VERITAS SOFTWARE CORP /DE/, 424B3, 1999-08-30

VERITAS SOFTWARE CORP /DE/
424B3, 1999-08-30
PREPACKAGED SOFTWARE

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<PAGE> 1

FILED PURSUANT TO RULE 424(B)(3) AND RULE 424(C)
REGISTRATION NO. 333-80851

PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST 12, 1999)

- --------------------------------------------------------------------------------
PROSPECTUS SUPPLEMENT
- --------------------------------------------------------------------------------

VERITAS SOFTWARE CORPORATION

VERITAS LOGO

1,868,480 SHARES

COMMON STOCK

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

This prospectus supplement relates to the offering of VERITAS Software
Corporation common stock in exchange for exchangeable shares of TeleBackup
Exchangeco, Inc., as described on pages 91 to 93 of the prospectus dated August
12, 1999, to which this prospectus supplement is attached.

This prospectus supplement should be read in conjunction with the
prospectus dated August 12, 1999, which is to be delivered with this prospectus
supplement. All capitalized terms used but not defined in this prospectus
supplement have the meanings given them in the prospectus.

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

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS OR THIS PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this prospectus supplement is August 30, 1999

S-1
<PAGE> 2

VERITAS SOFTWARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

ASSETS

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

See accompanying notes to condensed consolidated financial statements.
S-2
<PAGE> 3

VERITAS SOFTWARE CORPORATION

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

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

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

VERITAS SOFTWARE CORPORATION

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

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

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

VERITAS SOFTWARE CORPORATION

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

1. BASIS OF PRESENTATION

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

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

2. STOCK SPLIT

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

3. RECLASSIFICATIONS

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

4. NET INCOME (LOSS) PER SHARE

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

S-5
<PAGE> 6
VERITAS SOFTWARE CORPORATION

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

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

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

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

5. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

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

6. BUSINESS COMBINATIONS

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

The NSMG business develops and markets software products and provides
related services that enable information technology professionals to manage
distributed network resources and to secure and protect enterprise data. NSMG
products offer features such as system backup, disaster recovery, migration,
replication, automated client protection, storage resource management,
scheduling, event correlation and desktop management. In connection with the
NSMG acquisition, in consideration for the contribution or assets and
liabilities related to the NSMG business by Seagate Technology, Inc., Seagate
Software, Inc., and their respective subsidiaries, and based on the average
closing price of VERITAS common stock of $45.57 per share for 5 days before and
after June 7, 1999, the measurement date for the transaction, VERITAS issued
69,148,208 shares of its common stock to Seagate Software, Inc. and issued
options to purchase 6,945,048 shares of its common stock to VERITAS employees
who were former NSMG employees. VERITAS accounted for the NSMG acquisition using
the purchase method of accounting, and expects to incur charges of $221.5
million per quarter primarily related to the amortization of developed
technology,

S-6
<PAGE> 7
VERITAS SOFTWARE CORPORATION

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

goodwill and other intangibles over their estimated useful life of four years.
The total NSMG purchase price was approximately $3.5 million and included $3.2
billion for the issuance of VERITAS common stock, $269.7 million for the
issuance of options to purchase VERITAS common stock, and $43.4 million of
acquisition-related costs. In addition, the Company recorded a restructuring
charge of $11.0 million in the three months ended June 30, 1999 as a result of
the NSMG combination. This one-time restructuring charge related primarily to
exit costs with respect to duplicative facilities which VERITAS plans to vacate.
These costs are in addition to the liability for the costs to vacate duplicative
facilities of the NSMG business, which liability VERITAS assumed and included as
a part of the purchase price. Total acquisition and restructuring costs of $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 June 30, 1999,
$16.7 million in professional fees and severance costs were paid against the
acquisition and restructuring reserve; the Company expects the remaining $37.7
million to be utilized primarily for servicing operating lease payments or
negotiated buyout of operating lease commitments on duplicative facilities, the
lease terms of which will expire at various times through the year 2013. The
purchase price was allocated, based on an independent valuation, to goodwill of
$3.0 billion, distribution channels of $233.8 million, original equipment
manufacturer agreements of $23.4 million, developed technology of $233.7
million, assembled workforce of $12.8 million, trademarks of $22.8 million,
in-process research and development of $101.2 million, net deferred tax
liabilities of $179.5 million, other intangibles of $1.5 million and tangible
net liabilities acquired of $1.0 million. During the three months ended June 30,
1999, the Company recorded $68.7 million for amortization of goodwill and other
intangibles, and $4.9 million for amortization of developed technology related
to this acquisition.

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

S-7
<PAGE> 8
VERITAS SOFTWARE CORPORATION

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

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

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

7. SUMMARY FINANCIAL INFORMATION OF SUBSIDIARY

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

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

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

S-8
<PAGE> 9
VERITAS SOFTWARE CORPORATION

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

8. SEGMENT INFORMATION

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

Geographic information:

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

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

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

(2) Europe includes the Middle East and Africa.

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

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

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

S-9
<PAGE> 10
VERITAS SOFTWARE CORPORATION

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

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

9. FACILITIES LEASE COMMITMENT

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

10. SUBSEQUENT EVENT

In August 1999, VERITAS and its wholly-owned subsidiary VERITAS Operating
Corporation issued $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 $334.9 million. VERITAS and
VERITAS Operating Corporation are co-obligors on the 1.856% notes. The 1.856%
notes provide for semi-annual interest payments each February 13 and August 13,
commencing February 13, 2000. The 1.856% notes are convertible into shares of
VERITAS common stock at any time prior to the close of business on the maturity
date, unless previously redeemed or repurchased, at a conversion price of $59.78
per share, subject to adjustment in certain events, equivalent to an initial
conversion rate of 12.415 shares of common stock per $1,000 principal amount at
maturity. On or after August 16, 2002, the 1.856% notes will be redeemable over
the period of time until maturity at the option of VERITAS at issuance price
plus accrued original issue discount and any accrued interest. If a fundamental
change, as defined in the Amended and Restated First Supplemental Indenture
dated July 30, 1999, occurs prior to August 13, 2006, each holder has the right
to require VERITAS to redeem all or part of the 1.856% notes at issuance price
plus accrued original discount and any accrued interest. The debt issuance costs
are being amortized over the term of the 1.856% notes using the interest method.

S-10
<PAGE> 11

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 prospectus
supplement. 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, those discussed below and elsewhere in this
prospectus supplement, particularly in "Factors That May Affect Future Results,"
and those discussed in the prospectus to which this prospectus supplement is
attached under the heading "Risk Factors."

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

OVERVIEW

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

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

Our services revenue consists of fees derived from annual maintenance
agreements, from consulting and training services and from porting fees. The
original equipment manufacturer maintenance agreements covering our products
provide for technical and emergency support and minor unspecified product
upgrades

S-11
<PAGE> 12

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

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

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

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

S-12
<PAGE> 13

operating results and financial condition. International operations also subject
VERITAS' to a number of risks inherent in developing and selling products
outside the United States, including potential loss of developed 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 "Risk Factors -- Expanding our international sales
depends on economic stability in regions that recently have been unstable" in
the prospectus.

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

The NSMG business develops and markets software products and provides
related services enabling information technology professionals to manage
distributed network resources and to secure and protect enterprise data. Its
products offer features such as system backup, disaster recovery, migration,
replication, automated client protection, storage resource management,
scheduling, event correlation and desktop management. In connection with the
NSMG acquisition, in consideration for the contribution assets and liabilities
related to the NSMG business by Seagate Technology, Inc., Seagate Software,
Inc., and their respective subsidiaries, and based on the average closing price
of our common stock of $45.57 per share for 5 days before and after June 7,
1999, the measurement date for the transaction, we issued 69,148,208 shares of
our common stock to Seagate Software, Inc. and issued options to purchase
6,945,048 shares of our common stock to our employees who were former NSMG
employees. We accounted for the NSMG acquisition using the purchase method of
accounting, and expect to incur charges of $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 approximately $3.5 billion and included $3.2 billion for the
issuance of our common stock, $269.7 million for the issuance of options to
purchase our common stock and $43.4 million of acquisition-related costs. In
addition, we recorded a restructuring charge of $11.0 million in the three
months ended June 30, 1999 as a result of the NSMG combination. This one-time
restructuring charge related primarily to exit costs with respect to duplicative
facilities which we plan to vacate. These costs are in addition to the liability
for the costs to vacate duplicative facilities of the NSMG business, which
liability we assumed and included as a part of the purchase price. Total
acquisition and restructuring costs of $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 June 30, 1999, $16.7 million in professional fees and severance
costs were paid against the acquisition and restructuring reserve with the
remaining $37.7 million anticipated to be utilized primarily for servicing
operating lease payments or negotiated buyout of operating lease commitments,
the lease terms of which will expire at various times through the year 2013. The
purchase price was allocated, based on an independent valuation to goodwill of
$3.0 billion, distribution channels of $233.8 million, original equipment
manufacturer agreements of $23.4 million, developed technology of $233.7
million, assembled workforce of $12.8 million, trademarks of $22.8 million,
in-process research and development of $101.2 million, net deferred tax
liabilities of $179.5 million, other intangibles of $1.5 million and tangible
net liabilities acquired of $1.0 million. During the three months ended June 30,
1999, we recorded $68.7 million for the amortization of goodwill and other
intangibles, and $4.9 million for the amortization of developed technology
related to this acquisition.

S-13
<PAGE> 14

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
$44.09 per share for 5 days before and after June 1, 1999, the measurement date
for the transaction, the total purchase price for TeleBackup was approximately
$143.1 million. The TeleBackup purchase price included $134.1 million related to
the issuance of our common stock, $2.8 million for the issuance of options to
purchase our common stock and $6.2 million in acquisition-related costs. The
acquisition costs of $6.2 million consist primarily of direct transaction costs
and involuntary termination benefits. At June 30, 1999, of the total $6.2
million acquisition costs, we paid $0.5 million in direct transaction costs with
the majority of the remaining $5.7 million anticipated to be utilized by
December 1999. The purchase price was allocated, based on an independent
valuation, to goodwill of $131.7 million, distribution channels of $1.0 million,
original equipment manufacturer agreements of $2.1 million, developed technology
of $6.6 million, assembled workforce of $0.3 million, trademarks of $1.3
million, in-process research and development of $1.9 million, net deferred tax
liabilities of $3.0 million and tangible net assets acquired of $1.2 million.
During the three months ended June 30, 1999, we recorded $2.9 million for
amortization of goodwill and other intangibles, and $0.1 million for
amortization of developed technology related to this acquisition.

S-14
<PAGE> 15

RESULTS OF OPERATIONS

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

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

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

S-15
<PAGE> 16

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

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

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

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

S-16
<PAGE> 17

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

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

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

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

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

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

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

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

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

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

Amortization of Goodwill and Other Intangibles. Amortization of goodwill
and other intangibles was $71.6 million for the three and six months ended June
30, 1999. This amount represents one month of amortization of goodwill, acquired
distribution channels, trademarks and other intangible assets recorded upon
acquisitions of NSMG and TeleBackup. The estimated useful life of the goodwill
and other intangibles is four years and the amortization is expected to be
approximately $215.5 million per quarter.

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

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

S-18
<PAGE> 19

Acquisition and restructuring costs are summarized below:

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

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

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

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

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

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

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

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

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<PAGE> 20

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 provided by SOP
98-4. VERITAS does not believe the impact of SOP 98-9 will be material to
VERITAS' financial position, results of operations and cash flows.

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

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

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<PAGE> 21

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

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

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

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

FACTORS THAT MAY AFFECT FUTURE RESULTS

In addition to other information in this prospectus supplement and in the
prospectus to which this prospectus supplement is attached, the following
factors should be considered carefully in evaluating VERITAS and its business.

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

The significant costs of integration associated with the NSMG and
TeleBackup combinations increase the risk that we will not realize the
anticipated benefits. Because we accounted for the NSMG combination and the
TeleBackup combination as purchases, we recorded non-cash charges of $103.1
million in our

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<PAGE> 22

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 $3,688.1 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 and in August 1999 we issued
$465.8 million aggregate principal amount at maturity of 1.856% convertible
subordinated notes due 2006 that result in us having a ratio of long-term debt
to total capitalization at June 30, 1999 of approximately 11%. 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.

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<PAGE> 23

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN EXCHANGE RATE SENSITIVITY

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

INTEREST RATE SENSITIVITY

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

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

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

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

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<PAGE> 24

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

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

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

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