 5, 2002, the 5.25%
notes will be redeemable over the period of time until maturity at the option of
VERITAS at declining premiums to par. The debt issuance costs are being
amortized over the term of the 5.25% notes using the interest method. The
issuance of the 5.25% notes resulted in a ratio of long-term debt to total
capitalization of approximately 3% at June 30, 1999.

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<PAGE> 21

provide for semi-annual interest payments of $4.3 million each February 13 and
August 13, commencing February 13, 2000. The 1.856% notes are convertible into
shares of VERITAS common stock at any time prior to the close of business on the
maturity date, unless previously redeemed or repurchased, at a conversion price
of $59.78 per share, subject to adjustment in certain events, equivalent to an
initial conversion rate of 12.415 shares of common stock per $1,000 principal
amount at maturity. On or after August 16, 2002, the 1.856% notes will be
redeemable over the period of time until maturity at the option of VERITAS at
issuance price plus accrued original issue discount and any accrued interest. If
a fundamental change, as defined in the Amended and Restated First Supplemental
Indenture dated July 30, 1999 (see Exhibit 4.02), occurs prior to August 13,
2006, each holder has the right to require VERITAS to redeem all or part of the
1.856% notes at issuance price plus accrued original issue discount and any
accrued interest. The debt issuance costs are being amortized over the term of
the 1.856% notes using the interest method. We expect to use the net proceeds
from these 1.856% notes issuance for general corporate purposes, including
working capital expenditures and possible acquisitions of companies or
technology, although there are no current agreements or negotiations with
respect to any material acquisitions. Pending these uses, we intend to invest
the net proceeds in short-term interest-bearing, investment grade securities.

Following the issuance of the 1.856% notes, we will have a ratio of
long-term debt to total capitalization at June 30, 1999 of approximately 11%. As
a result of this additional indebtedness, our principal and interest payment
obligations will increase substantially. The degree to which we will be
leveraged could materially and adversely affect our ability to obtain financing
for working capital, acquisitions or other purposes and could make us more
vulnerable to industry downturns and competitive pressures. We will require
substantial amounts of cash to fund scheduled payments of principal and interest
on our indebtedness, including the notes, future capital expenditures and any
increased working capital requirements. If we are unable to meet our cash
requirements out of cash flow from operations, we cannot assure you that we will
be able to obtain alternative financing.

During the quarter ended June 30, 1999, VERITAS signed a lease for new
corporate campus facilities in Mountain View, California (see Note 9 "Facilities
lease commitment" to the Condensed Consolidated Financial Statements). The lease
term for the first facilities is five years beginning in April 1999, with an
option to extend the lease term for two successive periods of one year each. The
Company has an option to purchase the property (land and facilities) for $72.0
million, or at the end of the lease arrange for the sale of the property to a
third party with the Company retaining an obligation to the owner for the
difference between the sale price and the $72.0 million if the sales price is
less than this amount, subject to certain provisions of the lease. Lease
payments on the first phase facilities will begin in the second quarter of 2001.
The lease requires the Company to maintain specified financial covenants such as
leverage ratio, quick ratio and earnings before interest, taxes, depreciation
and amortization, all of which the Company was in compliance with as of June 30,
1999.

VERITAS generally believes that its current cash, cash equivalents and
short-term investment balances and cash flow from operations will be sufficient
to meet VERITAS' working capital and capital expenditure requirements for at
least the next 12 months. Thereafter, VERITAS may require additional funds to
support its working capital requirements or for other purposes and may seek to
raise such additional funds through public or private equity financing or from
other sources. There can be no assurance that additional financing will be
available at all or that if available, such financing will be obtainable on
terms favorable to VERITAS.

YEAR 2000 COMPLIANCE

Background of Year 2000 Issues

We are aware of the issues associated with the programming code in existing
computer systems as the millennium approaches. Many currently installed computer
systems and software products are unable to distinguish between twentieth
century dates and twenty-first century dates because such systems may have been
developed using two digits rather than four to determine the applicable year.
For example, computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This error could
result in system failures, generation of erroneous data or miscalculations
causing

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<PAGE> 22

disruption of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities. As a result, many companies' software and computer systems may need
to be upgraded or replaced to comply with such Year 2000 requirements. The Year
2000 problem is pervasive and complex. Significant uncertainty exists in the
software industry concerning the potential impact of Year 2000 problems. We are
assessing the potential overall impact of the impending century change on our
business, financial condition and results of operations.

State of Readiness

Based on our assessment to date, we believe the current versions of our
software products and services are "Year 2000 ready" -- that is, they are
capable of adequately distinguishing twenty-first century dates from twentieth
century dates. New products are being designed and tested to be Year 2000 ready.
Although our products have undergone, or will undergo, our normal quality
testing procedures, there can, however, be no assurance that our products will
contain all necessary date code changes. Furthermore, use of our products in
connection with other products which are not Year 2000 ready, including
non-compliant hardware, software and firmware may result in the inaccurate
exchange of dates and result in performance problems or system failure. In
addition, original equipment manufacturer derivative versions of older VERITAS
products may not be Year 2000 ready. Any failure of our products to perform,
including system malfunctions associated with the onset of year 2000, could
result in claims against us. However, success of our Year 2000 compliance
efforts may depend on the success of its customers in dealing with the Year 2000
issue, as we have formally notified all customers of the Year 2000 readiness of
its products.

Although we have not been a party to any litigation or arbitration
proceeding to date that involves Year 2000 compliance issues with our products
or services, there can be no assurance that we will not in the future be
required to defend its products or services in such proceedings, or to negotiate
resolutions of claims based on Year 2000 issues. The costs of defending and
resolving Year 2000 related disputes, regardless of the merits of such disputes,
and any liability we have for Year 2000 related damages, including consequential
damages, could harm on our business.

In addition, we believe that purchasing patterns of customers and potential
customers may be affected by Year 2000 compliance issues as organizations expend
significant resources to correct their current software systems for Year 2000
compliance. These expenditures may result in reduced funding available to such
entities for other information technology purchases, such as those products and
services offered by us. Furthermore, customers and potential customers may defer
information technology purchases generally until early in the next millennium to
avoid Year 2000 compliance problems. Any such deferral of purchases by our
customers or potential customers could harm our business.

Our business depends on numerous systems that could potentially be impacted
by Year 2000 related problems. Those systems include, among others: hardware and
software systems used by us to deliver products and services to our customers,
including software supplied by third parties; communications networks such as
the wide area network and local area networks upon which we depend to
communicate product orders to our manufacturing and distribution operations and
to develop products; the internal systems of VERITAS' customers and suppliers;
software products sold to customers; the hardware and software systems used
internally by our in the management of our business; and non-information
technology systems and services used by us in the management of our business,
such as power, telephone systems and building systems.

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<PAGE> 23

testing of critical systems certified by third-party suppliers to be Year 2000
ready; and implementation of Year 2000 ready systems. The table below describes
the status and timing of such phased activities.

<TABLE>
<CAPTION>
TARGETED
IMPACTED SYSTEMS STATUS COMPLETION
---------------- ------ ----------
<S> <C> <C>
Software products sold to customers Software products tested and available Completed
for customers
Communication networks used to carry Assessment inventory completed Completed
products and provide services
Hardware and software systems used to Assessment inventory completed Completed
manage the Company's business
Hardware and software systems used to Assessment completed Completed
deliver products and services
Hardware and software systems used Validation, testing and remediation in Q3 1999
products and provide services process
(including desktops)
Communication networks used to carry Validation, testing and remediation in Q3 1999
products and provide services process
Non-information technology systems and Systems upgraded or replaced as Q3 1999
services appropriate, testing and
implementation
Hardware and software systems used to Validation, testing and remediation Q4 1999
manage the Company's business
</TABLE>

We will conduct extensive Year 2000 testing on all systems we consider
critical. To date, we have not encountered any material problems in this regard
with our computer systems or any other equipment that might be subject to such
problems. In the event that any of our significant suppliers or customers do not
successfully and timely achieve Year 2000 compliance, our business or operations
could be adversely affected. This could cause system failures or generation of
erroneous information and could cause significant disruption to business
activities. We are reviewing what further actions are required to make all
software systems used internally Year 2000 ready as well as actions needed to
mitigate vulnerability to problems with suppliers and other third parties'
systems.

Costs to Address Year 2000 issues

The total cost of our Year 2000 compliance activities has not been, and is
not anticipated to be, material to our business, results of operations and
financial condition. We estimate specific Year 2000 expenses to date to be not
more than $0.5 million and do not expect total costs of the compliance
activities to exceed $1.0 million. These costs and the timing in which we plan
to complete our Year 2000 modification and testing processes are based on our
estimates. However, there can be no assurance that we will timely identify and
remedy all significant Year 2000 problems, that remediation efforts will not
involve significant time and expense, or that such problems will not harm our
business.

Contingency Plans

We do not presently have a contingency plan for handling Year 2000 problems
that are not detected and corrected prior to their occurrence. Any failure of
VERITAS to address any unforeseen Year 2000 issue could harm our business. Full
contingency plans are scheduled for completion by September 1, 1999.

FACTORS THAT MAY AFFECT FUTURE RESULTS

In addition to other information in this Quarterly Report on Form 10-Q, the
following factors should be considered carefully in evaluating VERITAS and its
business.

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<PAGE> 24

We might fail to integrate the businesses of VERITAS, the Network & Storage
Management Group and TeleBackup

Product line integration will be difficult. We recently acquired both the
NSMG business of Seagate Software, Inc. and TeleBackup, and must integrate these
independent businesses with our own. If we fail to integrate these businesses,
our business and our quarterly and annual results of operations may be adversely
affected. One key issue will be the integration of our products with those of
NSMG and TeleBackup. This product line integration will involve consolidating
products with duplicative functionality, coordinating research and development
activities, and converging the technologies supporting the various products. For
example, VERITAS' NetBackup product and NSMG's Backup Exec product share many
features and functions, and NSMG's Client Exec product is very similar to
TeleBackup's TSInfoPro. Technology convergence will be particularly difficult
because VERITAS' products and NSMG's products lack a common technology
architecture. In particular, NSMG products were not designed for the degree of
scalability that VERITAS' products were designed for, nor for use on a variety
of operating systems.

Further, we have no experience with product and technology integration on
the scale that resulted from the NSMG and TeleBackup combinations.

Other business integration issues, if not satisfactorily resolved, could
have a material negative impact on our business. Other problems inherent in
integrating VERITAS' business with the businesses of NSMG and TeleBackup
include:

- maintaining brand recognition for key products formerly associated with
NSMG, such as Backup Exec, and TeleBackup, such as TSInfoPro, while
migrating customer identification of these brands to VERITAS;

- resolving channel conflicts that may arise between the original equipment
manufacturer and direct sales distribution channels of VERITAS and the
retail channels acquired in the NSMG combination;

- coordinating, integrating and streamlining geographically dispersed
operations, such as engineering facilities in California, Minnesota,
Florida, North Carolina, Maryland, Colorado, Massachusetts, Washington,
Canada and India; and

- coping with customers' uncertainty about continued support for
duplicative products.

The integration will be expensive and is likely to interrupt our ordinary
business activities. Any of these risks could harm our revenues and results of
operations.

Management and employee integration issues, if not satisfactorily resolved,
could have a material negative impact on our business. Potential management and
employee integration problems include:

- resolving differences between the corporate cultures of VERITAS and the
NSMG business and TeleBackup; and

- integrating the management teams of all three companies successfully. For
example, Terence Cunningham, our President and Chief Operating Officer,
who joined VERITAS from NSMG, recently resigned.

We will incur significant accounting charges in connection with the NSMG and
TeleBackup combinations that will reduce our earnings immediately and in the
future

The significant costs of integration associated with the NSMG and
TeleBackup combinations increase the risk that we will not realize the
anticipated benefits. Because we accounted for the NSMG combination and the
TeleBackup combination as purchases, we recorded non-cash charges of $103.1
million in our statements of operations in the three months ended June 30, 1999,
related to the write-off of in-process research and development. We also
recorded goodwill and other intangible assets of approximately $3.7 billion.
This amount will be amortized over four years, and will result in charges to
operations of approximately $229.7 million per quarter. We also recorded a
restructuring charge in the three months ended June 30, 1999 of $11.0 million
related primarily to costs for duplicative facilities of VERITAS Operating
Corporation which
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<PAGE> 25

we plan to vacate. These costs are in addition to the liability for the
estimated costs to vacate duplicative facilities of the NSMG business.

We have a significant amount of debt which we may be unable to service or
repay

In October 1997 we issued $100.0 million in aggregate principal amount of
5.25% convertible subordinated notes due 2004 and in August 1999 we issued
$405.0 million aggregate principal amount at maturity, $465.8 million if an
additional amount of $60.8 million related to the underwriters' over-allotment
option that has been exercised is issued, of 1.856% convertible subordinated
notes due 2006. The annual interest payments on our outstanding notes are $5.3
million and $8.6 million respectively, which we expect to fund from cash flow
from operations. We will need to generate substantial amounts of cash from our
operations to fund interest payments and to repay the principal amount of debt
when it matures, while at the same time funding capital expenditures and our
other working capital needs. If we do not have sufficient cash to repay our
debts as they become due, we may be unable to refinance our debt on reasonable
terms or at all. For example, the notes could be declared immediately due and
payable if we do not make timely payments. While our cash flow has been
sufficient to fund interest payments to date, if we cannot meet our debt
obligations from the cash generated by our business, we may not be able to
develop and sell new products, respond to changing business or economic
conditions adequately, make acquisitions or otherwise fund our business.

Our operating results may fluctuate significantly as a result of factors
outside our control, which could cause the market price of our notes and of
our stock to decline

Fluctuations in our operating results are likely to affect the market price
of our common stock and subordinated notes in a manner that may be unrelated to
our long-term operating performance. The more likely it is that market prices of
our securities will fluctuate, the riskier is your decision to buy, sell or hold
our securities. In addition, the number of factors that could affect our
operating results makes an investment in our securities riskier than many other
investments. Our revenues in any quarter will depend substantially on orders we
receive and ship in that quarter. In addition, we typically receive a
significant portion of orders in any quarter during the last two weeks of the
quarter, and we cannot predict whether those orders will be placed, fulfilled
and shipped in that period. If we have lower revenues than we expect, we
probably will not be able to reduce our operating expenses quickly in response.
Therefore, any significant shortfall in revenues or delay of customer orders
could have an immediate adverse effect on our operating results in that quarter.
The operating results of VERITAS, and of the NSMG and TeleBackup businesses we
recently acquired, have fluctuated in the past, and our operating results are
likely to fluctuate significantly in the future. Factors that could affect our
operating results include:

- the timing and magnitude of sales through original equipment
manufacturers;

- the unpredictability of the timing and level of sales to large
distributors in the retail channel and our direct sales force, which tend
to generate sales later in our quarters than original equipment
manufacturer sales;

- the timing and magnitude of large orders;

- the timing and amount of our marketing, sales and product development
expenses; -- the cost and time required to develop new software products;

- the introduction, timing and market acceptance of new products;

- our ability to deliver products that are Year 2000 compliant;

- the timing of revenue recognition for sales of software products and
services;

- changes in data storage and networking technology or introduction of new
operating system upgrades by original equipment manufacturers, which
could require us to modify our products or develop new products;

- the relative growth rates of the Windows NT and UNIX markets;

- the rate of adoption of Microsoft's release of the next version of
Windows NT, or Windows 2000, by users; -- pricing policies and
distribution terms; and

- the timing and magnitude of acquisitions.

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<PAGE> 26

We depend on large orders with lengthy sales cycles for a significant portion
of our revenues

Our revenues for a quarter could fluctuate significantly based on whether a
large order is closed near the end of a quarter or delayed. Customer orders can
range in value from a few thousand to a few million dollars. The length of time
between initial contact with a potential customer and sale of a product, or our
sales cycle, outside the retail channel is typically complex and lengthy, so it
can last from three to nine months. These direct sales also represent our
largest orders. Therefore, our revenues for a period are likely to be affected
by the timing of larger orders, which makes those revenues difficult to predict.
The cycle factors that could delay or defer an order, include:

- time needed for technical evaluations of our software by customers;

- customer budget restrictions;

- customer internal review and testing procedures; and

- engineering work needed to integrate our software with the customers'
systems.

We face many new difficulties managing a larger company

The NSMG and TeleBackup combinations have created new challenges for our
management. If we fail to meet those challenges, our business and quarterly and
annual results of operations may be harmed and the value of your investment may
decline. VERITAS grew rapidly before the NSMG and TeleBackup combinations. After
these combinations, our workforce is approximately twice the size of VERITAS'
workforce prior to the acquisitions, and we still need to hire additional sales,
engineering, service and administrative personnel. This growth is likely to
strain our management control systems and resources, including decision support,
accounting, management information systems and facilities. We must continue to
improve our financial and management controls and our reporting systems and
procedures to manage our employees and to obtain additional facilities.

We may be unable to hire and retain needed sales and engineering personnel

Our personnel needs are more acute than those facing most companies. As a
result of the NSMG and TeleBackup combinations, we must hire many additional
sales, engineering, service and administrative personnel. If we are unable to
hire and retain these employees, our business and quarterly and annual results
of operations will be adversely affected. Competition for people with the skills
we require is intense. Additions of new personnel and departures of existing
personnel may disrupt our business and may result in the departure of other
employees. We also depend on the continued service of our key personnel. Even
though we have entered into employment agreements with key management personnel,
these agreements cannot prevent their departure. For example, Terence
Cunningham, our President and Chief Operating Officer, who joined VERITAS from
NSMG, resigned effective August 30, 1999. We do not have key person life
insurance covering any of our personnel, nor do we currently intend to obtain
any of this insurance.

We distribute our products through multiple distribution channels, each of
which is subject to risks

Historically, VERITAS sold products through original equipment
manufacturers and through direct sales. As a result of the NSMG and TeleBackup
combinations, however, we also have a retail distribution channel as well. If we
fail to manage our distribution channels successfully, our business and
quarterly and annual results of operations may be materially and adversely
affected.

Retail distribution. Certain software products of the former NSMG business are
sold primarily in the retail channel. Our management faces different challenges
than it faces in selling most of our other products. For example:

- the VERITAS brand does not have the same level of recognition in the
retail channel;

- retail distribution typically involves shorter product life cycles; and

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<PAGE> 27

- the retail channel has higher risks of product returns, higher marketing
expenses and less predictable market demand.

Moreover, our retail distributors have no obligation to continue selling
the products previously sold by NSMG and TeleBackup and may terminate our
relationship at any time.

Direct sales. We also depend on our direct sales force to sell our products.
This involves a number of risks, including:

- longer sales cycles for direct sales;

- our need to hire, train, retain and motivate our sales force; and

- the length of time it takes our new sales representatives to become
productive.

Original equipment manufacturers. A portion of our revenue is expected to come
from original equipment manufacturers that incorporate our storage management
software into systems they sell. We have no control over the shipping dates or
volumes of systems the original equipment manufacturers ship and they have no
obligation to ship systems incorporating our software. They also have no
obligation to recommend or offer our software products exclusively or at all.
They have no minimum sales requirements and can terminate our relationship at
any time. These original equipment manufacturers also could choose to develop
their own storage management products internally and incorporate those products
into their systems in lieu of our products. Finally, the original equipment
manufacturers that we do business with compete with one another. To the extent
that one of our of original equipment manufacturer customers views the products
we have developed for another original equipment manufacturer as competing with
its products, it may decide to stop doing business with us, which could harm our
business.

Development agreements for original equipment manufacturers. We have important
original equipment manufacturer agreements with Hewlett-Packard, Sun
Microsystems, Microsoft, Dell, Seagate Technology and Compaq Computer. Under
these agreements we develop "lite" versions of our products to be included in
these original equipment manufacturers' systems software and products.
Developing products for these original equipment manufacturers causes us to
divert significant resources from other activities which are also important to
our business. If these "lite" versions do not result in substantial revenues,
our revenue could be adversely affected.

Our distribution channels could conflict with one another

We have many different distribution channels. If we cannot use these
distribution channels efficiently, our business and quarterly and annual results
of operations may be materially and adversely affected. Our original equipment
manufacturers, resellers and direct sales force might target similar sales
opportunities, which could lead to inefficient allocation of sales resources. We
may also try to sell full versions of the products to customers of the original
equipment manufacturers for whom we have developed "lite" versions of our
products. This would result in us marketing similar products to end-users. These
overlapping sales efforts could also adversely affect our relationships with our
original equipment manufacturers and other sales channels and result in them
being less willing to market our products aggressively. If our indirect sales
decline, we would need to accelerate our investments in alternative distribution
channels. We may not be able to do this in a timely manner, or at all.

Our development agreements with Microsoft could cause us to lose customers

We have important agreements with Microsoft under which we develop software
for its Windows operating system. However, if we do not develop these products
in time for the release of Microsoft's Windows NT 5.0, or Windows 2000,
operating system, Microsoft will not include our products in this operating
system. Even if we do develop these products on time, Microsoft is not obligated
under the agreements to include them in this operating system. If for any reason
our software is not included in Windows 2000 we will lose our expected
opportunity to market additional products to the Windows NT
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<PAGE> 28

installed customer base, as well as suffer negative publicity. In addition, we
would lose the investment we have made in developing products for inclusion in
Windows 2000.

Risks of delay of release of Windows 2000.

Microsoft is not required to release Windows 2000 on any particular date.
If the release of this operating system is delayed it will be more difficult for
us to market and sell our products to Windows NT users.

Microsoft could develop competing products.

Microsoft can also develop enhancements to and derivative products from our
software products that are embedded in Windows NT products. If Microsoft
develops any enhancements or derivative products, or enhances its own base
products with equivalent functionality, Microsoft could choose to compete with
us.

Sales of a small number of product lines make up a substantial portion of our
revenue

For the foreseeable future, we expect to derive a substantial majority of
our revenue from a limited number of software products. If many customers do not
purchase these products as a result of competition, technological change or
other factors, our revenue would decrease and our business and quarterly and
annual results of operations would be substantially harmed. In the year ended
December 31, 1998, VERITAS derived 87.6% of its license revenue from storage
management products, and the NSMG business derived 87.9% of its revenue from its
Backup Exec product. In the three months ended March 31, 1999, VERITAS derived
75.5% of its license revenue from storage management products and the NSMG
business derived 90.2% from its Backup Exec product. Also, VERITAS' NetBackup
product and NSMG's Backup Exec product perform some overlapping functions.
Customers may select one product over the other, resulting in reduced revenue
for the product not selected. Therefore, we may not receive the same aggregate
level of revenue from these products as we have received in the past.

Our products have relatively short life cycles

Our software products have a limited life cycle and it is difficult to
estimate when they will become obsolete. This makes it difficult for us to
forecast revenue and makes your investment more risky. If we do not develop and
introduce new products before our existing products have completed their
lifecycles, we will not be able to sustain our level of sales. In addition, to
succeed, many customers must adopt our new products early in each product's
lifecycle. Therefore, if we do not attract sufficient customers early in a
product's life, we may not realize the amount of revenue we anticipated for the
product. We cannot be sure that we will continue to be successful in marketing
our key products.

We derive significant revenues from only a few customers

Sales to a small number of customers generate a disproportionate amount of
our revenue. For example, in the year ended December 31, 1998, VERITAS derived
12% of its revenue from sales to Sun Microsystems and the former NSMG business
derived 28% of its revenue from sales to Ingram Micro Inc. In the three months
ended March 31, 1999 VERITAS derived 12% of its revenue from sales to Sun
Microsystems and the NSMG business derived 24% of its revenue from sales to
Ingram Micro Inc. If Sun Microsystems or Ingram Micro, or any other significant
customer, were to reduce its purchases from us, our revenues and therefore our
business would be harmed unless we were to increase sales to other customers
substantially. We do not have a contract with Sun Microsystems, Ingram Micro or
any other customer that requires the customer to purchase any specified number
of software licenses from us. Therefore, we cannot be sure that these customers
will continue to purchase our products at current levels.

We face uncertainties porting products to new operating systems and developing
new products

Some of our products operate primarily on the UNIX computer operating
system. We are currently redesigning, or porting, these products to operate on
the Windows NT operating system. We are also developing new products for UNIX
and for Windows NT. TeleBackup's products operate on the Sun Solaris
28
<PAGE> 29

version of UNIX, the Windows and Windows NT operating systems. We intend to port
the TeleBackup products to other UNIX operating systems and subsequent releases
of Windows NT. We may not be able to accomplish any of this work quickly or
cost-effectively. These activities require substantial capital investment,
substantial employee resources and the cooperation of the owners of the
operating systems to or for which the products are being ported or developed.
Our porting and development work for the Windows NT market has required us to
hire additional personnel with Windows NT expertise and to devote engineering
resources to these projects. We must obtain from operating system owners a
source code license to certain portions of the operating system software to port
some of our products to or develop products for the operating system. Operating
system owners have no obligation to assist in these porting or development
efforts. If they do not grant us a license or if they do not renew our license,
we would not be able to expand our product line easily into other areas. For
example, we rely on a source code license from Microsoft with respect to our
Windows NT development projects. Microsoft is under no obligation to renew the
source code license, which is subject to annual renewal.

The market for TSInfoPro is unproven

TeleBackup's primary product, TSInfoPro, which is designed to back up data
for remote personal computer users, represents new technology that has no proven
market. A market may not develop for this product or similarly unproven products
in the future. This could harm our business because our investment in
TeleBackup, and any additional development and marketing costs, would be lost,
and any expected revenue opportunities would not materialize.

We face intense competition on several fronts

We face a variety of tough competitors, principal among which are:

- internal development groups within original equipment manufacturers that
provide storage management functions to support their systems;

- other software vendors and hardware companies that offer products with
some of our products' features, such as controller and disk subsystem
manufacturers;

- hardware and software vendors that offer storage application products;

- hardware and software vendors that offer high availability and clustering
products; and

- software vendors focused on remote backup technologies and electronic
data vaulting services.

Many of our competitors have substantially greater financial and technical
resources than we do and may attempt to increase their presence in the storage
management market by acquiring or forming strategic alliances with other
competitors or business partners.

Potential Year 2000 risks may adversely affect our business

We are in the process of conducting an extensive review of our products and
services and of our internal business systems and infrastructure to identify
potential Year 2000 problems and are implementing remedial action to address
those problems. While we do not expect to encounter any problems that would be
material to our business or to incur significant costs in fixing Year 2000
problems, if we do not identify and remedy these problems in a timely and
efficient manner, we could experience substantial disruptions to our operations.
Failure to achieve Year 2000 readiness of our systems or products could lead to
loss of existing and potential customers and subsequent costly litigation claims
against us. Factors outside our control, such as loss of water and power,
telecommunications systems, banking systems and transportation systems, could
also cause substantial business disruption. Please see "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Year 2000
Compliance" for detailed information on our Year 2000 readiness.

29
<PAGE> 30

Expanding our international sales depends on economic stability in regions
that recently have been unstable

An investment in our securities is riskier than an investment in many other
companies because we plan to expand in overseas markets such as Asia, Russia and
Latin America that have experienced significant economic turmoil in recent
years. Continued turmoil could adversely affect our plans to increase sales in
these regions. Economic recession could also affect our ability to maintain or
increase sales in these or other regions in the future. Our concern is that
recession in these markets could lead to:

- restrictions on government spending imposed by the International Monetary
Fund;

- customers' reduced access to working capital to fund software purchases;
and

- reduced bank lending or other sources of financing for customers and
potential customers.

Any of these factors could cause foreign customers to substantially reduce
their purchase of our products.

Our foreign-based operations and sales create special problems that could hurt
our results

An investment in our securities is riskier than an investment in most
businesses because we have significant offshore operations, including
development facilities, sales personnel and customer support operations. For
example, as of July 15, 1999, we had approximately 141 engineers located in
Pune, India, performing product development work. These offshore operations are
subject to certain inherent risks, including:

- potential loss of developed technology through piracy, misappropriation,
or more lax laws regarding intellectual property protection;

- imposition of governmental controls, including trade restrictions;

- fluctuations in currency exchange rates and economic instability;

- longer payment cycles for sales in foreign countries;

- difficulties in staffing and managing the offshore operations;

- seasonal reductions in business activity in the summer months in Europe
and other countries; and

- political unrest, particularly in areas in which we have facilities.

In addition, our international sales are denominated in local currency,
creating risk of foreign currency translation gains and losses that could harm
our financial results. If we generate profits or losses in foreign countries,
our effective income tax rate could also be harmed. The currency instability in
Asia and other financial markets may make our products more expensive than
products sold by other vendors that are priced in one of the affected
currencies. Therefore, customers in these markets may choose not to purchase our
products.

Our growth strategy is riskier than others because it is based upon
acquisitions of other businesses

An investment in our securities is riskier than investments in other
companies because we plan to continue to pursue our strategy of growth through
acquisition. We have grown aggressively through acquisitions in the past and
expect to pursue acquisitions in the future.

Acquisitions involve a number of special risks and challenges, including:

- diversion of management attention, particularly in the case of multiple
concurrent acquisitions;

- integration of the acquired company's operations and employees with an
existing business;

- incorporation of technology into existing product lines;

- loss of key employees; and

- presentation of a unified corporate image.

30
<PAGE> 31

In the past, we have lost certain employees of acquired companies whom we
desired to retain. In some cases, the integration of the operations of acquired
companies took longer than initially anticipated. In addition, if the employees
of target companies remain geographically dispersed from our existing staff, we
may not realize some or all of the anticipated economies of scale.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN EXCHANGE RATE SENSITIVITY

VERITAS does not use derivative financial instruments for speculative
purposes. VERITAS may engage in exchange rate hedging from time to time but such
activity has been insignificant to date and VERITAS does not hold or issue
foreign exchange contracts for trading purposes. VERITAS' international sales
are generated primarily through its international sales subsidiaries. Most
international revenue outside the United States and Canada is collectible in
foreign currencies. Since much of our international operating expenses are also
incurred in local currencies, the impact of exchange rates on net income or loss
is relatively less than the impact on revenues. Although VERITAS' operating and
pricing strategies take into account changes in exchange rates over time,
VERITAS' operating results may be significantly affected in the short term by
fluctuations in foreign currency exchange rates. VERITAS' international
subsidiaries purchase licenses from the parent company resulting in intercompany
receivables and payables. These receivables and payables are carried on each
company's books at the historical local currency that existed at the time of the
transaction. Such receivables and payables are eliminated for financial
statement reporting purposes. Prior to elimination, the amounts carried in
foreign currencies are converted to U.S. Dollars at the then current rate or
"marked to market." The marked to market process may give rise to currency gains
and losses. Such gains or losses are recognized on VERITAS' statement of
operations as a component of other income, net. To date, any such gains or
losses have not been material. VERITAS does not believe its total exposure to be
significant.

INTEREST RATE SENSITIVITY

VERITAS' exposure to market risk for changes in interest rates relates
primarily to our investment portfolio and long-term debt obligations. The
primary objective of VERITAS' investment activities is to preserve principal
while at the same time maximizing yields without significantly increasing risk.
VERITAS' portfolio includes money markets funds, commercial paper, market
auction preferreds, government agency notes and medium-term notes. The diversity
of the portfolio helps VERITAS to achieve its investment objective. As of June
30, 1999, approximately 96% of VERITAS' entire portfolio will mature in one year
or less and approximately 34% of our investment portfolio matures less than 90
days from the date of purchase.

Long-term debt of $100.0 million consists of 5.25% Convertible Subordinated
Notes (the Notes) due 2004. The interest rate on these notes is fixed and the
Notes provide for semi-annual interest payments of approximately $2.6 million
each May 1 and November 1. The Notes are convertible into VERITAS' common stock
at any time prior to the close of business on the maturity date, unless
previously redeemed or repurchased, subject to adjustment in certain events.

The following table presents the amounts of VERITAS' cash equivalents,
investments and debt that may be subject to interest rate risk and the average
and fixed interest rates as of June 30, 1999 by year of maturity:

<TABLE>
<CAPTION>
2000 AND FAIR VALUE
1999 THEREAFTER TOTAL TOTAL
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash equivalents and short-term investments..... $200,482 -- $200,482 $200,482
Average interest rate........................... 5.04% -- 5.04% 5.04%
Long-term investments........................... $ -- $ 52,234 $ 52,234 $ 52,234
Average interest rate........................... -- 5.20% 5.20% 5.20%
Long-term debt.................................. -- $100,000 $100,000 $220,786
Fixed interest rate............................. -- 5.25% 5.25% 5.25%
</TABLE>

31
<PAGE> 32

PART II. OTHER INFORMATION

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

At a special meeting of stockholders held by VERITAS on May 27,1999, the
following proposals were approved:

<TABLE>
<CAPTION>
AFFIRMATIVE NEGATIVE BROKER
VOTES VOTES ABSTENTIONS NON-VOTES
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
1. Approval to merge VERITAS with the Network &
Storage Management Group Business (NSMG) of
Seagate Software, Inc. and to issue stock
options to the employees of NSMG business who
exchange their Seagate Software options in
the combination. 36,442,776 552,666 39,357 4,895,723
2. Amendment to the VERITAS certificate of
incorporation to create a new class of stock
called Special Voting Stock and to authorize
one share of Special Voting Stock. 36,852,090 140,158 41,778 4,896,496
3. Amendment to the VERITAS certificate of
incorporation to increase the number of
authorized shares of common stock from
75,000,000 to 500,000,000. 27,945,257 13,947,012 38,253 --
4. Amendment to the 1993 Employee Stock Purchase
Plan to increase the number of shares
reserved for the issuance thereunder from
2,250,000 to 4,000,000, provide for the
automatic annual increase in the number of
shares reserved for issuance thereunder in an
amount equal to 1% of the aggregate VERITAS
common stock outstanding and add an
additional offering period if the NSMG
combination is consummated before August 16,
1999. 36,388,432 570,621 74,973 4,896,496
5. Amendment to the 1993 Equity Incentive Plan
to increase the number of shares reserved for
issuance from 9,225,000 to 16,000,000. 20,125,945 16,810,451 97,630 4,896,496
6. Amendment to the 1993 Equity Incentive Plan
to provide for the automatic increase in the
number of shares reserved for issuance
thereunder in an amount equal to 4.5% of the
aggregate VERITAS common stock outstanding. 18,785,480 18,163,331 85,215 4,896,496
</TABLE>

32
<PAGE> 33

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)EXHIBITS
The following exhibits are filed herewith or incorporated by reference
herein:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.01 Rights Agreement dated June 16, 1999 between the Company and
Chase Mellon Shareholder Services, L.L.C., as Rights Agent,
which includes as Exhibit A the form of Certificate of
Designations of Series A Junior Participating Preferred
Stock, as Exhibit B the Form of Rights Certificate and as
Exhibit C the Summary of Rights to Purchase Preferred Shares
(incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form 8-A filed with the Securities
and Exchange Commission on June 24, 1999).
4.02 Amended and Restated First Supplemental Indenture dated July
30, 1999 by and among VERITAS, VERITAS Operating Corporation
and State Street Bank and Trust Company of California, N.A.
(Incorporated by reference to Exhibit 4.04 of Registrant's
Registration Statement on Form S-1 (SEC File No. 333-83777),
as amended, filed with the SEC on July 27, 1999 (the "July
1999 Form S-1)).
10.17 Participation Agreement dated April 23, 1999 by and between
VERITAS Operating Corporation, First Security Bank, National
Association as "Owner Trustee", various banks and other
lending institutions which are parties thereto from time to
time as "Holders", various banks and other lending
institutions which are parties thereto from time to time as
"Lenders", NationsBank, N.A. as "Agent" for the Lenders and
the Holders, and various parties thereto from time to time
as "Guarantors" (incorporated by reference to Exhibit 10.17
of the July 1999 Form S-1).
10.18 Grant Deed dated April 23, 1999 recording grant of real
property to First Security Bank, National Association as
"Owner Trustee" by Fairchild Semiconductor Corporation of
California (incorporated by reference to Exhibit 10.20 in
the July 1999 Form S-1).
10.19 Grant Deed dated April 23, 1999 recording grant of real
property to First Security Bank, National Association as
"Owner Trustee" by Fairchild Semiconductor Corporation of
California (incorporated by reference to Exhibit 10.20 in
the July 1999 Form S-1).
10.20 Memorandum of Lease Agreement and Lease Supplement No. 2 and
Deed of Trust dated April 23, 1999 among VERITAS Operating
Corporation, First Security Bank, National Association and
Chicago Title Company (incorporated by reference to Exhibit
10.22 in the July 1999 Form S-1).
10.21 Collateral Assignment of Sublease dated April 23, 1999 made
by VERITAS Operating Corporation to First Security Bank,
National Association (incorporated by reference to Exhibit
10.23 in the July 1999 Form S-1).
10.22 Sublease Agreement dated April 23, 1999 by and between
VERITAS Operating Corporation and Fairchild Semiconductor
Corporation of California (incorporated by reference to
Exhibit 10.24 in the July 1999 Form S-1).
10.23 Certificate re: Representations and Warranties dated April
20, 1999 by Fairchild Semiconductor Corporation of
California and addressed to VERITAS Operating Corporation
(incorporated by reference to Exhibit 10.25 in the July 1999
Form S-1).
10.24 Security Agreement dated April 23, 1999 between First
Security Bank, National Bank as "Owner Trustee" and
NationsBank, N.A. as Agent for the "Lenders" and the
"Holders" (incorporated by reference to Exhibit 10.26 in the
July 1999 Form S-1).
10.25 Form of Agreement of Purchase and Sale by and between
Fairchild Semiconductor Corporation of California and
VERITAS Operating Corporation (incorporated by reference to
Exhibit 10.27 in the July 1999 Form S-1).
</TABLE>

33
<PAGE> 34

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.26 First Amendment dated April 14, 1999 and Agreement of
Purchase and Sale dated March 29, 1999 by and between
Fairchild Semiconductor Corporation of California and
VERITAS Operating Corporation (incorporated by reference to
Exhibit 10.28 in the July 1999 Form S-1).
10.27 Agency Agreement between VERITAS Operating Corporation and
First Security Bank, National Association as "Owner Trustee"
(incorporated by reference to Exhibit 10.29 in the July 1999
Form S-1).
10.28 Master Lease Agreement dated April 23, 1999 between First
Security Bank, National Association and VERITAS Operating
Corporation (incorporated by reference to Exhibit 10.30 in
the July 1999 Form S-1).
27.1 Financial Data Schedule (EDGAR only).
</TABLE>

(b) REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
DATE OF REPORT ITEM DESCRIPTION
- -------------- ---- -----------
<S> <C> <C>
April 27, 1999 5, 7 The Company reported the press release of pro forma
unaudited quarterly statements of operations for Seagate
Software NSMG and included the press release as an exhibit.
May 20, 1999 5 The Company announced that Seagate Software, Inc. filed a
Current Report on Form 8-K to provide supplemental quarterly
financial data for Seagate Software NSMG and the Company
included the financial data reported.
May 28, 1999 2, 7 The Company announced the acquisitions of Seagate Software
NSMG and TeleBackup Systems Inc., and filed as exhibits: the
Registrations Rights Agreement with Seagate Software, Inc.;
the Stockholder Agreement with VERITAS Holding Corp.,
Seagate Technology, Inc. and Seagate Software, Inc.; the
Escrow Agreement with VERITAS Operating Corp., TeleBackup
Systems Inc., Dr. Byron G. Osing and Chase Manhattan Bank
and Trust Company; and the Voting, Support and Exchange
Trust Agreement with VERITAS Holding Corp., TeleBackup
Exchangeco. Inc. and Montreal Trust Company of Canada.
June 15, 1999 5 Adoption of Stockholder Rights Plan.
</TABLE>

34
<PAGE> 35

SIGNATURE

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, on August 12, 1999.

VERITAS SOFTWARE CORPORATION

/s/ KENNETH E. LONCHAR

--------------------------------------
Kenneth E. Lonchar
Senior Vice President, Finance
(Principal Financial and Accounting
Officer)

35
<PAGE> 36

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
27.1 Financial Data Schedule (EDGAR only)
</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999, AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 119,985
<SECURITIES> 116,102
<RECEIVABLES> 64,737
<ALLOWANCES> 5,250
<INVENTORY> 0
<CURRENT-ASSETS> 342,530
<PP&E> 84,076
<DEPRECIATION> 26,326
<TOTAL-ASSETS> 4,058,408
<CURRENT-LIABILITIES> 181,205
<BONDS> 100,000
0
0
<COMMON> 85
<OTHER-SE> 3,595,099
<TOTAL-LIABILITY-AND-EQUITY> 4,058,408
<SALES> 186,552
<TOTAL-REVENUES> 186,552
<CGS> 24,569
<TOTAL-COSTS> 24,569
<OTHER-EXPENSES> 301,829
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,842
<INCOME-PRETAX> (136,509)
<INCOME-TAX> 12,237
<INCOME-CONTINUING> (148,746)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (148,746)
<EPS-BASIC> (1.36)
<EPS-DILUTED> (1.36)

</TABLE>