VERITAS SOFTWARE CORP /DE/, 10-Q, 1999-11-12

VERITAS SOFTWARE CORP /DE/
10-Q, 1999-11-12
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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 SEPTEMBER 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 [X] No [ ]

The number of shares of the registrant's common stock outstanding as of
October 31, 1999 was 172,783,191 shares.(1)

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

(1) The number of shares of common stock outstanding does not reflect the
three-for-two stock split announced by the board of directors of the
registrant on October 14, 1999 and to be paid as a stock dividend on
November 19, 1999 to stockholders on record on November 2, 1999.
<PAGE> 2

VERITAS SOFTWARE CORPORATION

INDEX

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30,
1999 and December 31, 1998.................................. 3
Condensed Consolidated Statements of Operations for the
Three Months and Nine Months Ended September 30, 1999 and
1998........................................................ 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 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................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 33

PART II. OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds................... 35
Item 4. Submission of Matters to a Vote of Security Holders......... 35
Item 6. Exhibits and Reports on Form 8-K............................ 36
Signature............................................................. 37
</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>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 208,091 $139,086
Short-term investments.................................... 435,300 72,040
Accounts receivable, net of allowance for doubtful
accounts of $5,037 at September 30, 1999 and $2,572 at
December 31, 1998...................................... 73,030 52,697
Deferred income taxes..................................... 18,362 4,272
Other current assets...................................... 16,523 9,237
---------- --------
Total current assets.............................. 751,306 277,332
Long-term investments....................................... 65,036 31,925
Property and equipment, net................................. 60,681 26,518
Goodwill and other intangibles, net......................... 3,458,512 4,005
Deferred income taxes....................................... -- 7,928
Other assets................................................ 1,625 1,409
---------- --------
Total assets...................................... $4,337,160 $349,117
========== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 12,231 $ 4,958
Accrued compensation and benefits......................... 36,780 11,267
Accrued acquisition and restructuring costs............... 25,213 478
Other accrued liabilities................................. 43,769 10,718
Income taxes payable...................................... 4,265 13,424
Customer advances......................................... 9,946 --
Deferred revenue.......................................... 67,619 37,645
---------- --------
Total current liabilities......................... 199,823 78,490
Convertible subordinated notes.............................. 447,531 100,000
Deferred income taxes....................................... 171,230 --
Other non-current liabilities............................... 657 773
Commitments and contingencies
Stockholders' equity:
Common stock.............................................. 3,880,890 199,858
Accumulated deficit....................................... (361,738) (29,416)
Deferred compensation..................................... (8) (32)
Accumulated other comprehensive income (loss)............. (1,225) (556)
---------- --------
Total stockholders' equity........................ 3,517,919 169,854
---------- --------
Total liabilities and stockholders' equity........ $4,337,160 $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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net revenue:
User license fees............................. $ 157,643 $ 45,807 $ 306,725 $114,833
Services.................................... 25,758 10,738 63,228 28,907
--------- -------- --------- --------
Total net revenue................... 183,401 56,545 369,953 143,740
Cost of revenue:
User license fees........................... 5,891 2,516 10,673 7,612
Services.................................... 10,787 5,327 25,568 14,619
Amortization of developed technology........ 15,258 -- 20,264 --
--------- -------- --------- --------
Total cost of revenue............... 31,936 7,843 56,505 22,231
--------- -------- --------- --------
Gross profit.................................. 151,465 48,702 313,448 121,509
Operating expenses:
Selling and marketing....................... 67,895 20,406 139,290 50,415
Research and development.................... 28,924 10,859 63,290 27,356
General and administrative.................. 11,020 2,663 21,431 7,075
Amortization of goodwill and other
intangibles.............................. 219,626 -- 291,183 --
In-process research and development......... 1,100 -- 104,200 2,250
Acquisition and restructuring costs......... -- -- 11,000 --
--------- -------- --------- --------
Total operating expenses............ 328,565 33,928 630,394 87,096
--------- -------- --------- --------
Income (loss) from operations................. (177,100) 14,774 (316,946) 34,413
Interest and other income, net................ 7,266 3,001 13,445 8,552
Interest expense.............................. (5,301) (1,420) (8,143) (4,268)
--------- -------- --------- --------
Income (loss) before income taxes............. (175,135) 16,355 (311,644) 38,697
Provision for income taxes.................... 8,441 3,762 20,678 8,508
--------- -------- --------- --------
Net income (loss)............................. $(183,576) $ 12,593 $(332,322) $ 30,189
========= ======== ========= ========
Net income (loss) per share -- basic.......... $ (0.72) $ 0.09 $ (1.71) $ 0.21
========= ======== ========= ========
Net income (loss) per share -- diluted........ $ (0.72) $ 0.08 $ (1.71) $ 0.20
========= ======== ========= ========
Number of shares used in computing per share
amounts -- basic............................ 256,564 141,686 194,743 140,542
========= ======== ========= ========
Number of shares used in computing per share
amounts -- diluted.......................... 256,564 156,978 194,743 154,649
========= ======== ========= ========
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1999 1998
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $ (332,322) $ 30,189
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 16,474 4,634
Amortization of goodwill and other intangibles......... 291,183 --
Amortization of developed technology................... 20,264 --
In-process research and development.................... 104,200 2,250
Restructuring costs.................................... 948 --
Amortization of original issue discount on convertible
notes................................................. 1,889 --
Changes in operating assets and liabilities:
Accounts receivable.................................. (18,024) (10,992)
Other receivable..................................... 22,935 --
Deferred income taxes and other assets............... (5,343) (3,386)
Accounts payable..................................... 1,391 1,866
Accrued compensation and benefits.................... 18,759 1,758
Accrued acquisition and restructuring costs.......... (14,263) --
Other accrued liabilities............................ 7,672 4,041
Income taxes payable and deferred income taxes....... (29,467) 3,431
Customer advances and deferred revenue............... 22,581 12,842
---------- ---------
Net cash provided by operating activities................... 108,877 46,633
Cash flows from investing activities:
Purchases of investments.................................. (582,991) (245,729)
Investment maturities..................................... 186,622 205,634
Purchases of property and equipment....................... (36,267) (15,440)
Cash acquired from Seagate Software....................... 1,044 --
Cash acquired from TeleBackup............................. 1,493 --
Purchase of NuView, Inc................................... (6,400) --
Purchase of Frontier Software Development Pvt. Ltd........ (1,325) --
Purchase of Windward Technologies, Inc.................... -- (1,250)
---------- ---------
Net cash used for investing activities...................... (437,824) (56,785)
Cash flows from financing activities:
Net proceeds from issuance of convertible subordinated
notes.................................................. 334,137 --
Proceeds from issuance of common stock.................... 64,484 11,226
---------- ---------
Net cash provided by financing activities................... 398,621 11,226
Effect of exchange rate changes............................. (669) (14)
---------- ---------
Net increase in cash and cash equivalents................... 69,005 1,060
Cash and cash equivalents at beginning of period............ 139,086 75,629
---------- ---------
Cash and cash equivalents at end of period.................. $ 208,091 $ 76,689
========== =========
Supplemental disclosures of cash flow information:
Cash paid for interest.................................... $ 2,625 $ 2,917
Cash paid for income taxes................................ $ 15,223 $ 4,441
Supplemental schedule of noncash investing and financing
transactions:
Issuance of common stock for business acquisitions........ $3,604,071 $ --
</TABLE>

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

VERITAS SOFTWARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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 SPLITS

On June 7, 1999, the Company announced a two-for-one stock split in the
form of a stock dividend paid on July 8, 1999 to stockholders on record on June
18, 1999. On October 14, 1999, the Company announced a three-for-two split in
the form of a stock dividend that will be paid on November 19, 1999 to
stockholders on record on November 2, 1999. All share and per share data
applicable to prior periods have been restated to give retroactive effect to the
two stock splits.

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)

The following table sets forth the computation of basic and diluted net
income and net loss per share (in thousands, except per share data):

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss)............................. $(183,576) $ 12,593 $(332,322) $ 30,189
========= ======== ========= ========
Denominator:
Denominator for basic net income (loss) per
share -- weighted-average shares......... 256,564 141,686 194,743 140,542
Common stock equivalents.................... -- 15,292 -- 14,107
--------- -------- --------- --------
Denominator for diluted net income (loss)
per share................................ 256,564 156,978 194,743 154,649
========= ======== ========= ========
Basic net income (loss) per share............. $ (0.72) $ 0.09 $ (1.71) $ 0.21
========= ======== ========= ========
Diluted net income (loss) per share........... $ (0.72) $ 0.08 $ (1.71) $ 0.20
========= ======== ========= ========
</TABLE>

Common stock equivalents included in the denominator for purposes of
computing diluted net income (loss) per share do not include 6,976,743 shares
issuable upon conversion of the 5.25% convertible subordinated notes and
8,673,429 shares issuable upon conversion of the 1.856% convertible subordinated
notes, as their effect would be anti-dilutive for all periods presented. Common
stock equivalents included in the denominator for purposes of computing diluted
net loss per share do not include 24,791,252 potential common shares for the
three months ended September 30, 1999 and 23,989,287 potential common shares for
the nine months ended September 30, 1999, all related to employee stock options,
as their effect would be anti-dilutive.

5. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1999 1998 1999 1998
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Net income (loss)............................... $(183,576) $12,593 $(332,322) $30,189
Foreign currency translation adjustments........ (108) 190 (669) 41
--------- ------- --------- -------
Comprehensive income (loss)..................... $(183,684) $12,783 $(332,991) $30,230
========= ======= ========= =======
</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." On August 10, 1999, VERITAS acquired certain assets of
NuView, Inc., which the Company refers to as "NuView."

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 of assets and
liabilities related to the NSMG business by Seagate Technology, Inc., Seagate
Software, Inc., and

7
<PAGE> 8
VERITAS SOFTWARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

their respective subsidiaries, and based on the average closing price of VERITAS
common stock of $30.38 per share for 5 days before and after June 7, 1999, the
measurement date for the transaction, VERITAS issued 103,722,312 shares of its
common stock to Seagate Software, Inc. and issued options to purchase 10,417,572
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 incurs charges of $221.5 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
$3,464.5 million and included $3,151.4 million for the issuance of VERITAS
common stock, $269.7 million for the issuance of options to purchase VERITAS
common stock, and $43.4 million of acquisition-related costs. In addition, the
Company recorded a restructuring charge of $11.0 million in the nine months
ended September 30, 1999 as a result of the NSMG acquisition. 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 $54.4 million, of which
approximately $13.3 million will be non-cash, consist primarily of direct
transaction costs, operating lease commitments on duplicative facilities and
involuntary termination benefits. At September 30, 1999, $19.1 million in
professional fees and severance costs were paid against the acquisition and
restructuring reserve; the Company expects the remaining $22.0 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 $3,015.8 million,
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 assumed of $1.0
million. For the three months ended September 30, 1999, the Company recorded
$206.9 million for the amortization of goodwill and other intangibles, and $14.6
million for the amortization of developed technology related to this acquisition
and for the nine months ended September 30, 1999, the Company recorded $275.6
million for amortization of goodwill and other intangibles, and $19.5 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. TeleBackup became a wholly-owned subsidiary of
VERITAS in exchange for the issuance of 4,561,863 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 103,137 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 incurs charges of $9.0 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 $29.40 per share for 5 days before and after June 1,
1999, the measurement date for the transaction, the total purchase price for
TeleBackup was $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
September 30, 1999, of the total $6.2 million acquisition costs, the Company
paid $5.0 million in direct transaction costs with the majority of the remaining
$1.2 million anticipated to be utilized by December 1999. The purchase price was
allocated, based on an independent valuation, to goodwill of $133.1 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
8
<PAGE> 9
VERITAS SOFTWARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

deferred tax liabilities of $3.0 million and tangible net liabilities assumed of
$0.2 million. For the three months ended September 30, 1999, the Company
recorded $8.6 million for amortization of goodwill and other intangibles, and
$0.4 million for the amortization of developed technology related to this
acquisition and for the nine months ended September 30, 1999, the Company
recorded $11.5 million for amortization of goodwill and other intangibles, and
$0.5 million for the amortization of developed technology related to this
acquisition.

Under an asset purchase agreement, VERITAS acquired certain assets of
NuView, including its Windows NT cluster management solution, Cluster X, for a
total cost of approximately $66.3 million. The Company accounted for the
acquisition using the purchase method of accounting, and incurs charges of $4.2
million per quarter primarily related to the amortization of developed
technology, goodwill and other intangibles over their estimated useful life of
four years. The purchase price included $46.1 million related to the issuance of
VERITAS common stock, $0.8 million for the issuance of options to purchase
VERITAS common stock to former NuView employees, $0.2 million in
acquisition-related costs and $19.2 million payable in cash, of which $6.4
million has been paid. The purchase price was allocated, based on an independent
valuation, to goodwill of $61.0 million, developed technology of $2.4 million,
assembled workforce of $0.6 million, trademarks of $0.3 million,
covenant-not-to-compete of $0.9 million and in-process research and development
of $1.1 million. For the three months and nine months ended September 30, 1999,
the Company recorded $4.0 million for amortization of goodwill and other
intangibles, and $0.2 million for the amortization of developed technology
related to this acquisition.

The following unaudited pro forma summary results of operations data have
been prepared assuming that the NSMG, TeleBackup and NuView 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 acquisitions been consummated as of the beginning of
the periods presented. The pro forma information excludes the impact of the
one-time charges related to in-process research and development costs of $104.2
million and the restructuring charges of $11.0 million recorded in 1999.

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenue................................. $ 183,401 $ 105,078 $ 473,868 $ 284,006
========= ========= ========= =========
Net loss.................................... $(182,272) $(204,096) $(567,647) $(617,802)
========= ========= ========= =========
Basic and diluted net loss per share........ $ (0.71) $ (0.82) $ (2.24) $ (2.48)
========= ========= ========= =========
</TABLE>

7. CONVERTIBLE SUBORDINATED NOTES

In August 1999, VERITAS and its wholly-owned subsidiary, VERITAS Operating
Corporation, issued $465.8 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 $334.1 million. The interest rate
of 1.856% together with the accrual of original issue discount represent a yield
to maturity of 6.5%. 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 $39.85 per share, subject to adjustment in
certain events, equivalent to an initial conversion rate of 18.623 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

9
<PAGE> 10
VERITAS SOFTWARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

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.

8. SUMMARY FINANCIAL INFORMATION OF SUBSIDIARY

VERITAS and its wholly-owned subsidiary, VERITAS Operating Corporation, are
co-obligors on VERITAS' 5.25% convertible subordinated notes due 2004 and 1.856%
convertible subordinated notes due 2006. 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 (in thousands):

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
1999 1998 1999 1998
-------- ------- -------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total net revenue.............................. $120,662 $56,545 $282,249 $143,740
Amortization of goodwill and other
intangibles.................................. 12,733 -- 15,574 --
In-process research and development............ 1,100 -- 3,000 2,250
Acquisition and restructuring costs............ -- -- 11,000 --
Income from operations......................... 22,844 14,774 48,189 34,413
Net income..................................... 16,425 12,593 32,681 30,189
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $568,583 $198,842
Goodwill and other intangibles.............................. 209,853 --
Total assets................................................ 975,990 349,117
Long-term obligations....................................... 448,167 100,773
Retained earnings (accumulated deficit)..................... 3,265 (29,416)
Stockholders' equity........................................ 454,117 169,854
</TABLE>

9. 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.

10
<PAGE> 11
VERITAS SOFTWARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Geographic information (in thousands):

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
1999 1998 1999 1998
-------- ------- -------- --------
<S> <C> <C> <C> <C>
User license fees(1):
United States.................................. $113,939 $32,724 $228,695 $ 83,163
Europe(2)...................................... 32,669 9,679 57,336 22,232
Other(3)....................................... 11,035 3,404 20,694 9,438
-------- ------- -------- --------
Total................................ 157,643 45,807 306,725 114,833
-------- ------- -------- --------
Services(1):
United States.................................. 20,158 8,575 49,462 23,022
Europe(2)...................................... 4,215 2,027 10,421 5,527
Other(3)....................................... 1,385 136 3,345 358
-------- ------- -------- --------
Total................................ 25,758 10,738 63,228 28,907
-------- ------- -------- --------
Total net revenue.................... $183,401 $56,545 $369,953 $143,740
======== ======= ======== ========
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Long-lived assets(4):
United States............................................... $3,507,930 $25,202
Europe(2)................................................... 11,313 3,644
Other(3).................................................... 1,575 380
---------- -------
Total............................................. $3,520,818 $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 (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Total long-lived assets.............................. $3,520,818 $ 29,226
Other assets, including current...................... 816,342 319,891
---------- --------
Total consolidated assets.................. $4,337,160 $349,117
========== ========
</TABLE>

Sales to one customer accounted for approximately $19.5 million, or 11%, of
the Company's net revenues in the three months ended September 30, 1999 and
$48.6 million, or 11%, in the nine months ended September 30, 1999.

10. COMMITMENTS AND CONTINGENCIES

Facilities lease commitment

During the second quarter of 1999, the Company signed a lease for new
corporate campus facilities in Mountain View, California. This facility will
replace certain 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

11
<PAGE> 12
VERITAS SOFTWARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

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 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 September 30, 1999.

12
<PAGE> 13

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, 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. Some original equipment manufacturers
also resell VERITAS' products. VERITAS receives a royalty each time the original
equipment manufacturer licenses to a customer a copy of the original equipment
manufacturer's products that incorporates one or more of VERITAS' products. Our
license agreements with our 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. When VERITAS enters
into new agreements with original equipment manufacturer customers and
resellers, a significant period of time may elapse before VERITAS realizes any
associated revenues, due to 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 original equipment manufacturers
provide for technical support and unspecified product upgrades for an annual
service fee based on the number of user licenses purchased and the level of
service subscribed.

13
<PAGE> 14

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 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 and therefore
generally performs 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 Windows NT product development efforts depends in part 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 agreed 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 our 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 our international
sales subsidiaries. International revenue, most of which is collectible in
foreign currencies, accounted for 27% of our total revenue for the three months
ended September 30, 1999 and September 30, 1998, for 25% of our total revenue
for the nine months ended September 30, 1999 and 26% of our total revenue for
the nine months ended September 30, 1998. Our international revenue increased
223% from $15.2 million for the three months ended September 30, 1998 to $49.3
million for the three months ended September 30, 1999 and increased 144% from
$37.6 million for the nine months ended September 30, 1998 to $91.8 million for
the nine months ended September 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 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", which 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

14
<PAGE> 15

inherent in developing and selling products outside the United States, including
potential loss of developed 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." On
August 10, 1999, VERITAS acquired certain assets of NuView, Inc., which we refer
to as "NuView." In the following paragraphs, all share and per share data have
been restated to give retroactive effect to the two recent stock splits (see
Note 2 to Condensed Consolidated Financial Statements).

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 of 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 $30.38 per share for 5 days before and
after June 7, 1999, the measurement date for the transaction, we issued
103,722,312 shares of our common stock to Seagate Software, Inc. and issued
options to purchase 10,417,572 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 incur charges of $221.5 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 $3,464.5 million and included $3,151.4 million for the
issuance of our common stock, $269.7 million for the issuance of options to
purchase our common stock and $43.4 million of acquisition-related costs. In
addition, we recorded a restructuring charge of $11.0 million in the nine months
ended September 30, 1999 as a result of the NSMG acquisition. This one-time
restructuring charge related primarily to exit costs with respect to duplicative
facilities that 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 $54.4 million consist primarily of direct
transaction costs, operating lease commitments on duplicative facilities and
involuntary termination benefits of which approximately $13.3 million will be
non-cash. At September 30, 1999, $19.1 million in professional fees and
severance costs were paid against the acquisition and restructuring reserve with
the remaining $22.0 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
$3,015.8 million, 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 assumed of $1.0 million. For the three months ended September
30, 1999, we recorded $206.9 million for the amortization of goodwill and other
intangibles, and $14.6 million for the amortization of developed technology
related to this acquisition and for the nine months ended September 30, 1999, we
recorded $275.6 million for amortization of goodwill and other intangibles, and
$19.5 million for amortization of developed technology related to this
acquisition.

15
<PAGE> 16

common stock or exchangeable shares to the holders of TeleBackup common shares
and the grant of options to purchase 103,137 shares of our common stock to our
employees who were former employees of TeleBackup. We accounted for the
TeleBackup acquisition using the purchase method of accounting, and incur
charges of $9.0 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 our common stock of
$29.40 per share for 5 days before and after June 1, 1999, the measurement date
for the transaction, the total purchase price for TeleBackup was $143.1 million.
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 September 30, 1999, of the total $6.2
million acquisition costs, we paid $5.0 million in direct transaction costs with
the majority of the remaining $1.2 million anticipated to be utilized by
December 1999. The purchase price was allocated, based on an independent
valuation, to goodwill of $133.1 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 liabilities assumed of $0.2
million. For the three months ended September 30, 1999, we recorded $8.6 million
for amortization of goodwill and other intangibles, and $0.4 million for the
amortization of developed technology related to this acquisition and for the
nine months ended September 30, 1999, we recorded $11.5 million for amortization
of goodwill and other intangibles, and $0.5 million for the amortization of
developed technology related to this acquisition.

Under an asset purchase agreement, VERITAS acquired certain assets of
NuView, including its Windows NT cluster management solution, Cluster X, for a
total cost of approximately $66.3 million. We accounted for the acquisition
using the purchase method of accounting, and incur charges of $4.2 million per
quarter primarily related to the amortization of developed technology, goodwill
and other intangibles over their estimated useful life of four years. The
purchase price included $46.1 million related to the issuance of VERITAS common
stock, $0.8 million for the issuance of options to purchase VERITAS common stock
to former NuView employees, $0.2 million in acquisition-related costs and $19.2
million payable in cash, of which $6.4 million has been paid. The purchase price
was allocated, based on an independent valuation, to goodwill of $61.0 million,
developed technology of $2.4 million, assembled workforce of $0.6 million,
trademarks of $0.3 million, covenant-not-to-compete of $0.9 million and
in-process research and development of $1.1 million. For the three months and
nine months ended September 30, 1999, the Company recorded $4.0 million for
amortization of goodwill and other intangibles, and $0.2 million for the
amortization of developed technology related to this acquisition.

16
<PAGE> 17

RESULTS OF OPERATIONS

The following tables set forth the percentage of total net revenue
represented by certain line items from our condensed consolidated statement of
operations for the three months and nine months ended September 30, 1999 and
1998, respectively, and the percentage changes between the comparable periods,
including four 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
SEPTEMBER 30, SEPTEMBER 30, 1999
------------------ ------------------
1999 1998 COMPARED TO 1998
----- ----- ------------------
<S> <C> <C> <C>
Net revenue:
User license fees..................................... 86% 81% 244%
Services.............................................. 14 19 140%
---- ---
Total net revenue............................. 100 100 224%
Cost of revenue:
User license fees..................................... 3 4 134%
Services.............................................. 6 10 102%
Amortization of developed technology.................. 8 -- n/m
---- ---
Total cost of revenue......................... 17 14 307%
---- ---
Gross profit............................................ 83 86 211%
Operating expenses:
Selling and marketing................................. 37 36 233%
Research and development.............................. 16 19 166%
General and administrative............................ 6 5 314%
Amortization of goodwill and other intangibles........ 119 -- n/m
In-process research and development................... 1 -- n/m
Acquisition and restructuring costs................... -- -- n/m
---- ---
Total operating expenses...................... 179 60 868%
---- ---
Income (loss) from operations........................... (97) 26
Interest and other income, net.......................... 4 5
Interest expense........................................ (2) (2)
---- ---
Income (loss) before income taxes....................... (95) 29
Provision for income taxes.............................. (5) (7)
---- ---
Net income (loss)....................................... (100)% 22%
==== ===
</TABLE>

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

17
<PAGE> 18

<TABLE>
<CAPTION>
PERCENTAGE OF PERIOD-TO-PERIOD
TOTAL NET REVENUE PERCENTAGE CHANGE
------------------ -----------------
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30,
------------------ -----------------
1999 1998 COMPARED TO 1998
----- ----- -----------------
<S> <C> <C> <C>
Net revenue:
User license fees...................................... 83% 80% 167%
Services............................................... 17 20 119%
--- ---
Total net revenue.............................. 100 100 157%
Cost of revenue:
User license fees...................................... 3 5 40%
Services............................................... 7 10 75%
Amortization of developed technology................... 5 -- n/m
--- ---
Total cost of revenue.......................... 15 15 154%
--- ---
Gross profit............................................. 85 85 158%
Operating expenses:
Selling and marketing.................................. 37 35 176%
Research and development............................... 17 19 131%
General and administrative............................. 6 5 203%
Amortization of goodwill and other intangibles......... 79 -- n/m
In-process research and development.................... 28 2 n/m
Acquisition and restructuring costs.................... 3 -- n/m
--- ---
Total operating expenses....................... 170 61 624%
--- ---
Income (loss) from operations............................ (86) 24
Interest and other income, net........................... 4 6
Interest expense......................................... (2) (3)
--- ---
Income (loss) before income taxes........................ (84) 27
Provision for income taxes............................... (6) (6)
--- ---
Net income (loss)........................................ (90)% 21%
=== ===
</TABLE>

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

Net Revenue. Total net revenue increased 224% from $56.5 million for the
three months ended September 30, 1998 to $183.4 million for the three months
ended September 30, 1999, and increased 157% from $143.7 million for the nine
months ended September 30, 1998 to $370.0 million for the nine months ended
September 30, 1999. We believe that the percentage increases in total revenue
achieved in these periods are not necessarily indicative of future results. Our
revenue comprises user license fees and service revenue. User license fees
represented 86% of total net revenue for the three months ended September 30,
1999, and 81% of total net revenue for the three months ended September 30,
1998. User license fees were 83% of total net revenue for the nine months ended
September 30, 1999, and 80% of total net revenue for the nine months ended
September 30, 1998.

User License Fees. User license fees increased 244% from $45.8 million for
the three months ended September 30, 1998 to $157.6 million for the three months
ended September 30, 1999, and increased 167% from $114.8 million for the nine
months ended September 30, 1998 to $306.7 million for the nine months ended
September 30, 1999. The increases were primarily the result of the acquisition
of NSMG in the second quarter of 1999, continued growth in market acceptance of
our software products, a greater volume of large end-user transactions,
increased revenue from original equipment manufacturer resales of bundled and
unbundled products and the introduction of new products. In particular, our user
license fees from storage products increased by approximately 147% for the nine
months ended September 30, 1999 compared to the nine months ended September 30,
1998, and accounted for 86% of user license fees in the nine months ended
September 30, 1999 and 89% of user license fees in the nine months ended
September 30, 1998.

18
<PAGE> 19

Service Revenue. 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. Porting fees are derived from
funded development efforts that are typically associated with original equipment
manufacturers. Service revenue increased 140% from $10.7 million for the three
months ended September 30, 1998 to $25.8 million for the three months ended
September 30, 1999, and increased 119% from $28.9 million for the nine months
ended September 30, 1998 to $63.2 million for the nine months ended September
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. Total cost of revenue increased 307% from $7.8 million for
the three months ended September 30, 1998 to $31.9 million for the three months
ended September 30, 1999, and increased 154% from $22.2 million for the nine
months ended September 30, 1998 to $56.5 million for the nine months ended
September 30, 1999. 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 consists primarily of royalties, media,
manuals and distribution costs. Also included in the cost of user license fees
is the amortization of developed technology acquired in the NSMG, TeleBackup and
NuView acquisitions. Cost of user license fees increased 741% from $2.5 million
for the three months ended September 30, 1998 to $21.1 million for the three
months ended September 30, 1999 and increased 306% from $7.6 million for the
nine months ended September 30, 1998 to $30.9 million for the nine months ended
September 30, 1999. The increase in cost of user license fees is due to the
amortization of developed technology acquired in the NSMG, TeleBackup and NuView
acquisitions. Gross margin on user license fees decreased from 95% for the three
months ended September 30, 1998 to 87% for the three months ended September 30,
1999 and decreased from 93% for the nine months ended September 30, 1998 to 90%
for the nine months ended September 30, 1999. The decreases in gross margin on
user license fees were due to the inclusion of the amortization of developed
technology. If we excluded the amortization of developed technology from the
cost of user license fees, the gross margin would be 96% for the three months
ended September 30, 1999 and 97% for the nine months ended September 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 consists primarily of
personnel-related costs in providing maintenance, technical support, consulting
and training to customers, and development efforts in porting. Cost of service
revenue increased 102% from $5.3 million for the three months ended September
30, 1998 to $10.8 million for the three months ended September 30, 1999, and
increased 75% from $14.6 million for the nine months ended September 30, 1998 to
$25.6 million for the nine months ended September 30, 1999. Gross margin on
service revenue increased from 50% for the three months ended September 30, 1998
to 58% for the three months ended September 30, 1999, and increased from 49% for
the nine months ended September 30, 1998 to 60% for the nine months ended
September 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 nine months ended September
30, 1999 compared to the three and nine months ended September 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 $15.3 million for the three months ended September 30, 1999 and $20.3
million for the nine months ended September 30, 1999. For the nine months ended
September 30, 1999, the amount mainly represents four months of amortization of
the developed technology recorded upon acquisitions of NSMG and TeleBackup. The
useful life of the

19
<PAGE> 20

developed technology acquired in the NSMG, TeleBackup and NuView acquisitions is
four years and the amortization is expected to be approximately $15.3 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 quantify the
portion of the increase that is directly related to these acquisitions.

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 233% from $20.4 million for the three months ended September
30, 1998 to $67.9 million for the three months ended September 30, 1999, and
increased 176% from $50.4 million for the nine months ended September 30, 1998
to $139.3 million for the nine months ended September 30, 1999. Selling and
marketing expenses as a percentage of total net revenue increased from 36% for
the three months ended September 30, 1998 to 37% for the three months ended
September 30, 1999, and increased from 35% for the nine months ended September
30, 1998 to 37% for the nine months ended September 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, expects its selling and marketing expenses to increase in absolute
dollars but not to change significantly as a percentage of total 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 166% from
$10.9 million for the three months ended September 30, 1998 to $28.9 million for
the three months ended September 30, 1999, and increased 131% from $27.4 million
for the nine months ended September 30, 1998 to $63.3 million for the nine
months ended September 30, 1999. The increases were primarily due to increased
staffing levels associated with new hires and the acquisitions. As a percentage
of net revenue, research and development expenses decreased from 19% for the
three months ended September 30, 1998 to 16% for the three months ended
September 30, 1999 and decreased from 19% for the nine months ended September
30, 1998 to 17% for the nine months ended September 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 and may increase slightly as a percentage of
total net revenue. 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
314% from $2.7 million for the three months ended September 30, 1998 to $11.0
million for the three months ended September 30, 1999, and increased 203% from
$7.1 million for the nine months ended September 30, 1998 to $21.4 for the nine
months ended September 30, 1999. General and administrative expenses as a
percentage of revenue increased from 5% for the three and nine months ended
September 30, 1998 to 6% for the three and nine months ended September 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 and, to a lesser extent, to 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 we expand our
operations.

Amortization of Goodwill and Other Intangibles. Amortization of goodwill
and other intangibles was $219.6 million for the three months ended September
30, 1999 and $291.1 million for the nine months ended September 30, 1999. For
the nine months ended September 30, 1999, the amount mainly represents four
months 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 $219.6 million per quarter.

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<PAGE> 21

In-process Research and Development. In-process research and development
was $1.1 million for the three months ended September 30, 1999 and $104.2
million for the nine months ended September 30, 1999. This amount represents
one-time charges of $1.1 million recorded upon the acquisition of certain assets
of NuView in August 1999, $101.2 million recorded upon the acquisition of NSMG
in May 1999 and $1.9 million recorded upon the acquisition of TeleBackup in June
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 that we plan to vacate and approximately $1.3 million in
severance benefits.

Acquisition and restructuring costs are summarized below (in thousands):

<TABLE>
<CAPTION>
CASH PAYMENTS OR
PROVISION CHARGED AGAINST THE ACCRUED
RECORDED AT ASSETS FROM AS OF
ACQUISITION ACQUISITION DATE TO SEPTEMBER 30,
DATE SEPTEMBER 30, 1999 1999
----------- ------------------- -------------
<S> <C> <C> <C>
Cancellation of facility leases and other contracts... $ 8,717 $ -- $ 8,717
Involuntary termination benefits...................... 1,335 (654) 681
Write off of redundant equipment and leasehold
improvements........................................ 948 -- 948
------- ----- -------
$11,000 $(654) $10,346
======= ===== =======
</TABLE>

Of the accrued balance as of September 30, 1999, $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 $1.6 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
142% from $3.0 million for the three months ended September 30, 1998 to $7.3
million for the three months ended September 30, 1999, and increased 57% from
$8.6 million for the nine months ended September 30, 1998 to $13.4 for the nine
months ended September 30, 1999. The increases were due to increased amounts of
interest income attributable to the higher level of funds available for
investment, primarily from the net proceeds of the issuance of the 1.856%
convertible subordinated notes, in August 1999, and, to a lesser extent, from
the net cash provided by operating activities. 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 increased 273% from $1.4 million for the
three months ended September 30, 1998 to $5.3 million for the three months ended
September 30, 1999, and increased 91% from $4.3 million for the nine months
ended September 30, 1998 to $8.1 million for the nine months ended September 30,
1999. Interest expense consists primarily of interest accrued under the
convertible subordinated notes issued by VERITAS in October 1997 and August
1999.

Income Taxes. VERITAS had effective tax rates of negative 5% and negative
7% for the three and nine months ended September 30, 1999, respectively,
compared to tax provisions of 23% and 22% for the three and nine months ended
September 30, 1998. VERITAS' 1999 effective tax rates were 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 rates were 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 depends on VERITAS
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

21
<PAGE> 22

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 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. 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 $643.4
million at September 30, 1999 and represented 73.2% of tangible assets, net.
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, medium-term notes, corporate notes, government securities and
market auction preferred securities. At September 30, 1999, VERITAS had $447.5
million of long-term obligations and stockholders' equity was approximately
$3,517.9 million.

Net cash provided by operating activities was $108.9 million in the nine
months ended September 30, 1999, and $46.6 million in the nine months ended
September 30, 1998. For the nine months ended September 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. For the nine months ended September 30, 1998, cash
provided by operating activities resulted primarily from net income after
adjustments to exclude the non-cash charges, increases in other accrued
liabilities, income taxes payable and deferred income taxes, customer advances
and deferred revenue balances and reductions in accounts receivable and deferred
income taxes and other assets balances.

VERITAS' investing activities used cash of $437.8 million in the nine
months ended September 30, 1999 primarily due to the net increase in short-term
and long-term investments of $396.4 million, purchases of property and equipment
of $36.3 million and purchase of certain assets of NuView. VERITAS' investing
activities used cash of $56.8 million in the nine months ended September 30,
1998 due primarily to the net increase in short-term investments of $40.1
million and capital expenditures of $15.4 million.

Financing activities provided cash of $398.6 million in the nine months
ended September 30, 1999, from the net proceeds of $334.1 million from the
issuance of the 1.856% convertible subordinated notes in August 1999 and $64.5
million from the issuance of common stock under our employee stock plans.
Financing activities provided cash of $11.2 million in the nine months ended
September 30, 1998 from the issuance of common stock under our employee stock
plans.

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<PAGE> 23

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 $14.33 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.

In August 1999, VERITAS and its wholly-owned subsidiary, VERITAS Operating
Corporation, issued $465.8 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 $334.1 million. The interest rate
of 1.856% together with the accrual of original issue discount represent a yield
to maturity of 6.5%. VERITAS and VERITAS Operating Corporation are co-obligors
on the 1.856% notes. The 1.856% notes 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 $39.85 per share, subject to adjustment
in certain events, equivalent to an initial conversion rate of 18.623 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 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 have a ratio of long-term
debt to total capitalization at September 30, 1999 of approximately 11%. As a
result of this additional indebtedness, our principal and interest payment
obligations will increase substantially. The degree 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 5.25% notes and the 1.856% 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 second quarter of 1999, VERITAS signed a lease for new corporate
campus facilities in Mountain View, California (see Note 10 "Commitments and
Contingencies" to Condensed Consolidated Financial Statements). 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 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
September 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
23
<PAGE> 24

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 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 our customers in dealing with the Year 2000
issue, as we have formally notified all customers of the Year 2000 readiness of
our 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 our 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 many systems that could be affected by Year 2000
related problems. Those systems include, among others: hardware and software
systems we use 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 develop products
and to communicate product

24
<PAGE> 25

orders to our manufacturing and distribution operations; the internal systems of
our customers and suppliers; software products sold to customers; the hardware
and software systems we use internally in the management of our business; and
non-information technology systems and services we use in the management of our
business, such as power, telephone systems and building systems.

We have conducted 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. Based
on our analysis of the systems potentially affected, we are applying a phased
approach to making such systems and our operations ready for the year 2000.
Beyond awareness of the issues and scope of systems involved, the phases of
activities in process include: an assessment of specific underlying computer
systems, programs and hardware; renovation or replacement of Year 2000
non-compliant technology; validation and 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 our business
Hardware and software systems used to Assessment completed Completed
deliver products and services
Hardware and software systems used to Validation, testing and remediation in Q4 1999
deliver products and provide services process
(including desktops)
Communication networks used to carry Validation, testing and remediation in Q4 1999
products and provide services process
Non-information technology systems and Systems upgraded or replaced as Q4 1999
services appropriate, testing and
implementation
Hardware and software systems used to Validation, testing and remediation Q4 1999
manage our business
</TABLE>

We have conducted 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 does
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 $1.0 million and do not expect total costs of the compliance
activities to exceed $2.0 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.

25
<PAGE> 26

Contingency Plans

We have prepared contingency plans for handling Year 2000 problems that we
fail to detect and correct before they occur. Our contingency plans include
increasing support personnel from late December 1999 to early January 2000,
obtaining access to alternative third party suppliers for products and services,
planning manual workarounds for software and hardware failures, replacing
software and hardware systems and establishing alternative procedures in case of
power and phone systems failure. If we do not identify and remedy Year 2000
problems in a timely and efficient manner, we could experience substantial
disruptions to our operations, which could lead to loss of existing and
potential customers and result in costly litigation claims against us.

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.

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 acquisitions.

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 with 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 channels of VERITAS and the retail channels
acquired in the NSMG acquisition;

- 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
26
<PAGE> 27

- integrating the management teams of all three companies successfully. For
example, Terence Cunningham, our President and Chief Operating Officer,
who joined VERITAS from NSMG, resigned in August 1999.

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

The significant costs of integration associated with the NSMG and
TeleBackup acquisitions increase the risk that we will not realize the
anticipated benefits. Because we accounted for the NSMG acquisition and the
TeleBackup acquisition 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 $3,688.2 million.
This amount will be amortized over four years, and will result in charges to
operations of approximately $230.5 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 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. In August 1999, we issued $465.8
million aggregate principal amount at maturity 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;

27
<PAGE> 28

- 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 ready;

- 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.

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 near the end of a quarter is closed 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 acquisitions 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 acquisitions. After
these acquisitions, 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 acquisitions, 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
28
<PAGE> 29

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 in August 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
acquisitions, 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

- 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.

29
<PAGE> 30

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 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 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
nine months ended September 30, 1999, VERITAS derived 85.6% of its user license
revenue from storage management products, including Backup Exec product from May
29, 1999. 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,
30
<PAGE> 31

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 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 nine months ended September 30, 1999, VERITAS
derived 11% of its revenue from sales to Sun Microsystems. If Sun Microsystems,
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 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.

31
<PAGE> 32

Many of our competitors have 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.

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 October 15, 1999, we had approximately 138 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

32
<PAGE> 33

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.

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, medium-term
notes, corporate notes, government securities and market auction preferred
securities. The diversity of the portfolio helps VERITAS to achieve its
investment objective. As of September 30, 1999, approximately 98% of VERITAS'
entire portfolio will mature in one year or less and approximately 19% of our
investment portfolio matures less than 90 days from the date of purchase.

33
<PAGE> 34

Long-term debt of $447.5 million consists of 5.25% Convertible Subordinated
Notes due 2004 of $100.0 million (the 5.25% Notes) and 1.856% Convertible
Subordinated Notes due 2006 of $347.5 million (the 1.856% Notes). The interest
rate of 1.856% on the 1.856% notes together with the accrual of original issue
discount represent a yield to maturity of 6.5%. The nominal 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 and approximately $4.3
million each February 13 and August 13, respectively. 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 long-term debt that may be subject to interest rate risk and the
average and fixed interest rates as of September 30, 1999 by year of maturity
(dollars in thousands):

<TABLE>
<CAPTION>
2000 AND FAIR VALUE
1999 THEREAFTER TOTAL TOTAL
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash equivalents and short-term
investments............................. $213,958 $390,037 $603,995 $603,995
Average interest rate..................... 5.24% 5.77% 5.58% 5.58%
Long-term investments..................... $ -- $ 65,036 $ 65,036 $ 65,036
Average interest rate..................... -- 5.33% 5.33% 5.33%
Long-term debt............................ $ -- $447,531 $447,531 $792,290
Fixed interest rate....................... -- 6.22% 6.22% 6.22%
</TABLE>

34
<PAGE> 35

PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(c) The following table sets forth information required by Item 701 of
Regulation S-K as to all equity securities of the Company sold by the
Company during the period covered by this report that were not registered
under the Securities Act of 1933, as amended.

<TABLE>
<CAPTION>
CLASS OF AGGREGATE
PURCHASERS DATE OF SALE TITLE OF SECURITIES PURCHASE PRICE FORM OF CONSIDERATION
---------- ------------ ------------------- -------------- ---------------------
<S> <C> <C> <C> <C>
5 August 10, 1999 Common Stock $38,514,847.50 Assignment of software and
Stockholders.. related assets of NuView,
Inc.
</TABLE>

All sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. These sales were made
without general solicitation or advertising. Each purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate the
investment.

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

1. At an annual meeting of stockholders held by VERITAS on July 22, 1999
(the "Annual Meeting"), the following individuals were elected to the Company's
Board of Directors:

<TABLE>
<CAPTION>
VOTES IN VOTES
FAVOR WITHHELD
----------- ---------
<S> <C> <C>
Mark Leslie................................................. 142,571,000 9,424,708
Gregory B. Kerfoot.......................................... 142,566,630 9,429,078
Geoffrey W. Squire.......................................... 142,571,000 9,424,708
</TABLE>

In addition, the following individuals' term of office as directors
continued after the Annual Meeting:

Fred van den Bosch
Steven Brooks
Terence Cunningham (who resigned, effective August 30, 1999)
William H. Janeway
Stephen J. Luczo
Joseph D. Rizzi

2. The following proposal was also approved at the Company's Annual
Meeting:

<TABLE>
<CAPTION>
AFFIRMATIVE NEGATIVE BROKER
VOTES VOTES ABSTENTIONS NON-VOTES
----------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Ratification of the appointment of Ernst & Young LLP
as auditors for the fiscal year ending December 31,
1999............................................... 151,866,512 3,710 5,486 0
</TABLE>

35
<PAGE> 36

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>
4.1 Form of Indenture among Company, VERITAS Operating
Corporation and State Street Bank and Trust Company of
California, N.A., as Trustee (incorporated by reference to
Exhibit 4.10 of the Company's Registration Statement on Form
S-1 (SEC Registration No 333-83775), as amended, filed with
the Securities and Exchange Commission on July 27, 1999).
4.2 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 Registration No.
333-83777), as amended, filed with the SEC on July 27,
1999).
27.1 Financial Data Schedule (EDGAR only).
</TABLE>

(b) REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
DATE OF REPORT ITEM DESCRIPTION
- -------------- ---- -----------
<S> <C> <C>
July 27, 1999 5, 7 The Company announced financial results for its second
quarter ended June 30, 1999 and included the press release
as an exhibit.
August 17, 1999 5, 7 The Company announced that it had acquired certain assets
of NuView, Inc. and included the press release as an
exhibit.
</TABLE>

36
<PAGE> 37

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 November 12, 1999.

VERITAS SOFTWARE CORPORATION

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

37
<PAGE> 38

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
CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 208,091
<SECURITIES> 435,300
<RECEIVABLES> 78,067
<ALLOWANCES> 5,037
<INVENTORY> 0
<CURRENT-ASSETS> 751,306
<PP&E> 116,310
<DEPRECIATION> 55,629
<TOTAL-ASSETS> 4,337,160
<CURRENT-LIABILITIES> 199,823
<BONDS> 447,531
172
0
<COMMON> 0
<OTHER-SE> 3,517,747
<TOTAL-LIABILITY-AND-EQUITY> 4,337,160
<SALES> 306,725
<TOTAL-REVENUES> 369,953
<CGS> 10,673
<TOTAL-COSTS> 56,505
<OTHER-EXPENSES> 630,394
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,143
<INCOME-PRETAX> (311,644)
<INCOME-TAX> 20,678
<INCOME-CONTINUING> (332,322)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (332,322)
<EPS-BASIC> (1.71)
<EPS-DILUTED> (1.71)

</TABLE>